Good morning, and welcome to Builders FirstSource's 4th Quarter 2017 Earnings Conference Call. Today's call is being recorded and will be archived at www.bldr.com. It is now my pleasure to introduce Ms. Jennifer Busquino, Senior Vice President and Investor Relations. Please go ahead.
Thank you. Good morning and welcome to the Builders FirstSource 4th quarter and fiscal 2017 earnings conference call. Joining me today on the call is Chad Crow, Chief Executive Officer and Peter Jackson, Chief Financial Officer. A copy of the slide presentation referenced on this call is available on the Investor Relations section of the Builders FirstSource website at bldr.com. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time. Any reproduction of this call, in whole or in part, is not permitted without prior written authorization of Builders FirstSource. And as a reminder, this conference call is being recorded today, March 1, 2018. Volaris FirstSource issued a press release after the market closed yesterday. If you don't have a copy, you can find it on our website.
Before we begin, I would like to remind you that during the course of this conference call, we may make statements concerning the company's future prospects, financial results, business strategies and industry trends. Such statements are considered forward looking statements under the Private Securities Litigation Reform Act of 1995 and are subject to certain risks and uncertainties, which could cause actual results to differ materially from expectations. Please refer to our most recent Form 10 ks filed with the SEC and other reports with the SEC for more information on those risks. The company undertakes no obligation to publicly update or revise any forward looking statements. The company will discuss adjusted results on this call.
We have provided reconciliation of non GAAP financial measures to their GAAP equivalents in our earnings press release and detailed explanation of non GAAP financial measures in our Form 8 ks filed yesterday, both of which are on our website. At this time, it's my pleasure to turn the call over to Mr. Chad Crow.
Thank you, Jen, and good morning. Welcome to our Q4 fiscal 2017 earnings call. I will start with a brief update on our 4th quarter performance and an update on our execution against our 2017 priorities as well as our longer term strategic growth initiatives. Then I will turn the call over to Peter, who will discuss our financial results in more detail. After our closing comments regarding our outlook, we will take your questions.
Let's start on Page 4 of the presentation. I continue to be impressed by the execution of our 15,000 associates across our 4 0 2 locations as we work to further enhance our position as a preferred supplier to our customers. Our sales for the Q4 of $1,800,000,000 represent a solid increase in sales per day of 13.2% over 2016 excluding closed locations. This growth was benefited by commodity price inflation approximately 7.6%. Sales volume per day excluding closed locations grew approximately 7.5% in the single family homebuilding end market and approximately 5.2% in the repair and remodeling and other end market.
Turning to Slide 5. Throughout the year, we experienced rapidly rising commodity prices. Framing lumber and sheet good prices increased 21 percent 18% in 2017 respectively. These price fluctuations cause an ongoing short term gross profit margin compression, but I'm very pleased with our organization's responsiveness to the challenge and ability to mitigate the impact. As we manage through this period of commodity price inflation, we expect these higher prices will benefit our profitability in the longer term.
I am also pleased to report that our increased investments in manufacturing capacity continue to pay off with 11% growth in sales of manufactured products in the year faster than the overall growth of the residential housing market. Our growth in other value added products of windows, doors and millwork, which are sold to the multifamily and R and R markets as well as to our single family building customers, grew 6.1% this year, also faster than the overall markets they serve. We are accelerating our manufacturing and value added investments and expanding capacity further in 2018, including 3 new truss plants, 9 new lines in existing plants, one new millwork facility and capacity additions to many more. Our value added products provide a solution to the growing demand to build homes more efficiently, addressing labor constraints and rising costs. We are committed to growing these higher margin products faster than the housing market and adding to our already unparalleled scale of manufacturing facilities strategically located across the country.
Moving on to Page 6 with an overview of the housing market. The outlook for new residential housing remains very bright. We have reached approximately 1,200,000 annual starts with approximately 850,000 of those being single family starts. This remains approximately 25% below the historic average, just now reaching levels that we have seen in previous recessionary troughs. We are anticipating mid to high single digit growth in the single family homebuilding market for 2018, a supportive market environment in which to continue to execute our profitable growth plans and strategic priorities and what we believe to be multiple years of continued growth ahead of us.
