U.S. Concrete, Inc.
Q3 2015 Earnings Call Transcript

Published: 5 Nov 2015

[Operator:]

Good day, ladies and gentlemen, and welcome to your U.S. Concrete Third Quarter 2015 Earnings Conference Call. At this time, all participants will be in a listen-only mode. Later, there will be a chance to ask questions and instructions will be given at that time. [Operator Instructions] And, as a reminder, today’s conference is being recorded. And now, I’ll turn it over to your host Kathy Kantor. Kathy, please go ahead.

[Kathy Kantor:]

Thank you, John. Good morning and welcome to U.S. Concrete’s third quarter 2015 earnings conference call. Joining me today on the call today is Bill Sandbrook, our President and Chief Executive Officer. Bill and I will make some prepared remarks, after which we will open the call to your questions. Before I turn the call over to Bill, I would like to cover a few administrative items. U.S. Concrete would like to take advantage of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Certain statements in this conference call may be considered forward-looking statements within the meaning of that Act. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially. For a list of these factors, please refer to the legal disclaimers contained in our filings with the Securities and Exchange Commission. Please note that you can find the reconciliation to non-GAAP financial measures that we will discuss on this call in the Form 8-K filed earlier today and in the Investor Relations section of our website. If you would like to be on an e-mail distribution list to receive future news releases, please sign up in the Investor Relations section of our website under E-mail Alerts. If you would like to listen to a replay of today’s call it will be available in the Investor Relations section of our website, under Events and Presentations. Now, I would like to turn the call over to Bill, to discuss the highlights for the third quarter of 2015.

[William Sandbrook:]

Thank you, Kathy. We are very pleased with our third quarter performance, in which we achieved record results across revenue in all of our profit metrics while further strengthening our balance sheet. We increased our revenue by 49% to $295 million and grew our adjusted earnings per diluted share by 86% to $1.97. This sustained improvement is a strong validation of our entire operating strategy across our attractive construction material categories. We increased our ready-mixed concrete price by12.6% year-over-year marking the 18th straight quarter of improvement. On a like-for-like basis, we improved our ready-mixed average price by 7.1%. This is largely a result of our ongoing efforts to consolidate our markets, establish leadership positions and focus on high barrier to entry commercial projects. Our pricing success combined with our increasingly vertically integrated positions allowed us to improve our ready-mixed concrete material spread by 170 basis points year-over-year, resulting in significant improvement in our profitability. We increased our adjusted EBITDA by 83% to $49 million, and expanded our margin by 310 basis points to 16.7%. During the quarter, we increased our ready-mixed shipments by 33% with like-for-like shipments up 7% across our markets and the remainder owed to our highly successful acquisitions completed during the past year. On a reported basis, our acquisitions are providing benefits to our overall volume and price performance. Given much of our recent ready-mixed expansion activity has been completed in higher priced markets. On the profit side, we are also realizing the accretive benefits of our larger regional positions, favorable synergies and an increasing mix of internally supplied aggregates. To that end, during the third quarter we acquired three strategically positioned aggregate operations which are all directly aligned with our strategic objectives to expand our construction material operations and strengthen our vertically integrated capabilities. In August, we acquired two sand and gravel operations from E&A Materials, Inc. and Pitts Sand & Gravel, Inc. in North Texas and Southern Oklahoma. This was a unique opportunity for us to improve our operating efficiencies in those markets. Upon closing the transaction, we immediately began combining the efforts of the acquired aggregates businesses into one cohesive unit with our existing ready-mixed concrete assets to create a tight vertical operation. In September, we acquired Wantage Stone, a site development quarry in Northern New Jersey, with 19 million tons of proven and permitted reserves, and an additional 19 million tons of unpermitted yet available reserves. We have operated the quarry under a lease arrangement for the past year, but the proximity of the reserves within reach of essentially all of our ready-mixed operations in the greater New York metro area solidified our decision to take ownership of these assets at very attractive returns to our company. Additionally, the acquisition provides an extremely rare opportunity due to permitting restrictions to open additional production capacity in Northern New Jersey. After the close of the quarter, we also acquired two strategically integrated companies located in the U.S. Virgin Islands, serving key Caribbean markets. I’d like to take a moment to discuss our strategic rationale. Since 2011, we have demonstrated our ability to consolidate markets. Vertically integrate operations and grow our margins by buying and integrating local peers largely in existing and adjacent markets. More broadly, our focus has been to establish and build defensible market positions in good construction markets. This acquisition marked our entry into a new geography with a leading aggregates base position that aligns with that overarching strategy. Specifically, we acquired Heavy Materials, the largest producer of aggregates and ready-mixed concrete in the U.S. Virgin Islands. Heavy is a key supplier of aggregates to our other acquired company, Spartan Concrete Products, a leading local ready-mixed concrete producer in the region. The combined operations of Heavy and Spartan create a regional leader with a stronger vertically integrated platform to serve an extensive base of new and existing customers throughout select islands in the Caribbean. Additionally, Heavy also leases an industrial water front property that it utilizes as a marine terminal and sales yard, providing flexibility for opportunistic aggregate sales to other islands in the Caribbean. We believe this is an important step forward for our company, as we continued to expand our footprint in attractive markets and capture economies a scale. We are extremely excited integrate these assets into our platform. As we consider our strong pipeline of strategic growth opportunities. We remain disciplined with our long-term capital allocation approach and have an efficient capital base to continue enhancing our profitability and maximizing shareholder value by executing accretive acquisitions. Overall the economic fundamentals across our markets, our pointing towards continued positive outlook and we have a very robust project pipeline into 2016. The greater San Francisco, New York, New Jersey, Washington D.C. and Dallas-Fort Worth metro areas continued to exhibit positive long-term fundamentals, including rising employment, improving municipal budgets and increased construction activity, which I will support a favorable demand environment for our company. Further evidence of strong momentum in our market is supported by recent employment statistics from the U.S. Bureau of Labor. Three of our top markets, rank in the top five for 12 month total employment growth, including New York, Dallas and Washington D.C. Also three of our top markets rank in the top seven, in terms of percent change in employment growth for the same time period, including San Jose and San Francisco rank number one and two, along with Dallas. In Dallas-Fort Worth in particular, we experienced in encouraging pickup in activity during the third quarter, following a buildup of project backlog in the first half due to severe weather. In West Texas, our revenue mainly increased as a result of higher prices. In Texas overall public infrastructure markets, a very bright outlook with strengthening state and municipal budgets along with Proposition 1 project starting to populate industry contract awards. As a reminder, Prop 1 passed at November 2014 provides $1.7 billion or an approximately 15% increase in funding annually to Texas transportation budgets. Furthermore, Proposition 7, which passed by an overwhelming majority of 83% to 17% earlier this week, provides an approximate 30% increase in funding tailwinds for transportation project activity beginning in September 2017. While we focus mainly on private construction activity Prop 1 and 7 are major catalysts for the overall health of the Texas construction industry, which is positive. Before I turn the call back to Kathy, I just like to say they were making progress on our search for new Chief Financial Officer, and we will update you as appropriate. In the interim, we have a significant depth of talent within our existing financial team, led by Kathy, who continues to oversee our financial efforts during this transition period. Now, I would like to turn the call back to Kathy to discuss our third quarter results in more detail.

