Noel Ryan - VP of IR Tom Hill - CEO Brian Harris - CFO.

Kathryn Thompson - Thompson Research Group Blake Hirschman - Stephens Bob Wetenhall - RBC Capital Markets Rohit Seth - Suntrust Brent Thielman - D.A. Davidson Adam Thalhimer - Thompson Davis Stanley Elliott - Stifel Rob Hansen - Deutsche Bank Scott Schrier - Citigroup Jerry Revich - Goldman Sachs.

Greetings and welcome to Summit Materials Fourth Quarter 2016 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Noel Ryan, Vice President of Investor Relations. Thank you, Mr. Ryan. You may now begin..

Thanks, Benny. Good morning and welcome to Summit Materials fourth quarter and full year 2016 results conference call. Leading today’s call are Summit’s CEO, Tom Hill and CFO, Brian Harris.

We issued a press release before market opened this morning detailing our fourth quarter and full year results and 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 fourth quarter and full year presentation, which is available on the Investors section of our website.

I would like to remind you that management’s commentary 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. He will provide an update on our business and market conditions in the fourth 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 will turn over call to Tom..

Thank you, Noel and welcome to today’s call. Let’s begin by turning to slides 4 and 5 of the conference call presentation deck. We reported strong full year results, exceeding the high end of our latest EBITDA guidance issued in January 2017.

Continued stable growth in total sales volumes couple with organic growth in materials pricing resulted in a 29.2% year-over-year increase in our full-year adjusted EBITDA. Gross margin increased by 300 basis points year-over-year to 37.2%, while adjusted EBITDA margin increased 270 basis points to 25%.

For the fourth quarter, adjusted EBITDA increased 12.9% year-over-year to 102 million, as supported by continued margin expansion in our cement product and services business together with contributions from acquisitions completed during 2016.

Although total aggregate sales volumes were up in the fourth quarter, organic aggregate volumes were down in our West region due mainly to softness in the Texas and Vancouver markets, which we view as temporary.

Following a slow October, we finished the year very strongly as November and December adjusted EBITDA increased 35% and 65% respectfully versus the prior year period. In January, we completed a 10 million share primary equity offering.

Net proceeds from this offering enable us to fully fund the acquisition of Everist Materials and Razorback Concrete while adding more than 125 million of net proceeds to the balance sheet to fund future acquisitions and reduce net leverage.

As we scaled our business overtime, net cash from operating activities has grown exponentially, up more than 200% over the last three years to 245 million. Entering 2017, we have record cash and liquidity with which to pursue new growth opportunities.

We expect a busy year ahead with more than 20 potential transactions currently in the acquisition pipeline. Going forward, we expect to self-run more of our growth as cash generated from operations continues to increase.

Today, we are introducing 2017 financial guidance in the range of 410 million to 425 million, which includes approximately nine months of EBITDA from the announced acquisitions of Everist and Razorback. This full year guidance excludes any potential EBITDA benefit from future unannounced acquisitions.

By year end 2017, assuming the midpoint of our 2017 EBITDA guidance, we anticipate net leverage of approximately three times, excluding contributions from future unannounced acquisitions. On slides 6 and 7, organic sales volumes of aggregates were down in the fourth quarter and for the full year 2016 after being up 5.2% in 2015.

Both organic aggregates and products volumes declined in 2016 due to a combination of transitory factors, including soft highway spending in Kentucky and Kansas, severe weather in Texas, particularly within the Houston and South Texas markets, a late cycle decline in residential activity in Houston and tough prior year comparisons of Vancouver owing to project timing.

Excluding Texas and Vancouver, two of the most affected markets, organic aggregates and ready mix volumes increased 1.2% and 5.1% year-on-year respectfully in 2016. On slide 8, we forecast aggregate volume growth in the West and East segments together with continued volume growth in our cement segment for the full year 2017.

In the West, Utah remained strong. While in Texas, we see opportunities for a year-on-year improvement, given stable employment trends in crude oil above $50 a barrel.

In Vancouver, we're seeing increased activity with several large profile projects such as the Massey Bridge and the 216 interchange on Highway 1 that have the potential to support multi-year increases in local market demand.

In the East, we see Missouri, Virginia and the Carolinas as growing public and private markets, while in Kentucky, highway markets are expected to normalize. In summary, we expect that improved aggregate sales volumes together with continued strength in materials ASPs positions Summit to generate continued organic EBITDA growth in 2017.

On slide 9, gross margin on aggregate cement products and services all improved in 2016. Since 2014, aggregates gross margin has increased by 760 basis points, while cement segment gross margin has increased 520 basis points. And much of this margin growth has been driven by sustained increases in ASPs.

We think a recovery in organic volumes over the next year, particularly within aggregates will serve as a further catalyst for organic EBITDA growth. Turning to slide 10, as I mentioned earlier in January, we announced two bolt-on acquisitions of materials based companies, Everist Materials and Razorback Concrete for 110 million.

On a combined basis, Everist and Razorback bring aggregates operations with more than 100 million tons of permitted reserves in Colorado and Arkansas.