Turning to Slide 7, I am pleased to report that we successfully delivered against our 2017 priorities. We invested in the addition of 120 net sales professionals and trainees in 2017. We are committed to these investments that will drive long term results and we plan to continue our sales expansion initiatives in 2018. It is the scale and strength of our platform that enables us to absorb the initial cost of these additions while positioning our business for continuing profitable growth in the years ahead. As I mentioned, there remains significant opportunities to increase the reach and penetration of our higher margin, value added products and our expansion initiatives are delivering results in terms of above market growth.
Our 2017 investments included opening 4 new truss plants and productivity enhancement at 20 existing plants. With the continuing well publicized labor challenges being faced by our customers, demand for these labor saving products will continue to rise as homebuilders look for ways to build homes more efficiently. We have also increased our focus on best practice implementation across the organization and have identified numerous areas to drive incremental operational efficiencies. Our logistics and back office automation initiatives are underway, valuable in their own right, but also the beginning in terms of driving our longer range operational excellence initiatives. These are designed to generate even greater value for the organization in further cost savings and customer connectivity.
Of course, our continuing focus on cash generation remains a priority, allowing us to fund these initiatives while continuing to deleverage the balance sheet. We generated $119,000,000 of net free cash flow in 2017 after funding $62,000,000 of capital investments and reduced our leverage ratio to 4.2x, 0.6x lower than prior year. Finally, we are only as strong as our 15,000 talented associates and we are committed to continuing to attract, train and retain the best people in the industry and to developing our future leaders throughout the organization. In keeping with this commitment, we have stepped up our focus on college recruiting and sales and management trainee development to create a program to grow our talent and leaders for the years ahead. Moving to Slide 8.
We continue to develop our plans to accelerate growth and further expand profitability with a primary focus on creating long term shareholder value. Strength of our core enterprise along with our focused operational excellence initiatives and investments in growing our value added product categories should enable us to double 20 16 EBITDA and 2016 level. This represents over $1,000,000,000 in cash over that time period and results in an EPS between $3.50 We are on track with the plan that we communicated last year and have updated the financial metrics to include the impact of the 2017 Tax Act. Our platform is exceptionally well positioned to take increasing advantage of accelerating growth and improved market conditions and our initiatives underway position us for expanding profit margins and growing free cash flow. We have created a realistic roadmap that balances cash generation, reinvestment opportunities and profitable growth and ongoing debt reduction to achieve our long term leverage target of 2.5x to 3x EBITDA.
Turning to Page 9. I would like to provide a bit more detail on our growth initiatives. Leveraging our core business strengths, including more than 400 locations in 75 of the top 100 MSAs, our unmatched scale and manufacturing capability and best in class sales force, we are confident that our plans will enable us to capture growth in the residential housing market that will generate an incremental $250,000,000 to $280,000,000 of EBITDA. Beyond this core growth, we will expand our national manufacturing footprint and differentiated capabilities designed to grow our higher margin value added products faster than the market over the next several years. Our plans call for investing in more than 25 new facilities over the next 4 years to drive this result, expanding our unparalleled national footprint to serve locations that do not currently have access to our higher margin products.
In addition to growing our value added products, our strategic plan includes execution of operational excellence, cost saving initiatives, including distribution and logistics, pricing and margin optimization, back office efficiencies and system enhancements that are designed to contribute between $65,000,000 $75,000,000 in incremental annual EBITDA once fully implemented. The scope and scale of our existing infrastructure, customer base and logistical capabilities means that improvements in efficiency when replicated across our network can yield substantial profit margin expansion. I have great reason to be confident about the future of our company and our ability to create substantial value for our shareholders, while improving our advantage service model for our customers, suppliers and associates. Will now turn the call over to Peter, who will review our financial results in more detail.
Thank you, Chad. Good morning, everyone. On Slide 11, I will first discuss the current quarter results and then touch briefly on our year to date results on Page 12. As a reminder, we have included adjusted figures to normalize for one time integration, closure and other costs. We have one more sales day in the Q4 of 2017 than prior year, so I will speak to our results on a sales per day basis.
