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Summit Materials, Inc. - Quarter Report: 2024 March (Form 10-Q)

            ))  ))))))  ) )))Proceeds from stock option exercises  Other()()Net cash provided by (used in) financing activities ()Impact of foreign currency on cash() Net decrease in cash and cash equivalents and restricted cash()()Cash and cash equivalents and restricted cash—beginning of period  Cash and cash equivalents and restricted cash—end of period$ $ 

See notes to unaudited consolidated financial statements.
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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
Unaudited Consolidated Statements of Changes in Stockholders’ Equity
(In thousands, except share amounts) 
 Summit Materials, Inc. 
 Accumulated
OtherClass AClass BAdditionalNoncontrollingTotal
AccumulatedComprehensiveCommon StockCommon StockPaid-inInterest inStockholders’
 EarningsincomeSharesDollarsSharesDollarsCapitalSummit HoldingsEquity
Balance - December 30, 2023$ $  $  $ $ $ $ 
Net loss()— — — — — — ()()
LP Unit exchanges— —   — —  () 
Other comprehensive loss, net of tax— ()— — — — —  ()
Stock option exercises— —  — — —  —  
Class B share cancellation— — — — ()— — — — 
Share-based compensation— — — — — —  —  
Issuance of Class A Shares— —   — —  —  
Shares redeemed to settle taxes and other— —   — — () ()
Balance - March 30, 2024$ $  $  $ $ $ $ 
Balance — December 31, 2022$ $  $  $ $ $ $ 
Net loss()— — — — — — ()()
LP Unit exchanges— —  — — —  () 
Other comprehensive income, net of tax—  — — — — —   
Stock option exercises— —  — — —  —  
Share-based compensation— — — — — —  —  
Shares redeemed to settle taxes and other— —   — — ()()()
Balance — April 1, 2023$ $  $  $ $ $ $ 
See notes to unaudited consolidated financial statements.
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SUMMIT MATERIALS, INC. AND SUBSIDIARIES
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 
(Dollars in tables in thousands, except per share amounts or otherwise noted)
 
1.
cement plants, cement distribution terminals, ready-mix concrete plants, asphalt plants and landfill sites. It is also engaged in paving and related services. The Company’s operating and reporting segments are the West, East and Cement segments.
 
Substantially all of the Company’s construction materials, products and services are produced, consumed and performed outdoors, primarily in the spring, summer and fall. Seasonal changes and other weather-related conditions can affect the production and sales volumes of its products and delivery of services. Therefore, the financial results for any interim period are typically not indicative of the results expected for the full year. Furthermore, the Company’s sales and earnings are sensitive to national, regional and local economic conditions, weather conditions and to cyclical changes in construction spending, among other factors.
 
On September 23, 2014, Summit Inc. was formed as a Delaware corporation to be a holding company. As of March 30, 2024, Summit Inc. held 100% of the economic interests and voting power of Summit Materials Holdings L.P. (“Summit Holdings”). Pursuant to a reorganization into a holding company structure (the “Reorganization”) consummated in connection with Summit Inc.’s March 2015 initial public offering ("IPO"), Summit Inc. became a holding corporation operating and controlling all of the business and affairs of Summit Holdings and its subsidiaries. Summit Inc. directly and indirectly owns all of the partnership interests of Summit Holdings (see note 11, Stockholders’ Equity). Summit Materials, LLC (“Summit LLC”) an indirect wholly owned subsidiary of Summit Holdings, conducts the majority of our operations. Summit Materials Finance Corp. (“Summit Finance”), an indirect wholly owned subsidiary of Summit LLC, has jointly issued our Senior Notes as described below.

On January 12, 2024, Summit completed a combination with Argos North America Corp. ("Argos USA"), Cementos Argos S.A. ("Cementos Argos"), Argos SEM LLC and Valle Cement Investments, Inc. (the "Argos Parties," and together with Argos USA, "Argos"), pursuant to which Summit acquired all of the outstanding equity interests (the "Transaction") of Argos USA from the Argos SEM LLC and Valle Cement Investments, Inc. in exchange for $ billion of cash, the issuance of shares of the Summit Inc.'s Class A common stock and preferred share in a transaction valued at approximately $ billion. The cash consideration was funded from the net proceeds of an $ million offering of Senior Notes due 2031 and new term loan borrowings under our current credit facility. The purchase price is subject to customary adjustments, with any upward or downward adjustments made against the cash consideration. The Transaction Agreement, dated as of September 7, 2023, contains customary representations and warranties, covenants and agreements, including a Stockholder Agreement. For additional details related to the Transaction, see Note 2, Acquisitions, Dispositions, Goodwill and Intangibles.