In addition to an extensive network of vertically integrated ready mix concrete and asphalt plants in growing public and private end markets in proximity to our existing portfolio of materials based assets. Everist is an attractive bolt-on to our existing assets in Colorado, primarily serving the fast growing Summit County market.

Everist serves very early cycle private markets, which are just beginning to show signs of acceleration, in addition to public markets which stand to benefit from increased activity, resulting from work along the I-70 corridor.

As the largest supplier of ready mix in Arkansas, Razorback provides Summit with an exciting entry point in an early cycle market. Razorback is close to our existing cement terminal in Memphis, which could allow for supply synergies over time.

Positive population and employment trends along with accelerating construction activity position Arkansas as an attractive market for us, heading in to 2017. On slide 11, in addition to acquiring quality assets to fuel growth, we also have successfully improve these businesses, typically targeting an unlevered IRR in excess of 20%.

In 2015 and 2016, we paid an average of approximately eight times EBITDA. Post synergies, these multiples declined to an average of 6.7 times EBITDA. Our unique acquisition strategy remains a key point of differentiation for Summit, positioning us as an emerging growth play in what is widely regarded as a mature industry.

On slide 12, we provide a detailed overview of our current acquisition pipeline. As previously indicated, we have more than 400 acquisition targets in our proprietary contact database. Entering the year, the pipeline is as full as I've ever seen it, positioning us for a very busy year ahead.

We currently have more than 20 deals in the pipeline with transactions ranging in size from 1 million to 12 million in annualized EBITDA. We continue to pursue multiple low risk acquisition opportunities that are immediately accretive and that have the potential for significant post transaction synergies.

More than half of the EBITDA under review is aggregate based, consistent with our current materials mix. On slide 13, we provide an outlook for each of our top five states by net revenue, which collectively represent nearly 70% of our overall business.

Texas represented one quarter of our revenue in 2016, split fairly evenly between private and public work with no direct oil and gas exposure. Recall that our business in Texas is spread across four regional platforms, including Houston, Austin, [indiscernible] and North Texas.

We currently anticipate that Houston’s residential market, which was one of the first to recover following the Great Recession troughed in 2016, setting the stage for a new cycle beginning in late 2017.

We remain bullish on the non-residential markets in Houston, which will be required to serve the significant population inflows and new residential construction put in place during the past eight years. On the public infrastructure side, Texas remains an outstanding market opportunity for Summit over the next several years.

In January 2016, the state controller’s office indicated that it expects to generate a record 25.4 billion in revenue for roads, bridges and other components of the transportation system during the next two years.

Tech start is expected to receive 12.8 billion in fiscal 2018 and 12.6 billion in fiscal 2019 for highways, bridge and other mobility projects. For context, the agency's latest report shows that in fiscal year 2016, which ended September 30, the Transportation Department had 8.7 billion in revenue from taxes, fees and other government sources.

On balance, between our private and public exposure in Texas, we anticipate a year-over-year rebound in our volume growth. Turning to Kansas, which represented 14% of our revenue in 2016 evenly split between public and private work.

Kansas is another early cycle market for us, one characterized by stabled household formation that has supported residential growth in the Greater Kansas City and Topeka areas.

However on the public side, [indiscernible] remains challenged as state legislators have regularly chosen to withdraw funds earmarked for road maintenance to compensate for budgetary shortfalls in other areas. According to the US Department of Transportation, more than 60% of all roads in Kansas are in poor condition.

Implying that the state will, in the near future, before supply catch up on a transportation infrastructure spending. Just last week, the Kansas legislature approved a bill that raised its income taxes by 1 billion over the next two years. However, the governor remains critical of the move and may look to block the measure.

Heading into 2017, we see from improvement in pricing and volume in Kansas, given stable growth in the private markets and indications of some modest improvement on the public side.

Turning to Utah, which represented 12% of our revenue in 2016, just under 80% of Utah revenues are derived from private work, much of which is in and around Salt Lake City.

Utah is a very strong early cycle market, characterized by low unemployment and growing residential demand with single family permits up10% to 15% per annum over the last two years. The state is recognized as pro-business, ranking at the number one most business friendly state by Forbes six of the last seven years.

Unlike Texas, where residential markets rebounded quickly post financial crisis, Utah was a late bloomer, with housing demand only beginning to recover in 2012. As a result, we see this market continuing to grow.

Turning to Missouri, which represented 12% of our revenue in 2016, approximately three quarters of our Missouri revenues are derived from private work. Missouri is an early to mid-cycle market.

On the private side, markets like Kansas City and Columbia are characterized by low unemployment and rapid growth in demand for affordable housing with rental vacancy rates hovering below 1%. Finally, turning to Virginia, which represented 6% of net revenue last year.

The acquisition of Boxley in early 2016, we entered the Roanoke and Lynchburg markets where approximately 80% of our revenues are derived from private work. This year, we expect strengthening employment data in both of these markets will serve to drive residential and non-residential growth.

Turning to slides 14 and 15, over the next several years, we view cement as a significant growth catalyst. Limited domestic production capacity and tightening supply conditions have combined to create opportunities for sustained growth in cement pricing.