For the Q4, we reported net sales of $1,800,000,000 a 13.2% increase compared to the Q4 of 2016, excluding the impact of closed locations and including an estimated 7.6% benefit from commodity price inflation. We estimate that our sales volume grew approximately 7.5% in the single family new residential homebuilding end market and 5.2% in the repair and remodelother end market with expected market driven declines in multifamily. Our gross margin percentage was 24.2%, down 110 basis points from 25.3% in the Q4 of 2016. The decrease on a year over year basis was largely attributable to the higher commodity prices. Framing lumber and sheet goods prices increased 21% 18% from year end 2016 to year end 2017 respectively.
Commodity inflation will cause short term gross margin percentage compression when prices are rising and margin percentage expansion when prices are falling due to the short term pricing commitments we provide customers versus the volatility of the commodity markets. Additionally, higher sales in commodity products had a negative mix impact on gross margin percent. These price fluctuations caused some ongoing short term gross margin profit compression, but I am pleased with the company's ability to mitigate the impact. I expect that as commodity prices stabilize, the company will begin to benefit from higher commodity prices, enhancing our go forward profitability. Our SG and A as a percentage of sales decreased by 140 basis points on a year over year basis.
The reduction was largely driven by cost savings and leverage achieved, while absorbing the cost of our investments and growth initiatives, including additional sales associates and new facilities. Interest expense for the quarter of $89,500,000 includes 56 point $3,000,000 associated with the one time cost associated with redeeming our 10.75 unsecured notes. This transaction reduced our go forward interest expense by approximately $35,000,000 per year. Income tax expense of $18,000,000 included $29,000,000 related to the revaluation of our deferred taxes as a result of the 2017 Tax Act. Excluding this non cash revaluation, adjusted income tax expense decreased by $14,200,000 compared to 2016, largely attributable to the premium paid on our debt refinancing transaction.
Adjusted net income for the quarter was $46,600,000 or $0.40 per diluted share, compared to adjusted net income of $18,300,000 or $0.16 per diluted share in the Q4 of 2016. 4th quarter adjusted EBITDA grew $12,000,000 or 14.2 percent to $96,900,000 The year over year improvement was largely driven by sales increases, cost leverage and disciplined cost management, offset by the impact of commodity inflation on gross margin and investments the company made in growth initiatives, including an increase in sales associates and new locations. Switching now to the year to date financial highlights, please turn to Page 12. In the face of the commodity price inflation pressures previously noted, the company achieved strong results for 2017, including 10.7 percent sales growth, 9.8 percent EBITDA growth, 56% growth in net income and $119,100,000 of net cash flow generation, which even after funding our strategic growth investments enabled ongoing debt reduction. Eliminated our most expensive notes, reducing go forward interest by $35,000,000 per year.
We reduced net leverage by 0.6 turns as compared to a year ago to 4.2 times. As we move into 2018, free cash flow generation will continue to be a priority as we continue our balanced approach to strategic investments in our future along with continued deleveraging. Turning to Page 13. We expect free cash flow generation will be utilized to continue our balanced approach to strategic investments and continuing to pay down debt. We believe that this will be enabled by EBITDA growth and a focus on working capital efficiency, which is estimated to run approximately 10% of incremental sales.
We expect to increase investment in our business through capital expenditures at approximately 1.7 percent of sales. We expect our current NOL tax asset to shelter us from paying all but approximately $15,000,000 to $20,000,000 of cash taxes in 2018. As a result of the opportunistic capital market transactions we executed in 2017, cash interest will be reduced to $95,000,000 to $100,000,000 in 2018. We expect one time costs of approximately $20,000,000 As a result, we expect to generate $170,000,000 to $190,000,000 in net free cash flow for the full year of 2018. We expect to utilize cash generated to pay down debt and to fund strategic growth investments as we expect to reduce our leverage to 3.5 times or better by year end, which is within our long term target range.