 
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U.S. states and in British Columbia, Canada, with the most significant revenue generated in Texas, Florida, Georgia, Utah, Missouri, and Kansas. The Company’s accounts receivable consist primarily of amounts due from customers within these areas. Therefore, collection of these accounts is dependent on the economic conditions in the aforementioned states, as well as specific situations affecting individual customers. Credit granted within the Company’s trade areas has been granted to many customers, and management does not believe that a significant concentration of credit exists with respect to any individual customer or group of customers. No single customer accounted for more than 10% of the Company’s total revenue in the three months ended March 30, 2024 or April 1, 2023.

 

Prior Year Reclassifications — We have reclassified transaction costs of $ million for the three months ended April 1, 2023, from general and administrative expenses to a separate line item included in operating income to conform to the current year presentation. We have also reclassified our deferred tax liabilities of $ million as of December 30, 2023, from other non-current liabilities to a separate line item in long term liabilities.

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2.
 billion. Summit acquired all of the outstanding equity interests of Argos USA in exchange for (i) $ billion of cash (subject to customary adjustments), (ii) shares of Class A Common Stock and (iii) share of preferred stock, par value $ per share, of Summit Inc. (together with the Class A Consideration, the “Stock Consideration”).

The Argos USA assets include integrated cement plants, grinding facilities, ready-mix concrete plants, ports and inland terminals across the East and Gulf Coast regions, with a total installed cement grinding capacity of  million tons per annum and a total import capacity of  million tons of cement per annum.

The results of Argos USA’s operations are included in these consolidated financial statements from the closing date of the Transaction. Argos USA revenues and net income included in the consolidated income statement for the period from January 12, 2024 to March 30, 2024 was $ million and $ million, respectively.

 $ Net income attributable to Summit Inc.$()$()

The unaudited pro forma information has been calculated after adjusting the results of Argos USA for the following impacts of the Transaction, among other items:
•Additional depreciation, depletion, and amortization for property, plant, and equipment and intangible assets acquired.
•Interest expense adjustments to reflect the payoff of Argos USA debt obligations and new debt issued by the Company to complete the Transaction.
•Elimination of royalties expenses paid to the parent of Argos USA which will not be incurred post-combination.
•Elimination of historical transaction expenses of Argos USA incurred to pursue an initial public offering.

The Company incurred combination-related costs of $ million in the three months ended March 30, 2024 and for the three months ended April 1, 2023. These expenses are included in transaction and integration costs on consolidated income statement and are reflected in pro forma net income attributable to Summit Inc. for the three months ended April 1, 2023 in the table above. The pro forma results do not include any cost savings or associated costs to achieve such savings from operating efficiencies or synergies that may result from the combination.

 Fair value of stock consideration issued Total fair value of consideration transferred$ 

Summit Inc. issued shares of common stock and calculated the fair value of stock consideration using a per share price of $ on January 12, 2024, the closing date of the Transaction. The fair value of preferred stock is immaterial.

The preferred stock is non-transferable and has no economic rights or ordinary voting rights. The preferred stock was issued to ensure the Argos Parties’ voting interests are not involuntarily diluted and provides a short window to purchase shares of Class A Common Stock in the market, in certain limited circumstances, to prevent the Argos Parties voting interests from dropping below % of the total Summit common stock.

Argos USA Preliminary Purchase Price Allocation
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 Asset acquired:Cash and cash equivalents Accounts receivable, net Inventories Other current assets Intangible assets, net Property, plant and equipment, net Operating lease right of use assets Other assets Liabilities assumed:Accounts payable()Accrued expenses()Current operating lease liabilities()Noncurrent operating lease liabilities()Deferred tax liabilities()Other noncurrent liabilities()Fair value of identifiable net assets acquired Goodwill$ 

The purchase price has been preliminarily allocated to the assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The fair value estimates of assets acquired and liabilities assumed are pending the completion of various items, including obtaining further information regarding the identification and valuation of all assets acquired and liabilities assumed.

Certain of the more significant balances that are not yet finalized include the valuation of property, plant and equipment, intangible assets (including goodwill), inventories, and other working capital accounts, and related income tax considerations. Accordingly, management considers the balances above to be preliminary, and there could be adjustments to the consolidated financial statements in subsequent periods, including changes to depreciation and amortization expense related to the property, plant, and equipment and intangible assets acquired and their respective useful lives, among other adjustments.

The final determination of the fair values of the assets acquired and liabilities assumed will be completed within the measurement period of up to one year from the acquisition date.

The identified intangible assets acquired include Customer Relationships and Contractual Intangible Assets, with preliminary fair values of $ million and $ million, respectively, and expected to be amortized over a weighted average amortization period of and years, respectively.