With cement domestic consumption anticipated to exceed domestic supply within the next few years, we would anticipate a steady increase in ASPs over time.

According to the Portland Cement Association, no meaningful capacity expansions are expected to come online within the next five years, meaning that imports will be the primary source of incremental supply at least for the foreseeable future.

As illustrated on slide 15, the US is currently importing about 11 million tons of cement per year, well below the 36 million tons the country imported at the peak of the cycle in 2006.

However, in 2006, import terminal ownership was spread across a wide range of domestic producers and third-party operators while today, producers with domestic operation currently own an estimated 80% of all US cement import terminal capacity.

Given that domestic producers control the majority of these cement import facilities, we expect pricing to remain rational over the near term.

Please turn to slide 16, during the next decade, through a combination of existing legislation on the books and proposed spending measures currently under review, we anticipate a material increase in funding for infrastructure. In our markets, approximately $0.60 of every dollar spent on infrastructure is funded by the federal government.

With the passage of the FAST Act by Congress in 2015 together with what some are referring to as the BOLD Act, an industry proposal that builds on many of the new administration’s views on potential infrastructure investment, we believe state DOTs are entering a new era of federally funded infrastructure investment that represents a significant opportunity for Summit.

Although FAST was passed in late 2015, we expect infrastructure spending will not begin to increase until the second half of 2017 as FAST funds begin to flow in to state DOT budgets.

While the full extent of President Trump’s infrastructure spending plan remains under review, the administration has released an initial top fifty list of emergency and national security projects that may take priority.

The projects include a $1 billion renovation of the Kansas City airport in Missouri, near our ham business, a $1 billion plan to improve roadways along the I-70 mountain corridor in Colorado near our Everist business and a $1.8 billion major development project at the St. Louis Airport, New York continental cement business.

On balance, there is little doubt that federal infrastructure dollars are going to increase. It will simply be a matter of time. With that, I’ll hand the call over to Brian for a discussion of our financial results..

Thank you, Tom and good morning to everyone. Let's begin on slide 18. As Tom indicated, Summit reported strong full year results, coming in above the high end of our EBITDA guidance. While organic aggregates volumes were down year-over-year, solid growth in materials ASPs more than made up for it, resulting in continued margin improvement.

Consolidated net revenue increased by 15.4% year-on-year to 1.5 billion, with the following segment split. In our West segment, net revenue increased 2.4% on a year-on-year basis to 736.6 million in 2016.

Net revenue contributions from recently acquired assets more than offset declines in organic net revenue, impacted by softness in the Texas and Vancouver markets. In our East segment, net revenue increased by 25.5% on a year-on-year basis to 470.6 million in 2016 due to strong contributions from recently acquired assets.

Finally in our cement segment, net revenue increased by 43.8% on a year-on-year basis to 281.1 million, supported by positive organic growth in average selling prices and volume. Please note that the fourth quarter was the first period in which we reported organic year-on-year comparisons for the cement segment.

On slide 19, you can see the strong margin growth generated by our business over the past three years with adjusted EBITDA margin reaching a record 25% in 2016, up nearly 730 basis points from 2014.

While much of the margin growth in the last year was price driven, we also continue to drive margin improvement from cost control, efficiency gains and acquisition related synergies. On slide 20, you can see that on a consolidated gross profit basis, incremental margins increased across all lines of business in 2016 when compared to the prior year.

For the full year 2016, incremental margins on products and services increased by 570 and 1400 basis points respectively over the prior year, further evidence of the value created by our vertically integrated materials based model.

On slide 21, free cash flow, which we define as operating cash flow less capital expenditures, has grown materially in recent years, up from 16 million in 2014 to 108 million in 2016. Exiting the year, the cash conversion ratio, which measures the efficiency of our capital allocation, remains strong despite elevated capital spending in 2016.

Last year, gross CapEx as a percentage of net revenue, was slightly more than 10%. However, longer term, we anticipate this range to be closer to 7% to 8%. On slide 22, net leverage has continued to decline over the last three quarters. Net leverage came in it 3.9 times at year end, slightly better than our guidance of four times.

Including proceeds from the recent equity offering, less 110 million uses of our Everist and Razorback, net leverage would have been 3.5 times as of year-end 2016. As Tom indicated at the outset of the call, we anticipate net leverage of about three times by year end 2017, assuming the midpoint of our 2017 adjusted EBITDA guidance.

Including both availability on our undrawn revolver and cash, together with the net proceeds from the equity offering, our total liquidity stood at more than 480 million at year end 2016. Looking ahead, we are well positioned to fund transactions currently in the acquisition pipeline together with the working capital requirements of our business.

On slide 23, we introduced full year 2017 adjusted EBITDA and gross capital expenditure guidance. For the full year 2017, our adjusted EBITDA is forecast to be in the range of 410 million to 425 million.

While this guidance does include 9 months of contributions from the announced acquisition of Everist and Razorback, there are no additional contributions from potential acquisitions that may be completed during 2017. A few words on financial guidance.

Firstly and by a way of reminder, our full year adjusted EBITDA and capital spending 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 acquisitions related to EBITDA in their estimates.