[Kathy Kantor:]

Thank you, Bill. During the third quarter, we achieved significant operating leverage in our business to further improve our profitability and generate additional cash flow. Consolidated revenue of $295.1 million, was up $97.5 million or 49.4% year-over-year for the third quarter. Acquisitions completed during the trailing 12 months ended September 30, 2015, including four acquisitions during the first nine months of 2015, accounted for approximately $72 million or 74% of the incremental revenue during the third quarter of 2015. Ready-mix revenue increased by $88.6 million or 50.3% year-over-year. We realized an increase in our average selling price of 12.6% to $125.10 per cubic yard compared $111.15 per cubic yard in the prior year quarter. Our average selling price increase in all of our markets except Washington D.C., which was impacted by the mix of commercial versus residential projects. Our ready-mix volume increased 33.1% to $2.1 million cubic yard driven by acquisition and organic improvement. We were pleased to achieve a 17th consecutive quarter of growth in our ready-mix volumes. Acquisitions accounted for approximately $63 million or 71% of our incremental ready-mix revenue during the third quarter of 2015. Our estimated annual run rate ready-mix volumes acquired during 2014, totaled approximately $700,000 cubic yard with the majority of this being added in the fourth quarter. During 2015, our four acquisitions completed during the first half of the year, added an additional $1.1 million cubic yard for a total of $1.8 million cubic yard and run rate volume added since the beginning of 2014. Our three acquisitions completed during the third quarter of 2015 were mainly aggregate focused. During the third quarter of 2015 aggregate products revenue increased by $1.8 million or 10.6% year-over-year to $19 million. Our ready mix concrete raw material spread increased $9.07 million per cubic yard to $62.73 million per cubic yard compared to the prior year quarter. This represents a 170 basis point expansion in raw material spread margins year-over-year to 49.9%. Part of the improvement in material spread this quarter was due to regional volume distribution, as we had a higher mix of our volumes from the New York metropolitan and Northern California markets, where our material spread is higher. Also, the addition of our volumetric ready-mix concrete operations has enhanced the material spread in North Texas compared to the same period in 2014. Consolidated adjusted EBITDA increased by $22.4 million or 83.3% to $49.3 million compared to $26.9 million in the prior year quarter. Acquisitions accounted for $11.1 million or 49.6% of incremental adjusted EBITDA during the third quarter of 2015. With the reminder attributable to favorable leverage on higher revenues and the expanded raw material spread. Adjusted EBITDA as a percentage of revenue was 16.7% for the third quarter of 2015, compared to 13.6% for the prior year quarter. Our SG&A expense was 8% of revenue, compared to 7.8% of revenue in the prior year quarter. Excluding non-cash stock compensation, severance, and acquisition related professional fees, SG&A expense as a percentage of revenue was 6.8% compared to 6.9% in the prior year quarter. The slight improvement year-over-year is primarily related to higher revenues which more than offset additions to our workforce to sustain our growth going forward. We continue to aggressively manage our SG&A margin, but anticipate that we will continue to incur transactional related expenses as we pursue additional acquisitions. Moving to our cash flow and balance sheet. During the third quarter of 2015, we improved our free cash flow by $1.7 million to $16.9 million, compared to a $15.2 million in the prior year quarter. The improvement in free cash flow was mainly due to lower capital expenditures. Year-to-date, we generated free cash flow of $45.7 million as of September 30th 2015 compared to $4.1 million as of September 30th 2014. We spent $5.3 million on capital expenditures during the third quarter of 2015 primarily to purchase plant machinery and equipment and support our growing demand in our markets. As of September 30, 2015, the book value of our long-term debt, including current maturities, was $292.1 million. This included $200 million of senior secured notes due 2018, $56.3 million on a revolving credit facility and $35.8 million of other debt consisting mainly of equipment financing for new mixer trucks and mobile equipment. As of September 30, 2015, we had total liquidity of $112.1 million, including $8.6 million of cash and cash equivalents. As of September 30, 2015 we had $56.3 million in borrowings outstanding under our revolving credit facility, which was used primarily to fund acquisitions during 2015. Additionally, we had a $11.3 million of undrawn letters of credit outstanding. This left us with $103.5 million of availability as of September 30, 2015. Our availability is net of a $15.3 million availability reserve for outstanding letters of credit and sales tax and other reserves. Our availability is also limited by the eligible amount of our accounts receivable, inventory and rolling stock, which was $214.4 million as of September 30, 2015. At September 30, 2015, our net debt to LTM adjusted EBITDA ratio was 2.4x. We ended the quarter with a strong capital position to continue investing in our business and deploying capital on strategic growth opportunities to further grow our business and improve our balance sheet metrics over time. Now, let me turn the call back over to Bill.