I would like to provide color on the Q1 of 2018 as well as how we are currently thinking about 2018. For full year 2018, we expect single family starts to grow in the mid to high single digit range. R and R market growth of approximately 3% and continued declines in the multifamily end market. Whether single family starts can grow at the high end of that range will, in our opinion, depend on construction labor availability. We anticipate 4 to 6 points benefit from commodity prices on our sales.
From a gross margin perspective, the recent lumber and panel price moves will continue to constrain our gross margin early in the year. However, by later in the year, we expect to return to a more normalized gross margin in the 20 5% range. The year over year commodity driven gross margin compression should not be nearly as impactful as it was on our 2017 results, allowing us to get back to a more normalized EBITDA conversion of 12% to 15% in 2018 before growth investments. We will continue our investment strategy in new facilities and additional sales professionals in 2018, as well as start up investments in our operational excellence initiatives combined totaling $10,000,000 to $15,000,000 incrementally. We are expecting 15% to 20 percent EBITDA growth in 2018.
The company expects the impact of the 2017 Tax Act to result in approximately a 25% effective tax rate in fiscal 2018. Additionally, the tax reform will enable us to repay debt more quickly and have additional cash on hand for our priorities, namely funding growth initiatives. For quarter 1, we will have 1 fewer selling day versus prior year. So I will talk to sales per day in our guidance for the quarter. We expect sales growth for the quarter to be up 10% to 15% on a sales per day basis over prior year with about half coming from commodity inflation.
Gross margin is expected to be flat to Q4 of 2017 as we continue to absorb the short term margin compression from the recent commodity inflation. We will maintain our focus on cost reductions and leverage while not sacrificing investing in growth initiatives. We have some timing differences year over year related to insurance and benefits costs, which will increase our SG and A in Q1 2018 by approximately $7,000,000 which we expect to be recaptured in later quarters. Overall, as a result of 1 fewer selling day and these SG and A timing issues, we expect EBITDA growth to be around 5% for the quarter. However, we are expecting 15% to 20% EBITDA growth for full year 2018.
I'll now turn the call back over to Chad for his closing comments.
Thank you, Peter. And thank you all for allowing us to share with you our progress on our ongoing investments in the company's future. There's a lot to be excited about as we enter 2018. Housing demand appears strong and while material cost inflation continues to create short term challenges, I see it as an advantage in the coming years. In addition, we will continue to leverage our core strengths to grow the top line and profits as well as creating meaningful value for shareholders through our strategic growth priorities and operational excellence initiatives.
We have laid out a plan to double EBITDA and generate over $1,000,000,000 in net cash flow and are excited about the prospects the future holds. I'll now turn the call over to the operator for Q and A.
Thank Our first question comes from Blake Hirschman from Stephens Inc. Please go ahead.
Yes. Good morning, guys, and congrats on a great quarter.
Thanks, Blake. Good morning.
First off, just wanted to get a little bit more color and insight into how you're kind of thinking about the trend in lumber prices going through the year from these sky high levels. I mean, I appreciate the detail, the 4% to 6% top line and the flat sequential margins. Just kind of curious as to when you guys are making your outlook for the year, if you expect them to pull back throughout the course of the year, stay up here or just overall?
It's been an incredible run, year, year and a half of really unprecedented inflation. I was looking at price charts a couple of weeks ago and I really thought the line was going to go vertical and actually fall back over on itself. It was so absurd. But our best guess is in the next 4 to 6 weeks, you'll probably start to see some flattening out. And I think prices will stay at healthy levels all year.
It's just the demand has been really strong. The weather has been strong. The fires late last year were creating some log shortages. And then this time of year in the winter with the colder weather, you do have transportation issues, primarily in the colder weather. Trains can only carry about half the railcars they normally would.
So all these things are just adding up to a lot of demand and a lot of pressure on price. But all in all, as we've said many times, high lumber prices is great for business. I think you will see things start to flatten out through March and into April. So that's kind of what we're counting on, maybe a little more pressure in the near term, back half of the year, hopefully a little bit of relief.
Got it. All right. Thanks for that. And then one more, just on the long term plan, the EPS update. Just to be clear, is there anything else that changed outside of tax reform and I guess the interest savings from taking out the 10.75 notes?