Secondly, with regard to the phasing of our adjusted EBITDA guidance heading into 2017, while we do not provide quarterly guidance, it is worth noting that approximately 75% of all adjusted EBITDA generated in ’17 will be in the second and third quarters, with our third quarter generally being the strongest quarter of the year.

Annual maintenance at our cement plants and winter weather typically position the first quarter as our lowest EBITDA period of the year. For the full year 2017, we forecast our gross capital expenditures to be in the range of 135 million to 155 million, which implies a capital budget that will be flat to down 12% versus 2016.

From a modeling perspective, we anticipate approximately half of our full year capital expenditures to occur in the first quarter each year.

Thirdly, with regard to cash taxes, for the full year 2017, we anticipate paying between 4 million and 7 million in state and local cash taxes at our C Corp subsidiaries and no federal income tax, given existing net operating loss carryforwards.

Therefore for consistency sake, we would recommend all analysts model out the cash tax rate in their forecast. As we’ve discussed previously, under our structure, tax benefits are created when limited partners exchange their ownership interest for shares in our common stock.

85% of these benefits are payable to the limited partners when they are realized. In the fourth quarter, we recognized 14.9 million charge for estimated future payments as these limited partners, under the tax receivable agreement, entered into at the time of our public offering.

Approximately 13.8 million of this amount is expected to be paid beginning in 2019 twenty nineteen or thereafter. This charge is excluded from adjusted net income, as indicated in the reconciliation provided in the press release we issued this morning.

Finally, with regard to total equity units outstanding, as of January 2017, pro forma for the 10 million share equity offering we had 106 million Class A shares outstanding and 5.2 million LP units held by investors, resulting in total equity interest outstanding of 111.2 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 back to Tom for his closing remarks..

Thanks, Brian. With our second anniversary as a public company approaching, I want to take a moment and recognize the dedicated efforts of the nearly 5,000 employees here at Summit that have all contributed to another strong full year performance. I also want to thank our many investors and analysts for their continued support.

At the IPO, our management team outlined four key objectives to create shareholder value. These objectives included sustained growth in margins, a reduction in net leverage, the acquisition of at least 30 million per year of EBITDA and sustained growth in free cash flow.

Looking back, I'm pleased to say that our team has more than delivered on each of these objectives.

Since the IPO, gross margin is up 750 basis points, net leverage is down to 3.5 times from 4 times, even after completing an additional 13 acquisitions, acquired EBITDA has averaged 60 million per year over the last two years and free cash flow has increased by 550%.

In summary, we have delivered on our promises and really have had a truly exceptional performance. Before we move into Q&A, I want to highlight several other recent corporate developments.

First and most importantly, we significantly reduced net leverage with the January equity offering, positioning us to screen into a wider number of value oriented portfolios than we have in the past.

We remain focused on our credit metrics as we seek to get net leverage down to three times by year end, assuming a midpoint of our 2017 adjusted EBITDA guidance. Second, on November 9, 2016, Blackstone, our former private equity sponsor sold its final remaining position in Summit.

Third, at our first ever Investor Day in late November, we provided long term free cash flow and adjusted EBITDA guidance, allowing investors to better appreciate the potential of Summit’s business at multiple points in the cycle.

Fourth, the recent equity offering significantly increased the flow, resulting in a sustained rise in average daily trading volume that equates to more than $50 million per day, four times what we were doing this time last year. An important factor for institutional investors looking to build positions of scale in Summit.

Fifth, we provided more detailed information around why the downstream is a comparatively higher return business for Summit than our peers and why our vertically integrated models is capable of generating industry leading downstream margins.

And then finally, just today, we've outlined our unique acquisition pipeline, which includes more than 20 transactions in various stages of diligence. While Summit remains a relatively young company, we’ve produced an outstanding track record of performance in a very short period of time, one that we believe merits a higher market valuation.

We've built a great business and look forward to a continued dialog with the investment community on the many opportunities ahead. With that, I'd like to open the call for questions.

Operator?.

[Operator Instructions] Our first question is from Kathryn Thompson of Thompson Research Group. Please go ahead..

Hi. Thank you for taking my questions today.

First is just a follow-up for the basic drivers for your EBITDA guidance for fiscal’17, how much of the increase is driven by acquisitions on a dollars basis and also could you clarify a little bit better the dynamic of how much pricing versus volume is a driver for the upside?.

Good morning, Kathryn. There is very little incremental on acquisitions. Obviously, there's no new acquisitions in it and the incremental from the two deals that we've announced will be pretty small. As far as price and volume, we expect to get both next year where we didn't get, we actually had volume contraction on an organic basis last year.

We see both of those contributing. I don’t think we’re prepared to give exactly the split of that, because we don't give exact volume and price guidance, but I would -- they’re both significant -- they both contribute significantly.

Brian, any other thoughts on that?.

No. Kathryn, you can see on our reconciliation that’s in the deck that our pro forma EBITDA exiting 2016 is 382 million. So that’s -- the additional 11 million represents the EBITDA that we would have had, had all the acquisitions that we made during 2016 occurred on the 1st of January..

I also have a follow-up question on your aggregate segment.