Goodwill

Goodwill recognized includes synergies expected to be achieved from the operations of the combined company, the assembled workforce of Argos USA, and intangible assets that do not qualify for separate recognition. Expected synergies include both increased revenue opportunities and the cost savings from the planned integration of platform infrastructure, facilities, personnel, and systems. The transaction is considered a non-taxable business combination and the goodwill is not deductible for tax purposes. The allocation of goodwill to the Company’s reporting units is not complete and is subject to
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 million fair value of these acquired intangible assets was excluded from consideration transferred and recorded separately from the business combination.

Other Acquisitions

The financial results of each acquisition have been included in the Company’s consolidated results of operations beginning on the respective closing dates of the acquisitions. The Company measures all assets acquired and liabilities assumed at their acquisition-date fair value. Goodwill acquired during a business combination has an indefinite life and is not amortized.

  East*  Cement*  
_______________________________________________________________________
* The combination with Argos USA affected all reporting segments. In addition to the acquisition of all of the outstanding equity interests of Argos USA, we also acquired aggregates-based operation in our West segment.

The purchase price allocation, primarily the valuation of property, plant and equipment, as well as considerations for contracts assumed in the acquisition, for the acquisitions completed during the three months ended March 30, 2024, as well as the acquisitions completed during 2023 that occurred after April 1, 2023, have not yet been finalized due to the recent timing of the acquisitions, status of the valuation of property, plant and equipment and finalization of related tax returns.

 $ Inventories  Property, plant and equipment  Other assets  Financial liabilities()()Other long-term liabilities()()Net assets acquired  Goodwill  Purchase price  Other ()Net cash paid for acquisitions$ $ 

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 $ $ $ Acquisitions (1)    Dispositions (2) () ()Foreign currency translation adjustments()  ()Balance—March 30, 2024$ $ $ $ 
_______________________________________________________________________
(1) Reflects goodwill from 2024 acquisitions and working capital adjustments from prior year acquisitions.
(2) Reflects goodwill derecognition from dispositions completed during 2024.

The Company’s intangible assets subject to amortization are primarily composed of operating permits, mineral lease agreements and reserve rights. Operating permits relate to permitting and zoning rights acquired outside of a business combination. The assets related to mineral lease agreements reflect the submarket royalty rates paid under agreements, primarily for extracting aggregates. The values were determined as of the respective acquisition dates by a comparison of market-royalty rates. The reserve rights relate to aggregate reserves to which the Company has certain rights of ownership, but does not own the reserves. The intangible assets are amortized on a straight-line basis over the lives of the leases or permits.

 $()$ $ $()$ Mineral leases ()  () Reserve rights ()  ()                      

9.

 million of our Class A common stock. As of March 30, 2024, there was $ million available for purchase, upon which they will be retired.


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    %Exchanges during period () Stock option exercises —  Issuance of Class A common stock —  Other equity transactions —  Balance — March 30, 2024    %Balance — December 31, 2022    %Exchanges during period () Stock option exercises —   )             )  )  )    493 805,015 $435,388 $369,627 84.9 %
*Revenue by product includes intercompany and intracompany sales transferred at market value. The elimination of intracompany transactions is included in Other. Revenue from the liquid asphalt terminals is included in asphalt revenue.
 
Detail of our volumes and average selling prices by product for the three months ended March 30, 2024 and April 1, 2023 were as follows:   
%3.2 %
    
Revenue from cement increased $214.8 million in the three months ended March 30, 2024, due to the acquisition of the four Argos USA cement plants as well as average cement pricing gains of 3.2%.

Liquidity and Capital Resources
 
Our primary sources of liquidity include cash on-hand, cash provided by operations, amounts available for borrowing under our senior secured credit facilities and capital-raising activities in the debt and capital markets. In addition to our current
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sources of liquidity, we have access to liquidity through public offerings of shares of our Class A common stock. To facilitate such offerings, in January 2023, we filed a shelf registration statement with the SEC that will expire in January 2026. The amount of Class A common stock to be issued pursuant to this shelf registration statement was not specified when it was filed and there is no specific limit on the amount we may issue. The specifics of any future offerings, along with the use of the proceeds thereof, will be described in detail in a prospectus supplement, or other offering materials, at the time of any offering.

As of March 30, 2024, we had $498.1 million in cash and cash equivalents and $823.0 million of working capital compared to $374.2 million and $609.2 million, respectively, at December 30, 2023. Working capital is calculated as current assets less current liabilities. There was no restricted cash balances as of March 30, 2024 and $800 million of restricted cash as of December 30, 2023 related to the Transaction. In January 2024, we amended our senior secured revolving credit facility, increasing the total availability to $625.0 million and extending the maturity date to January 2029. We had no outstanding borrowings on our senior secured revolving credit facility, which had borrowing capacity of $604.1 million as of March 30, 2024, which is net of $20.9 million of outstanding letters of credit and is fully available to us within the terms and covenant requirements of our Credit Agreement.