[William Sandbrook:]

Thanks Kathy. The third quarter marked another quarter as significant improvement in revenue adjusted EBITDA and earnings per share reflecting solid execution on our core growth objectives. I am extremely pleased with our team’s commitment to executing our disciplined approach to growing our business to deliver these strong results in excess of expectations. We remain steadfast in our two-pronged growth strategy to grow organically through operating excellence with a keen focus on core fundamentals, and to expand through acquisitions that bolster our existing market positions and potentially open up new high-growth markets. We have built up our defensible market positions over many years, which we believe puts us in a unique position within our construction material categories to continue execute on our pricing initiatives and improving our profitability. As we look forward, we are encouraged by our prospects for further improvement as we continue to advance our long-term growth strategy. Thank you for your interest in U.S. Concrete. We look forward to reporting on our continued successes. We would now like to turn the call back over to the operator for the question-and-answer session.

[Operator:]

Great. [Operator Instructions] So, right now, our first question comes from Trey Grooms from Stephens. Trey, your line is open.

[Drew Lipke:]

Yes. Hey, Bill. This is actually Drew Lipke on for Trey. How are you doing this morning?

[William Sandbrook:]

Hey, Drew. I’m great. Thanks.

[Drew Lipke:]

First question I had, so your organic volume growth continues to be strong. It’s been very well published that construction companies and home builders are facing labor constraints which is lengthening construction cycles. Are you guys seeing that to any sort of degree and then also as you look at some of your markets such as DFW you’ve been kind of running non-stop to play catch-up from the weather, and backlogs at 45% year-over-year. In terms of working through the pent-up demand, what kind of visibility you guys have as we look into 2016 relative to this time last year?

[William Sandbrook:]

Sure. In your first question, it’s been well documented over the last six months the shortage of skilled trade labor, primarily in concrete construction, the lay down crews, as well as interior products type crews in build-out of the building. So that’s not surprising. That continues. And as we’ve said on the previous call that that is just delaying projects. Those projects need to be built and will be built. And it’s just push them into - obviously, we’ve seen some of the second quarter pushed into third, some of the third pushed into the fourth, but we are making up a significant amount of that pent-up demand and deferred demand as you can see from the activity in DFW over the past three months. And the trajectory for into next year remains intact, specifically - well in all our markets and primarily in DFW that our backlog is very, very strong. We continue to add to it. It’s up from last year and we have a very - I think very bright outlook into 2016 with great visibility into our backlog.

[Drew Lipke:]

Okay. And then on - you guys just posted the 16.7% adjusted EBITDA margin above your kind of medium term goal of 15%. Is this a sustainable level going forward and where do you guys think you could take this in time and sort of what’s the new goal now that you’ve blown through yet another target?

[William Sandbrook:]

Well, remember we’re a seasonal business, and the third quarter is our seasonally strongest business. So, I wouldn’t take that 16.7% and immediately say that’s we’re going to make in the fourth quarter or the first quarter. But nonetheless, year-over-year we’ve been able to push that margin up. I’m not going put a cap on it, Drew. I mean, we’ve had continued material margin expansion as higher input costs have been passed on to the market with additional margin by the ready-mixed producer, for us in particular. And our ability to buy well within our regions, since we’re usually the largest procurer of raw materials within the regions helps us on that margin expansion as well. So, I’m not going to cap it. It’s very robust and quarter-after-quarter, on a year-on-year basis we’ve continued to improve it and that’s what we aim to do.

[Drew Lipke:]

Okay. And just kind of one more along the same line, so on an organic basis it looks like your incremental EBITDA margins were closer to 45%. As you integrate these acquisitions, how quickly can you get these incremental EBITDA margins for the acquisitions up to kind of the organic level? And should we expect the kind of blended 23% level that you posted to continue?