What was the greatest driver for that organic, roughly 12% year-over-year decline in volumes? I know you cited Houston, Kentucky and Vancouver which are all various drivers, but essentially, what we're trying to better understand is the greater driver just tough comps on Vancouver or is it more -- something more fundamental coming out of Kentucky? I appreciate it..

Kathryn, I think that the, in Vancouver, it was strictly tough comps and that will improve in 2017 with a couple of large projects that are actually being bid at the moment. In Houston, we had a pretty significant decline in aggregate volumes.

It's a strange year there when they had the floods mid-year, we actually were attacking pretty close to the prior year, a couple of weeks of very heavy rain knocked us out of production and it never really recovered. And that, we just had a fundamental organic decline in our aggregates in Houston.

We are seeing some signs of life there as highway projects are starting to get underway and we see residential, either at the bottom or hopefully recovering by mid-year. Kentucky was a ones-off or just a delay in the highway Bill. We see that recovering this year also.

Does that help?.

It does somewhat.

But just to clarify further, and perhaps just correct me if I’m not accurate in this interpretation, it would seem that Houston on a -- if you were to look at all three of those factors, Houston was the greatest driver for that organic decline, would that be a fair statement?.

Yes..

Okay. And final question is just an update on the competitive dynamics in your Texas asphalt business. I noticed that you’ve been managing through that with a new player in the market, maybe just give a little bit more update on how that is progressing? Thank you very much..

Thanks, Kathryn. Yeah. Our Austin operations in the second half of ’16 stabilized and improved and we have a good backlog going into 2017 and we see that market stabilizing, at lower levels than what we would like, but it's stabilizing much -- we’ll see some significant improvement in our Austin business in 2017 versus full year 2016..

Thank you. The next question is from Blake Hirschman of Stephens. Please go ahead..

Yeah. Good morning, guys. First question, overall gross margin is up at a nice clip overall company incremental gross margins also strong, obviously price has been your friend in the materials piece this year, the organic volume piece not as much.

So I’m just trying to get a sense for the sustainability of margins looking into ’17 and how we should think about the margins if we were to see a little bit of organic improvement this year?.

Yeah. We see the pricing environment, especially in the aggregate and cement side to be continued strength into 2017. We also have had really good success in actually reducing of cost in our aggregate facilities. Not a lot a little bit of headwind on the hydrocarbon side but not a lot.

So we see you know both volume, price and cost all contributing to continued margin expansion in 2017..

Just curious as we've gotten January and February here, have you guys started to see any organic growth in your volume?.

Summit has been exceptionally strong, but our volumes are so small this time of year that it's really hard to draw any conclusions from it. Whether it's not been our friend in Texas so far this year but again the volumes are pretty small this time of the year.

So it's really hard to get any you know to really draw any conclusions from where we are in mid February..

[indiscernible] adjusted EBITDA in Q1 has been about 2% to 3% of full-year adjusted EBITDA. So it’s kind of a non-event quarter..

On the other hand Blake, our backlogs are very strong and we remain very optimistic as the season kicks off in late March and April..

And then last one from me, you mentioned the M&A pipeline [indiscernible] seen it in a while, just curious on the multiples that you might pay for deals that are in pipe, are they pretty comparable to that average multiple to be around eight times that you mentioned in the slide deck. That’s it from me, thanks and good luck..

The multiples that we pay for the small and medium deals have remained pretty consistent through the years. On the larger deals, we’ve seen some very high multiples paid for some cement businesses in the last few months, there was a couple of larger aggregate deals out there where multiples have certainly expanded.

But we don’t play in those auction larger deals, we stick to what we’re good at which is the singles and doubles and that's what we're going to really focus on here in 2017..

The next question is from Bob Wetenhall with RBC Capital Markets. Please go ahead..

Hey guys good morning and congratulations on a very, very strong 2016. I love that slide 25 just stepping through some of the things you've done to create value for shareholders. I wanted to pick your brain; it's a great set up for organic growth on cement based on your prior comments.

Can you just step through some of your assumption that undergird your EBITDA guidance for the organic growth in the other products is it low single digit growth, is it mid-single digit growth.

How should we be thinking about that?.

Overall, on the aggregate side we certainly would be looking for low-single digit growth. On the product side, again probably low-single digit growth. ASP is probably similar to ’16 and I think that's sort of what underpins our forecast..

Help me out big picture, you guys are spending more than $300 million a year on M&A becoming a public company which is by any measure pretty torrid pace. And I'm just trying to understand on your commentary and some of the prior question, it sounds like the pipeline is better than you've ever seen it if that's correct.

Where are you going to pile this money into and do you think you can still keep getting deals were post synergy is you own you know really good assets at six to eight times. Is this is a repeatable process based on what's going on in the marketplace where there are enough opportunities.

At what point do you start to hit a wall with that?.

We see a really long runway. I mean the industry is still fairly fragmented and again our strategy is to really focus on those value added bolt-ons, low risk that can plug and play into our existing operations.

And our pipeline gets you know as we’ve increased our geography and now our geography includes the Carolinas and Virginia, obviously the number of potential bolt-on acquisitions goes up dramatically also. So, occasionally we’ll do a new platform.