In March 2022, our Board of Directors authorized a share repurchase program, whereby we can repurchase up to $250.0 million of our Class A common stock. No repurchases were made during the three month period ended March 30, 2024. As of March 30, 2024, approximately $149.0 million remained available for share repurchases under the share repurchase program.
 
Given the seasonality of our business, we typically experience significant fluctuations in working capital needs and balances throughout the year. Our working capital requirements generally increase during the first half of the year as we build up inventory and focus on repair and maintenance and other set-up costs for the upcoming season. Working capital levels then decrease as the construction season winds down and we enter the winter months, which is when we see significant inflows of cash from the collection of receivables.
 
As of March 30, 2024 and December 30, 2023, our long-term borrowings totaled $2.8 billion and $2.3 billion, respectively, for which we incurred $47.4 million of interest expense for the three months ended March 30, 2024 and $24.3 million of interest expense for the three months ended April 1, 2023. We expect that normal operating cash flow will be sufficient to fund our seasonal working capital needs. We had no outstanding borrowings on the senior secured revolving credit facility as of March 30, 2024.

We believe we have access to sufficient financial resources from our liquidity sources to fund our business and operations, including contractual obligations, capital expenditures and debt service obligations, for at least the next twelve months. Our growth strategy contemplates future acquisitions for which we believe we have sufficient access to capital. We also plan to divest of certain dilutive businesses as we rationalize our portfolio, which will also generate additional capital.

We and our affiliates may from time to time purchase our outstanding debt through open market purchases, privately negotiated transactions or otherwise. Purchases or retirement of debt, if any, will depend on prevailing market conditions, liquidity requirements, contractual restrictions and other factors. The amounts involved may be material.
 
Indebtedness
 
Please refer to the notes to the consolidated interim financial statements for detailed information about our long-term debt, scheduled maturities of long-term debt and affirmative and negative covenants, including the maximum allowable consolidated first lien net leverage ratio. As of March 30, 2024, we were in compliance with all debt covenants. At March 30, 2024 and December 30, 2023, $2.8 billion and $2.3 billion, respectively, of total debt was outstanding under our respective debt agreements. Due to our ongoing divestiture program, we have made prepayments on our term loan and may be required to do so again in the future.

Cash Flows
 
The following table summarizes our net cash used in or provided by operating, investing and financing activities and our capital expenditures in the three months ended March 30, 2024 and April 1, 2023: 
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 Summit Inc.
($ in thousands)March 30, 2024April 1, 2023
Net cash provided by (used in):
Operating activities$(40,245)$335 
Investing activities(1,103,421)(118,329)
Financing activities468,742 (23,058)
 
Operating activities
 
During the three months ended March 30, 2024, cash used in operating activities was $40.2 million primarily as a result of:
 
•Net loss of $67.3 million, decreased by non-cash expenses, including $106.4 million of depreciation, depletion, amortization and accretion expense and $6.7 million of share-based compensation, offset by the net gain on asset and business disposals of $15.8 million.
•Billed and unbilled accounts receivable increased by $12.9 million in the first three months of 2024 as a result of the seasonality of our business. The majority of our sales occur in the spring, summer and fall and we typically incur an increase in accounts receivable (net billed and unbilled) during the second and third quarters of each year. This amount is typically converted to cash in the fourth and first quarters. Our inventory levels also increased during the first quarter as we prepared for the increase in activity over the warmer months.
•The timing of payments associated with accounts payable and accrued expenses of cash, which is consistent with the seasonality of our business whereby we build-up inventory levels and incur repairs and maintenance costs to ready the business for increased sales volumes in the summer and fall. These costs are typically incurred in the first half of the year and paid by year-end. In addition, we made $32.4 million of interest payments in the three months ended March 30, 2024.

During the three months ended April 1, 2023, cash provided by operating activities was $0.3 million primarily as a result of:

•Net loss of $31.2 million, decreased by non-cash expenses, including $53.9 million of depreciation, depletion, amortization and accretion expense and $4.7 million of share-based compensation, offset by the net gain on asset and business divestitures of $0.9 million.
•Billed and unbilled accounts receivable decreased by $12.5 million in the first three months of 2023 as a result of the seasonality of our business. The majority of our sales occur in the spring, summer and fall and we typically incur an increase in accounts receivable (net billed and unbilled) during the second and third quarters of each year. This amount is typically converted to cash in the fourth and first quarters. Our inventory levels also increased during the first quarter of 2023 as we prepared for the increase in activity over the warmer months.
•The timing of payments associated with accounts payable and accrued expenses of cash, which is consistent with the seasonality of our business whereby we build-up inventory levels and incur repairs and maintenance costs to ready the business for increased sales volumes in the summer and fall. These costs are typically incurred in the first half of the year and paid by year-end. In addition, we made $38.0 million of interest payments in the three months ended April 1, 2023.
 