[William Sandbrook:]

That’s a great question. Obviously, when you do an acquisition the synergies don’t fall into your lap and aren’t executable day one. They do take some time to roll into your financials. That’s both in purchasing synergies, where you have a better price for raw materials in the acquired company, as well as back office integrations. They usually lead to greater efficiencies and reduced SG&A over time. We’d like to have about 75% of the synergies embedded into our ongoing financials within a year. Obviously, we try to do as fast as we can, but sometime some of these things take a little bit of time and especially if you have to switch aggregate sources or whatnot or negotiate new prices. So at the end of two years, I’d fully expect all synergies to be harvested, but 75% of great majority should be within a 12-month period.

[Drew Lipke:]

All right. Thanks, Bill. Best of luck.

[William Sandbrook:]

Thank you. Thanks, Drew.

[Operator:]

Okay, thank you. And our next question comes from Todd Vencil from Sterne Agee. Please go ahead, Todd. Your line is open.

[Todd Vencil:]

Thanks. Hey, Bill. Hey, Kathy.

[William Sandbrook:]

Hey, Todd.

[Kathy Kantor:]

Hey, how are you?

[Todd Vencil:]

I’m doing well. Thanks. Let’s think about ready-mixed pricing for a second, very nice performance in the quarter. We talk some in the first-half, I guess, about the rain in Texas maybe causing some positive but temporary mix tailwinds as you saw more volumes coming from the other regions, but then we saw a nice price this quarter too. I mean, was there any mix influence on the third quarter price at a $125 a yard or is that pretty much kind of a normalized price?

[William Sandbrook:]

I would say there is a reverse mix impact as opposed to the second quarter as the DFW market caught up some of this pent-up demand. And it’s structurally a lower price market. It would have actually act the opposite as it did in the second quarter.

[Todd Vencil:]

Okay. So year-over-year though kind of similar maybe?

[William Sandbrook:]

Year-over-year, I mean, it’s still very strong pricing dynamics in all markets.

[Todd Vencil:]

Got it. That’s great. That’s very helpful. Thanks a lot. Let’s talk a little bit about the Virgin Islands, congratulations on that. I’m sure that was a bit of a lift. You talk about - you referenced the Southeast in the press release. And I know you’ve got a marine element to that. But is that a reference to the possibility that you think you can hit, the continental U.S. with rock from that location?

[William Sandbrook:]

No. Not at all, this - as we search for a fifth geographic product platform. As I said many, many times in the past we are more apt to be looking in the South and Southeast as opposed to other parts of the country, because we like the operating dynamics and the underlying economic fundamentals there, and the ability to consolidate vertically integrated positions. There is no intention and logistically infeasible to supply aggregates from the Virgin Islands back to the U.S. This would be under operational control of a new region that we would be undertaking to establish in that part of the United States. The aggregate export opportunities are more local, more barging. There’s not a deepwater port access in Saint Thomas or Saint Croix that we can access at this point. Actually there is one in Saint Croix, but this is not in our strategic plan to do so. But the company does do inter-island shipments within the BVIs and neighboring islands in the Caribbean, that we’re going to seek to expand upon.

[Todd Vencil:]

Got it. It did seem like that will be a long haul.

[William Sandbrook:]

That’s a long haul [indiscernible] small boats.

[Todd Vencil:]

Well, I’ll be up for it, if you would, I mean, we could try that on the little boat but maybe not this week. Kathy, a couple of questions for you, I think, we had the tax rate wrong in the quarter, which you guys, obviously, that contributed the EPS beat. How should we be thinking about the GAAP tax rate going forward?

[Kathy Kantor:]

So for 2015 it will continue to be atypical, I guess it’s the best way to answer that. We would expect to normalize in 2016 however.

[Todd Vencil:]

Okay. I’ve been using 38.5%, that’s something like right?

[Kathy Kantor:]

We’re going to be in the 35% to 40% range for 2016 is what I would expect.

[Todd Vencil:]

Got it. Good. I think that’s what I had, thanks a lot.

[Kathy Kantor:]

Okay.

[William Sandbrook:]

Okay. Thanks, Scott.

[Operator:]

Okay. Thank you. Our next question comes from Stanley Elliott from Stifel. Stanley, your line is open.

[Stanley Elliott:]

Good morning, everyone, and congratulations. Could you talk about kind of on the U.S. Virgin Islands may be like pro forma leverage on how we should think about where we are from a balance sheet capacity perspective? And then, along those lines having completed number of deals here within the past quarter, what’s the outlook for additional deals into 201, how is the pipeline, what’s the pricing, anything along that would be great?

[William Sandbrook:]

Sure. On the pro forma leverage we haven’t published any metrics on this, either the acquisition price multiple or the underlying EBITDA. So I would say, our metrics have increased slightly, but not significantly as a result of that acquisition. And we were right around in the mid-2s and I’d say it’s slightly higher than that now, but still under three. And as far as - we have plenty of revolver and capacity left for a number of smaller bolt-on acquisitions into 2016. And the pipeline is extremely full right now of various size acquisitions of similar nature, of ones that we completed at the end of 2014 and 2015. So we can execute on a number of smaller deals yet into the first quarter of 2016. And at that point, we’re going to have to reanalyze and reassess exactly our needs and what the pipeline looks like at that point to make a decision on either larger acquisitions or multiple bolt-ons in the latter part of 2016. But we’re in good shape right now with our pipeline and any additional larger acquisitions we’ll have to do something with balance sheet.