Actually at the moment we really don't have any platforms in the pipeline to really focus more on those low risk bolt-on acquisitions, but I see a pretty long runway Bob is that it's just a lot of - its still just a fragmented industry and the way we do business the way that we run our businesses is very attractive for these private companies and we see a great future doing what we're doing..

You sound pretty confident and maybe with a quick question for Brian and then I’ll pass it over. It looks like your EBITDA guide is obviously going up from $371 million to the midpoint would be $417 million in ’17 but your CapEx spend is like 145 million. So you're spending less CapEx.

So I'm just trying to understand is the implied in your guidance that because you have EBITDA growth and modestly lower capital spending should we be looking for a pickup in free cash flow of about 50 million in the base case year-over-year?.

Yeah that's right, Bob. As you know we signaled early on that 2016 would be a year of little more elevated CapEx. That's what happened although we came in within our guidance range. It was slightly elevated for primarily investments in some major upgrades to aggregates plant and equipment. Those don't occur every single year.

So it's going to be coming down a little more towards our long term trend where we expect to be in that 7% to 8%. So yes lower CapEx and higher EBITDA will lead to increased cash flow next year..

The next question is from Rohit Seth of Suntrust. Please go ahead..

Just building on the acquisitions, you mentioned 20 yield in the pipeline, five in the late stages.

Are these similar size to the ones you did in January?.

Yeah they're in that what I would consider small to medium businesses which are from anywhere from a million to twelve million of EBITDA..

So assuming you converted the five, would [indiscernible] would that equate to about the same investment you made in 2016?.

Trying to run those numbers in my - yeah, I mean I'm optimistic for the acquisitions spend in 2017 but again it’s always hard to predict. I mean you can you know you can go over five or you can go five for five. So it's hard to predict but I would be optimistic that our acquisition spend would be similar as it was in 2016..

So on your came from 4 down to 3.5, considering these deals and your typical conversion rate, is it fair to assume that you can keep leverage below four ’17..

Yes, well below four, well below four I would think..

And then on your guidance, is it fair to assume the organic volume growth and your pricing assumptions are consistent with the long-term CAGRs that you gave at the analyst day?.

Yeah I think that’s right..

And then in your cement business, what capacity utilization are you on?.

We’ve got about I think we still got about 100,000 thousand tons of - we're getting close to 95% capacity..

What are your pricing assumptions in the cement and what's stopping you from going say like 7, 8, 10, 12 if you're running with that?.

The market has still got more supply than demand. I think that will change in the medium term.

So it’s’ still a competitive marketplace out there and we think we can continue roughly on the same type of price increase that we've had recently but you know there are – when demand exceeds supply I would you know I think that that price can you know start to accelerate.

But we don't see that certainly in 2017, we see a very healthy pricing environment but not one where there's any you know where people around allocation or demand exceeds supply..

The last questions is on Texas, on page 13 in the slide deck.

It looks like you’re seeing very positive public demand positive private demands, is it fair to assume you think about low to mid single digit growth in volumes?.

I think probably more on the low side..

Our next question is from Brent Thielman of D.A. Davidson. Please go ahead..

Tom, just on the outlook, looks like you're building in some pick up in public spending but at the same time you guys are kind of suggestion the impact of the FAST Act hit DoT budgets kind of later in the year.

I guess a two part question here is one, how much of that organic pick up you've built into the guide comes from the public side and two, does FAST Act impacts the budgets by late ’17, can you really realize the volume related to that that quickly..

I think when we say that it hits in the second half to ‘17 that's when actually the volume increases. The jobs are starting to left now. Remember the FAST Act doesn’t have a huge amount of new money, it has some new money and it's very positive as far as having a long term highway program but it's not a huge amount of new money.

We see public and private markets I would say roughly equal in improvement in 2017 versus 2016, it varies from state to state obviously, pretty dramatically we see very healthy highway programs in Iowa, in Utah, we see Kentucky getting back to more normal highway program, the Carolinas and Virginia are very strong highway markets.

And then it's just you know every little market is a bit different, but we certainly both public and private contributing roughly equally to some improvement in 2017..

Then on cement, you mentioned, I think you characterized it as exceptionally strong right now which might be in contrast to what you’re seeing in some of the other business lines with today.

Is that just geography and where those plants served that's driving that strong growth?.

I wouldn't make a big deal of you know early volumes like this. I mean they're so small for the year but I'd always want to be ahead than behind. And we do sell cement down in southern markets which have a little bit more activity right now as we ship up and down the Mississippi.

So I’m encouraged on cement and I’m encouraged always on all our businesses. As I said, our backlogs are quite good and like I said, looking forward to the season starting..

And then on the asphalt side, and particular on pricing I know you've got the heavy Austin issues.

Could you sort of break out the moving pieces of that 9% price decline and does that slip further in seventeen?.

Price on the asphalt side is not particularly meaningful because it relates to the type of liquid asphalt that you use. In fact Brain, I think our martins were - even though the price was down I think our margins were pretty..