Investing activities
 
During the three months ended March 30, 2024, cash used for investing activities was $1,103.4 million, of which $1,100.9 million was used primarily for the Transaction, $58.5 million was invested in capital expenditures, $21.4 million was used to purchase intellectual property and was partially offset by $2.7 million of proceeds from asset sales. We also received net proceeds of $76.0 million from the divestiture of two businesses.

During the three months ended April 1, 2023, cash used for investing activities was $118.3 million, of which $63.6 million was invested in capital expenditures and $55.5 million was used for a purchase of a business in our West segment, and which was partially offset by $1.8 million of proceeds from asset sales.

Financing activities
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During the three months ended March 30, 2024, cash provided by financing activities was $468.7 million, primarily related to the increase in our senior secured credit facility due to the Transaction. We also made $506.4 million of payments on debt, $6.1 million payments on acquisition-related liabilities and used $9.3 million on shares redeemed to settle taxes on restricted stock units.

During the three months ended April 1, 2023, cash used in financing activities was $23.1 million. We made $4.4 million of payments on debt, $11.4 million payments on acquisition-related liabilities and used $5.7 million on shares redeemed to settle taxes on restricted stock units.

Cash paid for capital expenditures
 
We paid cash of approximately $58.5 million in capital expenditures in the three months ended March 30, 2024 compared to $63.6 million in the three months ended April 1, 2023.
 
We currently estimate that we will invest between $430 million to $470 million inclusive of spend associated with greenfield projects. The timing of our greenfield expenditures is dependent upon the timing of when permits may be issued. We expect to fund our capital expenditure program through cash on hand, cash from operations, and outside financing arrangements including our senior secured revolving credit facility.
 
Tax Receivable Agreement
 
When the Company purchases LP Units for cash or LP Units are exchanged for shares of Class A common stock, this results in increases in the Company’s share of the tax basis of the tangible and intangible assets of Summit Holdings. These increases in tax basis may increase, for tax purposes, depreciation and amortization deductions and therefore reduce the amount of tax that Summit Inc. would otherwise be required to pay in the future. In connection with our initial public offering, we entered into a TRA with the holders of the LP Units that provides for the payment by Summit Inc. to exchanging holders of LP Units of 85% of the benefits, if any, that Summit Inc. actually realizes (or, under certain circumstances such as an early termination of the TRA is deemed to realize) as a result of these increases in tax basis and certain other tax benefits related to entering into the TRA, including tax benefits attributable to payments under the TRA. The amount and timing of any payments under the TRA, are difficult to accurately estimate, as they will vary depending upon a number of factors, including the amount and timing of our income and the effective tax rate.
 
We anticipate funding payments under the TRA from cash flows from operations, available cash and available borrowings under our senior secured revolving credit facility. As of March 30, 2024, we had accrued $48.0 million as TRA liability in our consolidated financial statements. Of the total TRA liability, $0.3 million is expected to be paid in the next twelve months.
 
In the three months ended March 30, 2024, Summit Inc. acquired the remaining 763,243 LP Units in exchange for an equal number of newly-issued shares of Summit Inc.’s Class A common stock. As of March 30, 2024 and December 30, 2023, we had recorded $48.0 million and $41.7 million of TRA liability, respectively.

For the three months ended March 30, 2024, based on a contractually defined discount rate of 6.31%, if the early termination provisions of the TRA were triggered, the aggregate amount required to settle the TRA would be approximately $25.9 million. Estimating the amount and the timing of payments that may be made under the TRA is by its nature difficult and imprecise, insofar as the amounts payable depends on a variety of factors, including, but not limited to, the timing of the generation of future taxable income.

Commitments and contingencies
 
We are party to certain legal actions arising from the ordinary course of business activities. Accruals are recorded when the outcome is probable and can be reasonably estimated. While the ultimate results of claims and litigation cannot be predicted with certainty, management expects that the ultimate resolution of all pending or threatened claims and litigation will not have a material effect on our consolidated financial position, results of operations or liquidity. We record legal fees as incurred.