[Stanley Elliott:]

And, pricing on an organic basis have been very good for you all. What are you guys thinking in terms of what the cement manufacturers are going to do in terms of pricing? And can their letters out there stick? And help us with kind of on pricing expectations heading into next year.

[William Sandbrook:]

Sure.

[Stanley Elliott:]

For you all, as well as all the - on the input side too.

[William Sandbrook:]

Yes, Stanley, obviously it’s regional because cement unless you’re near a coast or have some great real capabilities. It’s a regional market dynamic at play. The letters are out and everybody knows. They’re quite public and anywhere from $12 to $15 with start dates and implementation dates ranging from April 1 to January 1. It’s about the same timing and level of increases that we’ve seen over the past two years. And it’s yet to be seen how much of that sticks. Philosophically, we’re very supportive of increased raw material pricing. It makes the entire value chain more viable. It allows the ability to make profits for everybody within that value chain and we’re very supportive of it. At the same time we are very good purchasers of raw materials. Our significantly concentrated regional positions allow us to be a good buyer. But a good customer of cement and aggregate companies because of the volumes we produce. And we’re absolutely supportive of increased prices. So we’ve been very successful over the last 18 quarters to expand our material margins in the face of escalating prices. And I see no change in that underlying dynamic.

[Stanley Elliott:]

And as far as - there’s some weather issues, I guess, earlier in the year. And I don’t remember you guy had addressed this. But not we’re not expecting any sort of weather issues in any of your markets on the most recent kind of rain events they’ve had in Texas, correct?

[William Sandbrook:]

Well, I can’t - I’m not a weatherman.

[Stanley Elliott:]

Yes.

[William Sandbrook:]

For the fourth quarter, everything you read that El Niños going to be pretty significant. So we are keeping that in the back of our mind for California and Texas impacts. But weather just delays ultimate demand. And we catch up with the weather over time. And the short-term vagaries of weather, I can’t control, so I don’t pay an overly amount of attention to that as it impacts our financials on a quarterly basis.

[Stanley Elliott:]

Now understood. Thank you very much and best of luck.

[William Sandbrook:]

Okay. Thanks, Stanley.

[Operator:]

Okay. Thank you. So our next question comes from Rohit Seth from SunTrust. Rohit, your line is open.

[Rohit Seth:]

Hey, thanks for taking my questions. I just want to get your thoughts on the federal highway bill. And then, I know you guys operate in California and your thoughts there if you’re close to the matter on potential long-term bill?

[William Sandbrook:]

Yes, Rohit, remember, the highway bill is less important for us than it is for many others in our space. Only about 13% of our volume in the quarter is attributable to highways, other public works and local highway or local street construction. So it’s a much less impact for us than the others. Everything we’re seeing, it looks like we’re on track and in the Senate and House to get some type of stable multi-year funding mechanism. But I believe that, from everything I’m reading, it’s not going to be at greatly elevated levels from where we are now. However, stability will bring further certainty to State highway DOTs, which will allow them to do more letting. What’s more important for us really is the state initiatives such as the Prop 1 and Prop 7 in Texas, which brings immediate highway dollars into the areas in which we operate in. But in summary, I’m optimistic that there will be a long-term bill. I’m not holding my breath that it’s going to be any great increase in overall funding. And to repeat, it’s only about 13% of our available markets anyway.

[Rohit Seth:]

So what about California? I heard they’re working on something there on a long-term bill.

[William Sandbrook:]

I don’t have an update on that. And in California, in fact, our exposure to those segments in California is even less than the rest of the company. It’s only 6% right now total in the quarter. And it actually - it is the same as in quarter three of 2014. Our biggest impact that we had in our Bay Area was the Bay Bridge, which now is complete, other than we’re doing some work on the on-ramps. But other than that our California operations - remember San Jose, Oakland and San Francisco is heavily congested. There’s not bigger of a way, highways to be had there. And we’re very, very focused on high-rise construction in those markets.

[Rohit Seth:]

Got you. Okay. Thank you. That’s all I got.

[William Sandbrook:]

Okay. Thanks, Rohit.

[Operator:]

Thank you. And our next question is from Craig Bibb from CGS Security. Craig, your line is open.

[Craig Bibb:]

Hey, Bill.

[William Sandbrook:]

Hey, Craig.

[Craig Bibb:]

Has Ronnie started?

[William Sandbrook:]

Ronnie has started.

[Craig Bibb:]

Could you talk about his role?

[William Sandbrook:]

His role as Chief Operating Officer will be - he will have my operational direct report. So the regions will be reporting to him, as well as national sales and marketing and purchasing, to free me up to continue to do my CFO role in the interim, but to free me up more and continue to find and source these acquisitions in our growth strategy. We’re a small cap company that operates with a very big footprint. And we do operate a decentralized. I think we have a lot more opportunity on best practice sharing and organic growth opportunities that Ronnie is going to be able to help me harvest. And his knowledge and depth of experience within the cement industry on both sides, operations and sales, will pay great dividends to a concrete company as well.