Was there any other assumption changes there?
No, we didn't make any changes beyond those.
Okay, great. Thanks for answering my questions
and best of luck.
Thank you.
Our next question comes from Nishu Chut from Deutsche Bank. Please go ahead.
Thank you. The The 15% to 20% EBITDA growth for 2018, can you just walk us through kind of the high level assumptions behind that just in terms of on the revenue growth and just the kind of drop through? What you're assuming in terms of the commodity headwind to gross margins and on the SG and A side?
Sure. Yes, we want to break down the revenue. We're talking about high single digits for single family, about 3% for the R and R space and then probably similar downturn that we saw in 2017 2018 for the multifamily. We're looking at the numbers around commodity inflation based on what we're seeing right now kind of in that 4% to 6% range. And then based on the growth that we're seeing in the relative space, in other words, the rapid growth in the manufactured product space, we think that that is all going to pan out to that 12% to 15% range, not including, of course, the incremental investments we're making in some of our operational excellence initiatives.
Got it. 12% to 15% incrementals you're talking about?
Incremental flow through, correct.
Got it. Okay, great.
The commodity inflation that we've seen here should make your 4 or 5 year targets that you've laid out easier to achieve. I think you mentioned that the only change you're assuming in the numbers because obviously you've updated them is the tax rate. So how should we think about it relative to the commodity inflation? Have your numbers become more conservative as a result of the unprecedented rate of commodity inflation?
I'll jump in if you don't mind. If you assume lumber prices stay where they are today, yes, there's probably a little bit of conservatism in there, but we all know that's not going to happen. Lumber prices never stay stable for a 4 or 5 year period. But assuming they did, yes, you're correct.
Got it. Got it. Okay. And just finally, obviously, in this dramatic increases in lumber prices has the effect, which you always lay out very well, the near term effect on gross margins, longer term it benefits. Has this unprecedented rate of inflation kind of reduced that near term drag?
In other words, obviously a lot of demand for lumber, single family trends have been very, very strong. Has that reduced the period of kind of price guarantees and maybe lessened the shorter term drag from the commodity inflation?
Are you asking if our pricing structure has changed with our like with our National Builders, for example?
Exactly, yes. So some other
your lookouts are shorter now, lesser effect on the gross margin.
No, there really hasn't been any change in the pricing structure that we have with the national builders thus far.
Got it. Got it. Okay, great. Thank you.
Our next question comes from Will Randell from Citi. Please go ahead.
Hey, good morning guys and congrats on the progress.
Thank you. Good morning.
I guess in terms of your growth investments, could you dig
into a little
bit more detail there? The I believe $10,000,000 to $15,000,000 you're looking to spend this year, what that run rate may look like over the next couple following that? And also on CapEx at 1.7%, when do you think you'll kind of stabilize closer to 1.5
Yes. So, I'll kind of answer those in inverse order. The CapEx number of 1.7%, we had a little bit of timing at the end of 2017 with a couple of projects that rolled over into 2018. So we're sort of feeling like we're still in the band for that period. With the change in the tax code and us continuing to look at growth opportunities over the upcoming years, we'll update you if we change it.
But right now, we're staying in that 1% to 1.5% band. As far as the comparisons year on year for the investments, we had about an incremental 2,500,000 dollars in the Q4 related to our investments in locations and salespeople primarily for about $10,000,000 year over year. And then for next year, we've got another $10,000,000 that's going to be broken up, new locations, additional sales people. We won't lap the full load of those incremental salespeople until probably the end of Q1, so in Q2. And then OpEx investments represent the rest.
So operational excellence items that we're spending money on teams and some help on that area.
And just to be clear, after this $10,000,000 to $15,000,000 the following year, you're thinking about $10,000,000 is that incremental? Or could that be at the midpoint of $2,500,000 step down?
For 2018, we see that as incremental, but we think that starts to put us in a healthy space for the investments that we want to make.
And just as a last follow-up on operational excellence, can you talk about kind of what buckets you expect to see cost savings and how that may offset some of the increase in sales spend, for example?