Litigation and claims—On January 4, 2021, prior to our transaction date, our subsidiary Argos USA entered into a Deferred Prosecution Agreement (“DPA”) with the U.S. Department of Justice (“DOJ”) related to the sale of ready-mix concrete in the greater Savannah, Georgia area by a small number of employees who joined the Company in October 2011 and
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were subsequently terminated. Pursuant to the DPA, Argos USA paid a monetary penalty of $20.0 million and was required, among other things, to periodically review and update its antitrust compliance program. The three-year term of the DPA expired on January 4, 2024. As Argos USA fully complied with the terms of the DPA, on January 18, 2024, following the conclusion of the DPA’s three-year term, the United States District Court for the Southern District of Georgia dismissed the criminal charge that was filed against the company in January 2021. Argos USA's failure to comply with the terms and conditions of the DPA could result in additional criminal prosecution or penalties as well as continued expenses in defending these proceedings. In addition, Argos USA has been named a defendant in a putative class action filed under the caption Pro Slab, Inc. et al. v. Argos USA LLC et al. on behalf of purchasers of ready-mix concrete on November 22, 2017 in the U.S. District Court for the District of South Carolina and includes allegations of price-fixing, market allocation and other anti-competitive practices in the Savannah, Georgia and Charleston, South Carolina markets, seeking monetary damages and other remedies. This case was stayed on February 9, 2022 pending the resolution of the same criminal indictments, and only limited, written discovery may proceed while this stay is in effect
 
Environmental Remediation—Our operations are subject to and affected by federal, state, provincial and local laws and regulations relating to the environment, health and safety and other regulatory matters. These operations require environmental operating permits, which are subject to modification, renewal and revocation. We regularly monitor and review its operations, procedures and policies for compliance with these laws and regulations. Despite these compliance efforts, risk of environmental liability is inherent in the operation of our business, as it is with other companies engaged in similar businesses and there can be no assurance that environmental liabilities and noncompliance will not have a material adverse effect on our consolidated financial condition, results of operations or liquidity.
Other—We are obligated under various firm purchase commitments for certain raw materials and services that are in the ordinary course of business. Management does not expect any significant changes in the market value of these goods and services during the commitment period that would have a material adverse effect on the financial condition, results of operations, and cash flows of the Company. The terms of the purchase commitments generally approximate one year.
 
Off-Balance sheet arrangements
As of March 30, 2024, we had no material off-balance sheet arrangements.

Non-GAAP Performance Measures
 
We evaluate our operating performance using metrics that we refer to as “Adjusted EBITDA,” “Adjusted EBITDA Margin,” “Adjusted Cash Gross Profit” and “Adjusted Cash Gross Profit Margin” which are not defined by U.S. GAAP and should not be considered as an alternative to earnings measures defined by U.S. GAAP. We define Adjusted EBITDA as EBITDA, adjusted to exclude accretion, loss on debt financings, acquisition and integration costs related to our combination with Argos USA, gain on sale of business, non-cash compensation and certain other non-cash and non-operating items. We define Adjusted EBITDA Margin as Adjusted EBITDA divided by net revenue. We define Adjusted Cash Gross Profit as operating income before general and administrative expenses, depreciation, depletion, amortization and accretion and Adjusted Cash Gross Profit Margin as Adjusted Cash Gross Profit as a percentage of net revenue.
 
We present Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Cash Gross Profit and Adjusted Cash Gross Profit Margin for the convenience of investment professionals who use such metrics in their analyses. The investment community often uses these metrics to assess the operating performance of a company’s business and to provide a consistent comparison of performance from period to period. We use these metrics, among others, to assess the operating performance of our individual segments and the consolidated company.
 
Non-GAAP financial measures are not standardized; therefore, it may not be possible to compare such financial measures with other companies’ non-GAAP financial measures having the same or similar names. We strongly encourage investors to review our consolidated financial statements in their entirety and not rely on any single financial measure.

The tables below reconcile our net income (loss) to EBITDA and Adjusted EBITDA, present Adjusted EBITDA by segment and reconcile operating income to Adjusted Cash Gross Profit for the periods indicated:

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Reconciliation of Net Income (Loss) to Adjusted EBITDAThree months ended March 30, 2024
by SegmentWestEastCementCorporateConsolidated
($ in thousands)
Net income (loss)$18,950 $34,491 $24,993 $(145,704)$(67,270)
Interest (income) expense(6,763)(4,572)(6,354)69,581 51,892 
Income tax expense (benefit) (1)509 — — (11,574)(11,065)
Depreciation, depletion and amortization29,894 22,559 40,663 1,847 94,963 
EBITDA$42,590 $52,478 $59,302 $(85,850)$68,520 
Accretion444 522 42 — 1,008 
Loss on debt financings— — — 5,453 5,453 
Loss (gain) on sale of businesses844 (15,829)— — (14,985)
Non-cash compensation— — — 6,720 6,720 
Argos USA acquisition and integration costs (2)— 62 110 61,122 61,294 
Other (3)(478)243 — (6,550)(6,785)
Adjusted EBITDA$43,400 $37,476 $59,454 $(19,105)$121,225 