[Craig Bibb:]

Okay. It sounds like the organic volume growth trajectory going into the fourth quarter somewhat to the third quarter. But with your acquired volumes, they’re mainly more north over in Texas. What should we look out for seasonally there in terms of a shutdown or…?

[William Sandbrook:]

Yes, that’s a very good point, Craig. We did buy the Ferrara Brothers in New York. We bought Colonial Sand & Gravel in New Jersey. And we bought DuBrook Concrete in Washington DC, as well as some - an aggregate quarry in New Jersey. There is season - there is significant seasonality in those businesses, less so in Washington DC and little bit less in New Jersey, but significant in New York nonetheless. But the project backlog in New York and the construction plans have them placing concrete through the entire winter, weather dependent obviously for access to the job sites. So we will - obviously it’s going to slow down and margins get stretched and EBITDA goes down. But we’re going to be running through the season there with our backlog, but everybody does have to remember our quarter one 2016, with those northern exposed positions will look slightly different than quarter one 2015.

[Craig Bibb:]

Okay. And they’re operating just at half the level of Q3?

[William Sandbrook:]

Yes. I mean, that’s fair, I mean, it’s completely depends on the weather.

[Craig Bibb:]

Okay. And then other that I know we’re going to have a year-over-year difficult or odd comparison when you get to the second quarter. Are there any other in the fourth quarter - the first quarter any other volume pickup in either direction I could change things?

[William Sandbrook:]

No, not to come to mind, you just have to look back to our announcements, when we laid in these acquisitions, comparison until mid-year of next year are going to be a little more complicated obviously.

[Craig Bibb:]

Are cement imports a plus or a minus for you guys?

[William Sandbrook:]

That’s an interesting question. I think that increased cement pricing for the markets is a net plus to the tune that that imports dampen that is a net minus. If it dampens the entire market, to the tune that we can avail ourselves of cement imports at a preferred price over the rest of the market, it’s a net plus for us. So it’s a mixed bag if I’m buying or if I’m just per taking in a market decline.

[Craig Bibb:]

Okay. And then, it’s our last question, Virgin Islands is kind of a small market. You said it’s kind of the beginning of a Southeast strategy that you’ve been talking about for a while. Can you - maybe is there a large defensible market in the Southeast U.S. that…

[William Sandbrook:]

Well, large is relative. Remember the market positions that we built over time - have been built over time. And I wouldn’t anticipate us coming into something in the U.S. and completely consolidating market, a large market in one fell swoop. I mean, we couldn’t afford that, we couldn’t source all the deals in one-time, those positions will build over time.

[Craig Bibb:]

Great, okay. All right. Thanks a lot.

[William Sandbrook:]

All right. Thanks, Craig.

[Operator:]

Okay. Thank you. And our next question comes from Jon Treitel from Columbia Partners. Jon, your line is open.

[Jonathan Treitel:]

Hey, thanks for taking my question.

[William Sandbrook:]

Hi, Jon.

[Jonathan Treitel:]

I was just kind of - I want to follow-up on the Virgin Islands, I’m commentary there, maybe you could just kind of characterize kind of the degree of pricing and margin there relative to other regions, I know that generally with platform acquisitions, you’ve been looking for kind of higher than corporate average?

[William Sandbrook:]

I would - yes, it’s a very good question. This is higher than corporate average and you have to understand that it’s a very consolidated position. And logistics alone of getting cement to the Islands, not aggregate, because we have aggregate. The logistics of everything out in the supply chain, those islands are not so sufficient. So you have a fairly long logistics tail and some costs involved. Just food on the islands for instance, would be more expensive, that it would be on the mainland. So that would elevate everything, so on pure pricing, of course, pricing and costs would be elevated from our current portfolio. But as far as underlying margin, I would characterize it on the high end of our operating companies.

[Jonathan Treitel:]

Got it. Thanks. And it’s appropriate historically I think on a per truck basis, it’s generally been kind of around 5,000 cubic yards per truck. Or those kind of historical metrics still kind of relevant thinking about the five of the acquisition?

[William Sandbrook:]

As far as - are there acquisitions of the Virgin Islands?

[Jonathan Treitel:]

In terms of the volume provided by the Virgin Islands acquisition.

[William Sandbrook:]

Yes. I would say somewhat less than that. I mean that’s a good metric, but I would mention it as somewhat less than that, just because of the intensity of the operations or it’s more on Islands time than New York City time.

[Jonathan Treitel:]

Got it. Okay, great. Well, that’s all I had. Thanks very much for taking the question.

[William Sandbrook:]

Okay. Thanks, Jon.

[Operator:]

Thank you, sir. So our next question comes from Wayne Archambo from Monarch Partners. Wayne, you’re now open.

[Wayne Archambo:]

Thank you. Good morning. Just curious to know on the pricing, as you continue to do these deals in different regions of the country, if the pricing that you’re paying, multiples you’re paying are consistent, you’re seeing price is move up, is it regionally dependent or as the pricing that you’re paying consistent across the country?