Yes. The main buckets we're looking at is pricing and margin optimization, delivery optimization and then back office automation and efficiencies there. And we've laid out a number at the maturity down the road. We're probably looking at incremental annual savings somewhere in the $50,000,000 to $60,000,000 range. Those are broken out about a third, a third, a third in each of those buckets I just gave you.
And that starts kind of heading towards the end of this year?
Well, we'll get a little bit of benefit this year. I would estimate full maturity on some of these initiatives. It's probably 3 to 4 years out.
Okay. Thanks guys and good luck in 2018.
Thank you. Thank you.
Our next question comes from Mike Dahl from Barclays. Please go ahead.
Hey, this is Matthew Bouley on for Mike today. Thanks for taking the questions.
Good morning, Matt.
Good morning. So you outlined kind of a pathway to the 3.5 times leverage by the end of 2018. Could you just outline, now that you're reaching these levels, kind of your expectations on returning to the M and A market at this point?
Yes. We're not in a hurry. We've got a lot to say grace over right now and a lot of things we're looking at internally that I think can drive some real value. But when we acquired ProBuild and took on the leverage, we knew we would have 2 or 3 years of being kind of out of the M and A market and we're sticking to that plan. I think by the end of 'eighteen, as you said, we will have kind of gotten to the promised land from a leverage standpoint.
So later this year, maybe we start entertaining things. But as I said, we're really in no hurry right now.
Got it. Thank you for that. Second question, the working capital guide, 10% of incremental sales. Just question is really how we should think about the pace of inventory investment here just in light of the lumber inflation and kind of your expectations around inventory within that guide? And I know you outlined the completion of the delivery management integration with ERP, I guess, that's playing into it at all?
Thank you.
Well, the incremental working capital is pretty well within our range. We consistently talk about 9% to 10%. There's clearly a headwind in that number associated with the inflation, right? The same sticks of lumber are worth a bit more. And we are a seasonal user.
So just to remind everybody, we're going to build up inventory in Q1 and Q2 and then burn that inventory off in the back half of the year. That's pretty consistent with what we've done in the past. I think that hits on your main points.
Okay, got it. Thank you very much.
Our next question comes from Alex Rygiel from B. Riley FBR. Please go ahead.
Good morning. Nice quarter, gentlemen.
Thank you. Thank you.
Two quick questions. First, can you talk a little bit about the benefit of the hurricanes from Texas and Florida that rolled over into the Q1 and you're in the Q4 that are rolling over into the Q1 and into maybe the Q2 of this year?
Yes. We've talked about that in prior quarters. I really think the governor on all that's going to be the availability of labor. And so I think you're going to start seeing some benefit on the rebuild going on in Houston and Florida over the next year or 2. But I really think the availability of labor is going to limit how much that growth can really be in those markets.
So overall, it's an absolute positive over the coming years, but I think it's just going to bleed in so slowly over the next year or 2.
And then to follow-up on an earlier question, your longer term EBITDA goal that you set out a little while ago was before the inflation of commodities, was before a number of the additional sales people that you've added and it was before a lot of the new value added plants that are coming online and are planned for next year. So why not raise the long term EBITDA goal at this point in time?
So a couple of points. I guess the point on inflation, fair, like Chad mentioned, we'll as things stabilize, we'll start to feather that in as it makes sense. We have not. We left a static commodity number in our forecast. Those other items though were included.
We did have the expanding sales force as an initiative, the additional value add as initiatives and we continue to include the benefit from the operational excellence initiatives as well. We tried to break that out on Slide 9 in the presentation to give everybody a better feel, but those were the items that we've been counting on as our strategic plan since we rolled this out. So that's not new.
Fair enough. Thank you.
Our next question comes from Jay McCanless from Wedbush. Please go ahead.
Hey, good morning, everyone. A couple of housekeeping items. Could you let us know what we should use for D and A this year, as well as what did you say the tax rate provision is going to be?
25% and $100,000,000 in D and A.