Reconciliation of Net Income (Loss) to Adjusted EBITDAThree months ended April 1, 2023
by SegmentWestEastCementCorporateConsolidated
($ in thousands)
Net income (loss)$8,922 $5,938 $(3,025)$(43,047)$(31,212)
Interest (income) expense(3,331)(2,762)(4,963)38,476 27,420 
Income tax expense (benefit) (1)739 — — (7,205)(6,466)
Depreciation, depletion and amortization26,123 15,097 7,980 988 50,188 
EBITDA$32,453 $18,273 $(8)$(10,788)$39,930 
Accretion250 438 18 — 706 
Loss on debt financings— — — 493 493 
Non-cash compensation— — — 4,708 4,708 
%20.0 %
(1)Adjusted Cash Gross Profit Margin, which we define as Adjusted Cash Gross Profit as a percentage of net revenue.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reported period.

Please refer to “Critical Accounting Policies and Estimates” described in “Part II. Item 7. Management’s Discussion and Analysis of our Financial Condition and Results of Operations” of our annual report on Form 10-K filed with the SEC on February 15, 2024, from which there have been no material changes.

New Accounting Pronouncements Not Yet Adopted

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures, which requires additional information regarding income taxes paid and specific categories in the rate reconciliation. The ASU is effective for annual periods beginning after December 15, 2024. Early adoption is permitted. We are evaluating the additional disclosure requirements and beginning to assess the impact of adopting this ASU.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which expands disclosure about significant segment expenses. The ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. We are evaluating the additional disclosure requirements and beginning to assess the impact of adopting this ASU.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
We are exposed to certain market risks arising from transactions that are entered into in the normal course of business. Our operations are highly dependent upon the interest rate-sensitive construction industry as well as the general economic environment. Consequently, these marketplaces could experience lower levels of economic activity in an environment of rising interest rates or escalating costs. For a discussion of quantitative and qualitative disclosures about market risk, please refer to the Annual Report from which our exposure to market risk has not materially changed.
 
ITEM  4. CONTROLS AND PROCEDURES
 
Disclosure Controls and Procedures
 
Summit Inc. and Summit LLC maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), that are designed to ensure that information required to be disclosed in Summit Inc.’s and Summit LLC’s reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to Summit Inc.’s and Summit LLC's management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Consistent with guidance issued by the Securities and Exchange Commission that an assessment of internal controls over financial reporting of a recently acquired business may be omitted from management's evaluation of disclosure controls and procedures, management is
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excluding an assessment of such internal controls of Argos USA from its evaluation of the effectiveness of the Summit Inc.’s and Summit LLC’s disclosure controls and procedures. The Company acquired all of the outstanding equity interests in Argos USA in January 2024. Argos USA represented approximately 49.6% of the Company’s consolidated total assets at March 30, 2024. Argos USA net revenue included in the Company’s consolidated results for the fiscal quarter ended March 30, 2024 was $352.4 million. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives. Summit Inc.’s and Summit LLC’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of Summit Inc.’s disclosure controls and procedures as of March 30, 2024. Based upon that evaluation, Summit Inc.’s and Summit LLC’s Chief Executive Officer and Chief Financial Officer concluded that, as of March 30, 2024, Summit Inc.’s and Summit LLC’s disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
 
Changes in Internal Control over Financial Reporting
 
There was no change in Summit Inc.’s or Summit LLC’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during their last fiscal quarter that has materially affected, or is reasonably likely to materially affect, their internal control over financial reporting, except that, as reported above, the Company acquired all of the outstanding equity interests in Argos USA in January 2024. As a result, Summit Inc. and Summit LLC are currently integrating Argos USA’s operations in their respective overall system of internal control over financial reporting and, if necessary, will make appropriate changes as they integrate Argos USA into their overall internal control over financial reporting process.

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PART II—OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
The information set forth under Note 12, "Commitments and Contingencies," to Summit Inc.’s unaudited consolidated financial statements is incorporated herein by reference.

ITEM  1A. RISK FACTORS
 
Except as set forth below, there have been no material changes to the risk factors disclosed under Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023. The information below updates, and should be read in conjunction with, the risk factors and information disclosed under Item 1A. of our Annual Report on Form 10-K for the fiscal year ended December 30, 2023.

We may incur significant costs in connection with pending and future litigation, including with respect to antitrust matters.

We are, or may become, party to various lawsuits, claims, investigations, and proceedings, including but not limited to personal injury, environmental, antitrust, tax, asbestos, property entitlements and land use, intellectual property, commercial, contract, product liability, health and safety, and employment matters. The outcome of pending or future lawsuits, claims, investigations or proceedings is often difficult to predict and could be adverse or material in amount. Developments in these proceedings can lead to changes in management’s estimates of liabilities associated with these proceedings, including as a result of rulings or judgments by a judge, agency, or arbitrator, settlements, or changes in applicable law. A future adverse ruling, settlement, or unfavorable development could result in charges that could have a material adverse effect on our business, financial position and results of operations. In addition, the defense of these lawsuits, claims, investigations and proceedings may divert our management’s attention, and we may incur significant costs in defending these matters.