[William Sandbrook:]

Well, that’s a good question. It’s regionally dependent it’s seller expectation dependent, it’s how sophisticated the sellers advisers are in trying to leverage some of the synergies that we obtain through the acquisition how much they want to get paid for and then we have to decide if though somewhat elevated expectations meet our long-term objectives of two years post synergized reduced multiple availability, but it’s region by region. I don’t think anything is really getting more expensive significantly than in the past year. It’s all dependent on sellers needs expectations and even more importantly what we’re willing to pay for, for what we can do with it under our ownership.

[Wayne Archambo:]

And are you walking away from deals based on price and what, from a baseball analogy, what inning would you say you’re in terms of rolling up the industry?

[William Sandbrook:]

In the last two years we have walked away from six deals that were eventually acquired that we weren’t willing to pay the acquisition price that it eventually went for. If we were winning every deal I would be concerned. We’re not winning every deal and we’re very, very disciplined in it. As far as the inning question, we’ve had that question now for about three years. So, if it were a nine year cycle I guess that will be our third inning, but that would be the easy way to answer. The country did not come out of the recession in a monolithic fashion and nor did we see it in our portfolio. For instance, the San Francisco-San Jose area of hi-tech basically led the country out of the recession starting in around 2012 that’s when we did our first acquisition to consolidate San Francisco which coincided with an uptake in that area. So, that area started the earliest and it progressed at moreover towards the metroplex in 2013 Dallas-Fort Worth started hitting on more and more cylinders, the oil infrastructure parts of Texas started hitting on all cylinders. So, that followed on. New York has been somewhat late to the game, they are very, very busy now but they would have started seating up towards the end of 2013 beginning of 2014. So, if you go on a reverse order and look at our backlogs and look at our five year planning forecast I think, New York is probably in the third. I would say the metroplex in Dallas is probably in the fourth and I would say the San Francisco-San Jose is probably in the fourth, but Oakland which is now starting to develop significantly. I would say, Oakland is in the third. So, if you average all those across our portfolio, it’s still somewhere in the middle we’re not at the sixth yet in any market.

[Wayne Archambo:]

Okay, great. Thank you.

[William Sandbrook:]

You’re welcome.

[Operator:]

Okay, thank you. So, we’ll take our next question from Todd Vencil from Sterne Agee, Todd please go ahead.

[Todd Vencil:]

Hey, thanks. I just had a couple of follow-ups. First of all, on back to Virgin Islands in the Southeast in general, I think this is implicit in lot of what you said, but let’s see if we could make it explicit. You talked about platform acquisition this is obviously a new geography for you it’s obviously a platform but as you mentioned it’s relatively small one. Is it fair to say that you still have firepower and appetite for additional platforms?

[William Sandbrook:]

Yes.

[Todd Vencil:]

Okay, good. Thanks for helping size up the ready-mix, the impact of the ready mix centric acquisitions, Kathy I think you say with regard to the acquisitions you made more recently, here mostly on the aggregate side and you sort of left with that. Can you help us to understand both with the ones kind of at the end of the quarter and then with the Virgin Islands what the impact on aggregates tonnages might look like from those?

[William Sandbrook:]

Yes. I’ll take that Todd. On the Oklahoma Ag operations now, I’ll just put a number out there. Under 500,000. New Jersey, we’re putting a new plat there and opening up the site it’s a query right now. It’s more of a site development operation, it’s going to take us through 2016 to get a new plant and open up that property. Our plans will be that of under full operations probably in 2017 little bit more than half a million plus and the Virgin islands if you take that how we dimension the number of trucks that we announced subtract a little bit on the operating intensity get a yardage number and then put an average usage of 0.5 or so per ton and then add some for loose stone, you’ll be kind of closed to that Oklahoma number.

[Todd Vencil:]

Got it, got it, thanks for that. And a final question we talked a lot about I think in the beginning of the call you said you talk about all the markets outside of Texas were doing great and Dallas-Fort Worth was doing great. You didn’t mention central Texas, south Texas, west Texas that I heard. So, can you talk about those a little bit and just broadly I’ll repeat the question I heard when you’re out on marketing. Where is your business accelerating and where is your business decelerating?

[William Sandbrook:]

Okay. Let’s talk about the oil impacts which is really your question here, okay. In midland Odessa we operate two in two areas. Big Spring and Midland Odessa. For year-to-date in the Permian Basin area that I’m finding is Midland Odessa and Big Spring we’re already down 5,000 yards from year-to-date 2014. And actually the revenue from the Permian Basin from Midland Odessa and Big Spring is up 3.2% from last year, even though we have a decline - a de minimis decline of 5,000 yards showing the resiliency of the pricing in this newly consolidated region, because there has been some consolidation out there in the last year-to-year and a half. Midland Odessa and Big Spring only represent 2.2% of U.S. Concrete’s total national volume and it’s unlikely that 2.2% is going good under zero. So, the de minimis impact in the Permian. Now, that on the Eagle Ford it’s even more muted, because we only have some minor volume metric assets there that we acquired in December of last year. And we anticipated in that acquisition the decline in the oil economy, we’ve planned and have executed moving some of those assets to other markets within Texas. The total volume in the Eagle Ford that it exist now is significantly less than 1%. So add those up and it’s less than 4% exposed to the Eagle Ford and Permian basin in Texas. So that’s the first part of your question. The second part was - what again?