Yes that’s correct. Brent, and if you look at our strategy, you'll see that our asphalt margins, our products margins have actually increased quarter-on-quarter every quarter for the last eight quarters. So with the liquid asphalt basically being a pass through almost everywhere.

The actual ASPs that you see is not that meaningful as Tom said in terms of what's going on because it is a pass-through. We focus on the margin..

And we would see further progress on asphalt margins in 2017..

The next question is from Adam Thalhimer of Thompson Davis. Please go ahead..

I wanted to clarify something you said earlier on the average selling price for aggregate and products.

Did you say ASPs will be similar to last year?.

No I don't think so. If I did, I misspoke..

We anticipate growth in ASPs next year..

With regard to - and you already answered some of this but with regards to your cement capacity what will be your thoughts on maybe expanding Hannibal at some point or adding cement terminals or looking at cement acquisition?.

Two most recent cement acquisitions were just at price levels that you know we didn't see value for our shareholders in. So I don't foresee any cement acquisitions coming up. However we do have a cement import terminal in Baton Rouge that you know we're going to have the ability to keep the market supply through imports.

Now with that I mean that our you know our increment margins will be lower because imported cement it more expensive than our manufactured cement. But we'll be able to see some organic volume growth through imports. As we've said in the past we were evaluating and have the ability to double the capacity at our Hannibal cement plan.

And as the market tightens that will be something that we will continue to evaluate. It’s a 20 it's well probably 30, a little over 30 months in permitting and construction, so it's you know it is a real bet on the cycle but we're certainly looking at it..

And lastly Brian, on the tax rate we're using a 15% tax rate going forward is that - but it sounds like you want to see an actual dollar. I just want to make sure I had that correct..

We would encourage you to use the cash tax rate that we've outlined and we've guided to the 4 to 7 million of cash taxes we think that's the simplest and most appropriate metric to use..

The next question is from Stanley Elliott of Stifel. Please go ahead.

And most of the questions have been answered but I did have a couple of quick follow up for you.

What was the expectation to get on cement pricing, did I hear 6 to 8 per ton?.

We've announced a $12 per ton price increase which became effective in the southern markets on January 1 and will become effective in the northern markets in first of April.

So we would expect obviously we do our best to capture as much of that as possible, but historically in the industry something of a lesser amount that that is typically being captured..

It’s usually about two thirds and in some market areas we were at $8 and not $12 as far the price increase, it's a very local regional type business like all of our businesses. So we would hope to get $6 to $8 in realized price increase in year over year. But it’s still early in the year and there is a lot to play for there..

And since the election I know there's been lots of discussions around infrastructure, we haven't seen a lot of particulars coming out on the Trump plan.

But my feeling is that if we get some sort of a change in the tax code that you could see your M&A pipeline actually accelerate since you’re looking at a lot of these smaller more bolt on sorts of deals, one, are you seeing any pick up from customers in that regard or potential acquire targets in that regard and then also have you noticed any sort of a sentiment change if you will and then your customer base and that are they bringing projects back online or that they were had previously been tabled.

Any help around there from a sentiment perspective would be great..

I mean you know in general sentiment is very positive right now. I think also on the acquisitions side that people – I’ve never really been able to correlate deal flow to the construction cycle. I think people sell their business due to retirements succession all sorts of different things and it's really not correlated in my mind to the cycle.

now there are some larger businesses and the divestitures that have come, that have probably been spurred by the fact hey this is a good time to sell, but again that's not the market that we play in.

We play in that market where we know these businesses, we've talked to them through the years and for some usually [indiscernible] succession would be probably the most obvious one they’ve decided to sell the business. For us I think the deal, the pipeline and the deal flow has expanded as we've expanded our geography.

Like I said we're very optimistic going into 2017 on the deal side, and sentiment, I think you know we’ll see, I think it’s too early to see our customers and private side customer are certainly optimistic for the year, but I don't think we've seen any major sentiment change out there.

I think it’s positive and our backlogs are good but it’s still early..

The next question is from Rob Hansen of Deutsche Bank. Please go ahead..

Aggregate pricing in 4Q flat year over year to kind of a big step down on an organic basis.

What was kind of going on this quarter aggregate pricing what kind of drove that to being flat as opposed to up like the other quarters?.

Well, first off, I think you the fourth quarter is a relatively small quarter for us, so I think it's probably more appropriate to focus on the full year of 4.8%. And I think that's more indicative of a long term trend that we've seen and expect to see going forward. So I wouldn't read too much into the flattish Q4..

And then you know kind of a similar question just related to aggregate margin. I think volumes were down in the last two quarters, but aggregate gross margin rose, right and this quarter we've some flat pricing and volumes are down and margins down about 1.5%.

So anything particular in the fourth quarter for margins as well?.

Rob again, and it's only the second time in the last eight quarters where there's been a quarter-on-quarter decline in aggregate gross margin, the last one was a 1% decline in the second quarter of 2016. So we have a pretty consistent record of seeing quarter-on-quarter improvement.

But this business is not necessarily linear there's a lot of factors in any given month or quarter that can drive that so we would again you know look at the long term trend, the aggregate gross margins were up by 2.6% in 2016 following a 5.1% increase in the prior year.