Okay, perfect. And then the second question I had, very strong growth in R and R this quarter, but then guidance for about 3% growth as we move into 2018. Can you talk to us about what's going on there and why that growth that we saw in the 4th quarter isn't going to be sustainable as we go into the rest of the
year? Well, we're guiding the 3% growth in full year 2018. We did have a little bit stronger Q4 in R and R. But keep in mind, a lot of our R and R business is up in Alaska, and that's going to be a little bit sluggish up in Alaska, we think, in 2018 again.
Okay.
And then the other question
I had on the gross margin guidance, so probably something sub-twenty 5 percent for the first couple of quarters and then go into 25%, maybe 25% plus in the back half of 'eighteen. Is that the right way to think about it?
Directionally, yes.
Okay, great. Thanks for taking my questions.
Thank you.
Our next question comes from Matt McCall from Seaport Global Securities. Please go ahead.
Thank you. Good morning, everybody.
Good morning, Matt.
So the new truss plants, the new lines, new millwork facilities, new door shops, additional salespeople, can you go through all the additions?
And I
know I understand that it's in your longer term outlook. Kind of the additions in 2017, what quantify maybe on a percent basis, if you can, the percent additions to both sales capacity and to physical capacity. And what does that look like in 2018? I guess I'm trying to get at you outperformed starts. And is that are all the investments fully layered in or we're going to see residual benefits as we move out into 2018?
And how long do the benefits last that you're going to make in 2018?
Well, I'll let Chad talk some of the specifics. He's got some exciting commentary about the individual things we're doing. I think broadly, we do have these feathering in as they come online. As you know, opening the doors doesn't equate to full production and full profitability. But yes, absolutely, these are coming online to get to that 1 year breakeven amount, and then they start contributing back, right?
So that means some of the things we did in 2017 are the things that are going to really move the needle in 2018 and on a go forward basis. Rule of thumb, particularly on the manufacturing, the truss plants, dollars 5,000,000 to $7,000,000 cost, dollars 15,000,000 to $20,000,000 a year in revenue. So you're generating EBITDA about $2,500,000 a year once they're up and running. These like you said, very nice for us, a nice contribution, but they're going to feather in over time.
Yes. And so we've got we opened 4 new plants in 2017. Right now, we have scheduled to open 3 new truss plants in 2018. And then some of the efficiency gains are also in upgrading the existing plants, putting in automated lines, overhead laser projection. Those when you do all those things to a plant, you can add anywhere from 20%, 30%, 35% efficiency to those plants.
So combined, there's a lot to get excited about in growing the value added side of the business.
So and I think thank you, Chad. So Peter, earlier you were asked about how you get to the high end and you talked about the market assumptions that you were making there. What about your the company's performance 17? In your outlook for 2018, maybe compared to 2017 even?
Well, for 2018, what's included is the benefit of those value add product growth components. That's the biggest contributor. In the near term, the effect of the investment and the effort of the team is going to be pretty modest on the bottom line. There is some benefit there, but it's a lot of offset in the raw numbers. As we get into the out years, as Chad was referring to, that's where we start to see the outsized benefit of the operational excellence initiatives.
The value add stuff, that's more of a cumulative snowball type of
fact. It's a good trade up. There's a little bit of cannibalization when you convert a builder, for example, from stick framing to trusses. But that's a trade will take all day long because it's a much higher margin for
us.
Okay. Those still does represent share growth.
Yes. Okay. So said differently, maybe this year there's not as much share growth in your assumptions. It comes in later years. Did I hear that correctly?
You use kind of market growth as our guide?
I think that's a solid place to start. There is consistent share growth year in, year out, although with the offsetting impact of cannibalization, it's probably fairly modest. What I was talking about in the out years is really around the operational excellence initiatives. Got it. Okay.
All right. Thank you all. Thank you.
There appears to be no other questions at this time. I'd like to turn the conference back to our speakers for any additional or closing remarks.
Thank you for joining our call today. We look forward to updating you on the progress of our initiatives in the quarter ahead. If you have any follow-up questions, please reach out to Jim Pasquino or Peter Jackson. Thank you.
This does conclude our conference for today. Thank you for your participation. You may disconnect.