For example, in January 2021, our subsidiary Argos USA entered into a Deferred Prosecution Agreement (the “DPA”) with the U.S. Department of Justice (“DOJ”) related to antitrust violations relating to the sale of ready-mix concrete in the greater Savannah, Georgia area by a small number of employees who joined Argos USA in October 2011 through an asset acquisition and were subsequently terminated. Pursuant to the DPA, Argos USA paid a monetary penalty of $20 million and was required, among other things, to periodically review and update its antitrust compliance program. Following the conclusion of the DPA’s three-year term, the criminal charges brought against Argos USA by the DOJ were dismissed. Argos USA’s failure to comply with the terms and conditions of the DPA could result in additional criminal prosecution or penalties as well as continued expenses in defending in these proceedings. In addition, in June 2023, Argos USA entered into a Settlement and Compliance Agreement (the “SCA”) with the U.S. Federal Highway Administration that requires, among other things, appointment of an independent monitor until June 2025 to monitor, among other things, bids or awards of publicly funded contracts in Georgia and South Carolina for its ready-mix and cement business. For additional information regarding the DPA, the SCA and certain other legal matters, see Note 12, “Commitments and Contingencies” in the notes to our unaudited consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

In addition, Argos USA has been named a defendant in a putative class action filed under the caption Pro Slab, Inc. et al. v. Argos USA LLC et al. on behalf of purchasers of ready-mix concrete on November 22, 2017 in the U.S. District Court for the District of South Carolina and includes allegations of price-fixing, market allocation and other anticompetitive practices in the Savannah, Georgia and Charleston, South Carolina markets, seeking monetary damages and other remedies. This case was stayed on February 9, 2022 pending the resolution of the same criminal indictments, and only limited, written discovery may proceed while this stay is in effect.

ITEM  2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM  4. MINE SAFETY DISCLOSURES
 
The information concerning mine safety violations and other regulatory matters required by Section 1503(a) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 104 of Regulation S-K (17 CFR 229.104) is included in Exhibit 95.1 to this report.
 
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ITEM  5. OTHER INFORMATION

During the three months ended March 30, 2024, no director or officer (as defined in Rule 16a-1(f) of the Exchange Act) of the Company or a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408(a) of Regulation S-K.
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ITEM  6. EXHIBITS
2.1
3.1
3.2
3.3
3.4
3.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
Amendment No. 7, dated as of January 12, 2024, to the Amended and Restated Credit Agreement, dated as of July 17, 2015 (as amended by Amendment No. 1, dated as of January 19, 2017, Amendment No. 2, dated as of November 21, 2017, Amendment No. 3, dated as of May 22, 2018, Amendment No. 4, dated as of February 25, 2019, Amendment No. 5, dated as of December 14, 2022 and Amendment No. 6 dated as of January 10, 2023), among Summit Materials, LLC, as the borrower, the guarantors party thereto, the several banks and other financial institutions or entities party thereto, Bank of America, N.A., as administrative agent, collateral agent, L/C issuer and swing line lender and the other parties thereto (incorporated by reference to Exhibit 10.3 to Summit Materials, Inc.’s Current Report on Form 8-K filed on January 12, 2024 (File No. 001-36873)).
10.12
10.13*
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31.1*
31.2*
31.3*
31.4*
32.1**
32.2**
32.3**
32.4**
95.1*
99.1*
101.INS*Inline XBRL Instance Document - the instance document does not appear in the interactive data file because XBRL tags are embedded within the inline XBRL document
101.SCH*Inline XBRL Taxonomy Extension Schema Document With Embedded Linkbase Documents
104.1*
Cover Page from the Company’s Quarterly Report on Form 10-Q for the quarter ended March 30, 2024,
formatted in Inline XBRL (and contained in Exhibit 101).

*     Filed herewith
**   Furnished herewith
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them other than for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned thereunto duly authorized.
 
   
 SUMMIT MATERIALS, INC.
 SUMMIT MATERIALS, LLC
   
Date: May 2, 2024By:/s/ Anne P. Noonan
 Anne P. Noonan
 Chief Executive Officer
 (Principal Executive Officer)
Date: May 2, 2024By:/s/ C. Scott Anderson
C. Scott Anderson
Chief Financial Officer
(Principal Financial Officer)
Date: May 2, 2024By:/s/ Brian D. Frantz
Brian D. Frantz
Chief Accounting Officer
(Principal Accounting Officer)

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