So it’s a slight anomaly in any given quarter which again is not unusual but long term trends definitely positive..

Just from mix perspective 85% percent of the year-on-year decline in Q4 to Q4 was volume related. So very modest contribution from price on fixed basis. .

And then just on the kind of cadence of decline for Vancouver, Texas right.

I guess what I'm kind of curious about is you probably past the peak decline at some point, middle of the year, you just started to see improvement on a year over year basis and I don't mean up, I just mean less at a deceleration towards the end of the year for those markets..

I actually don't know the answer to that question. I think we'll have to get back to you on that one. I don't believe so. But I think it was pretty consistent through the year but I don't have that data, we’ll have to get back to you on that one..

And then last question is to clarify something on the guidance.

when you say volume growth across all segments, do you mean this on an organic basis and you're assuming some sort of a modest rebound in Texas and Vancouver?.

Correct..

The next question is from Scott Schrier of Citigroup. Please go ahead..

Can you talk about some of the input cost assumptions that you're using for the guidance please..

Sure Scott, you know labor which is one of our variable costs we typically have that baked it about 2% to 3% varies obviously a little bit from location to location but on average that would be about where we're at.

on fuel prices as you know we do buy forward a portion of our diesel requirements, we've purchased about 50% to 60% of our 2017 estimated consumption in 2016 just by way of comparison we consumed about 19.8 million gallons of diesel and we saw decent year on year decline in price from ‘15 to ’16, we don't expect to get that same kind of level of cost reduction there going from ’16 to ’17 as we’re seeing some stabilization in the oil price above $50 now.

Those were the kind of the main input costs, we're not yet seeing a lot of inflation on other energy input costs. We are seeing a little bit of an increase in the price of liquid asphalt but we've talked about before that's generally a pass-through for us in most of the states in which we and operate with asphalt business.

So again inflationary conditions remain relatively benign..

Got it and then on cement, and I know you touched on it before. So you broke out the volumes and it looks like you've had some volumes from the recently acquired cement terminal. Can you just talk about maybe how things are going there and what you alluded to what kind of impact we might see to incrementals from purchase cement.

And then lastly, how do you think about any kind of tax reform or border tax adjustments on the cement economy in that area..

We see in our - on the river markets where we have the two most northern cement plants on the Mississippi but we ship all the way down to New Orleans. Thos markets are healthy. Both on the public and private side, I would say that Iowa on the public side is quite good.

The Memphis area actually where we just have the Razorback acquisition that will close later this quarter, we see those and we see some good solid volume growth. The pricing again it’s that $6 to $8 range..

I think that Tom’s earlier point you know is over time should we choose not to increase capacity at Hannibal whether be dreading a second line or existing capacity at existing line. We’re going to buying more from third parties which essentially means that you're basically going to see incremental margins impacted by that.

However, you're also going to see an increase in absolute EBITDA coming out of that business. So over time where the focus is really more fixated for aggregates and on the product side at the margin. Within cement, our focus is more on growing the absolute amount of EBITDA we’re generating in that business.

So incremental cement product margins right now running in the low 50s and I think that that's probably an acceptable run rate at this level..

And then if you’re able to just comment on what you think new Baton Rouge that any type of border tax adjustment might have on the business down there?.

It’s so unclear what the border tax is going to be and what impact it's going to have. I’d say right at the movement we really don't know what the impact is going to be..

And our final question is from Jerry Revich of Goldman Sachs. Please go ahead..

Tom, I’m wondering if you could talk about the magnitude of price increases in aggregates across your footprint that you rolled out for January 1, 2017.

What’s the magnitude of pricing at the start of the year compared to what you folks delivered in ‘16 and then we've heard from a couple of other producers that 2016 didn't have the benefit of midyear or late year price increases, I'm wondering if you saw that dynamic in your footprint and if you think that might change in ‘17..

I don't think we’ll you know I would be surprised if we got mid-year price increases. The price increases typically in the aggregate business especially in the northern half of the country are March and April you know Spring.

And they're very similar to last year and they do vary dramatically from market to market there's really no consistency at all, very strong pricing in the Carolinas and Virginia, less so in the middle part of the country. Texas in still pretty good as far price increases. But it varies from 1% or 2% up to 10% depending on what local market you’re in..

And because of liquid asphalt move as you pointed out that's not the right way to look at it based on the price.

I'm wondering how would you counsel us to think about material margins in your asphalt business ’17 versus '16, how much room do you have for margin expansion and what's embedded in guide?.

On the product side, Jerry, or on the material side?.

On asphalt specifically..

I think we should see some progress on margins there. I mean we going to see them year-on-year improvement in Austin for instance. Our North Texas business is continues to perform extremely well.

Kansas is going to be a little challenge, there is a highway program there is - I think we're going to see a little bit of improvement but in total terms it’s still pretty poor. Kentucky could see some real improvement. So I think overall we would continue to see the opportunity for margins to improve in 2017..

Thank you..

Thank you operator and thank you all for joining us. That concludes our call. Everybody have a good day..

Thank you ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and thank you for your participation..