[Todd Vencil:]

Just the question of relatively, and from a top-down perspective where is your business accelerating, where is it decelerating?

[William Sandbrook:]

What is accelerate - well, decelerating obviously in the Eagle Ford and Permian but it is de minimis. And I would say New York, New Jersey is accelerating and DFW is just staying - staying as busy as we can be. So that’s just staying at a very, very high level. I don’t think it can accelerate anymore from at this point. And California, I would say Oakland is accelerating, San Francisco and San Jose is stable at a high level.

[Todd Vencil:]

Good. Perfect. Thank you so much.

[Operator:]

Okay. Thank you. And our next question comes from Uma Samlin from Brummer. Uma, your line is open.

[Robert Donald:]

Hey, Bill. Actually, it’s Robert Donald here. I’m just using my colleague’s line who called in. Do you hear me?

[William Sandbrook:]

I can hear you, Robert.

[Robert Donald:]

Perfect. Two questions, one is about the margins spread and the material spread. I came on the call late, I think you were talking about it, but I miss the point. In this statement you clearly identify 170 basis points of improvement, but can you just clarify that, because does that mean that the spread is that 49.9% or is that 50.3%, if you could be helpful in the accuracy, that would be useful.

[William Sandbrook:]

It’s 49.9%.

[Robert Donald:]

Okay. That means sequentially the trend has deteriorated from Q1 and Q2, is that correct?

[William Sandbrook:]

No. What that actually means, Robert, you might miss this part of the call. Sequentially in quarter two our volume distribution and mix went to both coasts as Dallas-Fort Worth was significantly impacted by weather which muted the volumes, which then allowed the higher price than the higher margin coastal regions to impact that material margin. In quarter three, Dallas-Fort Worth is making up its pent-up demand, plus its existing underlying demand. And we shifted the volume percentage higher to DFW in the both coasts. And again, the same dynamics at play in reverse. So that change in material margin is purely a mix issue, not deterioration and underlying price for cost control.

[Robert Donald:]

Okay. And, sequentially, did you sense in the market that the mix doesn’t change by geography, that there should be some momentum in the spread?

[William Sandbrook:]

There’s some momentum, because usually your raw material costs are a one-time increase at a discrete point in time. And pricing continues to move up on a continuous basis as lower-price projects fall - are accomplished and new higher-priced projects take their place. So, over time until cost reset, usually at the behest of a price increase for raw materials, aggregates and cement, usually January 1 or April 1, sometimes October 1 if there is a two-tier price increase. It’s more discrete event.

[Robert Donald:]

So the order backlog has got the momentum that you refer to in its margins.

[William Sandbrook:]

Correct.

[Robert Donald:]

There’s a few comments in the market about price rises and cement being earmarked for next year between 7% and 8%. I mean, have you seen those letters come across your desk and do you see that market will be able to accommodate that type of price input pressure?

[William Sandbrook:]

Yes, we’ve seen all the letters come across our desk in the last month or so. That’s directionally accurate at 7% to 8%. And some are even out there for more. But it’s exactly the same pattern, as I discussed earlier on the call, for the last the two to three years. This is just the first stage of an ongoing negotiation to see where everything settles out. And the larger the buyer you are regionally, the more power you have in that negotiation, but I have been very, very transparent. And that I think increased cement and aggregate prices are good for everybody in the chain, including ready-mixed producers. And as long as everybody is treated the same that it’s a very rational market and I don’t see any problem in passing it on, especially with the underlying demand characteristics that are in all the markets. Most markets that we’re operating in, all markets that we’re operating in are very, very busy right now.

[Robert Donald:]

All right, and just lastly, could you comment about in your regions the outlook for industrial/manufacturing type of customer demand, because - and I’m excluding directly the oil drilling customer. But there has been a few comments made by some of your peers and in other industries about slowing in the industrial end-market demand. And investors are beginning to get worried that this may mean that in the non-infrastructure, nonresidential, non-commercial, that there could be some significant slowing coming in the next six months to nine months. Do you see those risks? Do you see those concerns in the marketplace?

[William Sandbrook:]

In the markets that we operate, and remember we’re not in the national basis.

[Robert Donald:]

Right, right.

[William Sandbrook:]

In the markets that we operate in I am not detecting those trends. Our mix between res, non-res, commercial, infrastructure and industrial is very, very similar. It’s been very consistent over the last I’d say six quarters. And while residential has peaked up, there’s no question that there’s more residential just because of the sheer number of apartment buildings, condominiums and single-family homes. I have seen no decline in the heavier industrial project opportunities in our markets.

[Robert Donald:]

Perfect. Thanks, Bill. And I’m looking forward to your great success continuing into next year. Thank you.

[William Sandbrook:]

Okay. Great, Robert. Thank you.

[Operator:]

Thank you. [Operator Instructions] So right now I’m showing no further questions in the queue. So I’d like to turn it back to your host for any concluding remarks.

[William Sandbrook:]

Well, thank you, John. And thanks for participating in the call, everyone. And thanks for your support of U.S. Concrete. We look forward to discussing our fourth quarter 2015 results with you next quarter after the first of the year. Have a great day.

[Operator:]

Ladies and gentlemen, this does conclude your conference. You may now disconnect and have a great day.