Good morning, ladies and gentlemen. Welcome to Martin Marietta's Third Quarter 2020 Earnings Conference Call. My name is Alan, I'll be today's coordinator. All participants are currently in a listen-only mode. A question-and-answer session will follow the Company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the Company's website. I will now turn the call over to your host, Ms. Suzanne Osberg, Martin Marietta's Vice President of Investor Relations. Suzanne, you may begin.

Good morning, and thank you for joining Martin Marietta's third quarter 2020 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer; and Jim Nickolas, Senior Vice President and Chief Financial Officer. As a reminder, today's discussion may include forward-looking statements as defined by United States securities laws in connection with future events, future operating results or financial performance. Like other businesses, Martin Marietta is subject to risks and uncertainties that could cause actual results to differ materially. Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements whether resulting from new information, future developments, or otherwise. Please refer to the legal disclaimers contained in today's earnings release and other filings with the Securities and Exchange Commission which are available on both our own and the SEC website. We have made available during this webcast and on the Investors Relation section of our website, Q3 2020 supplemental information that summarizes our financial results and trends. In addition, any non-GAAP measures discussed today are defined and reconciled to the most directly comparable GAAP measure in our earnings release and SEC filings. Effective July 1, in connection with our streamlining our operating structure, we also changed our reportable segments. Our Building Materials business now consists of the East Group, whose operations were previously reported in the Mid-America and Southeast groups, and the West Group, which had no significant changes. In addition, the Magnesia Specialties business comprises our third reportable segment, prior year results have been revised to conform with this new reporting structure. Today's earnings call will begin with Ward Nye, who will discuss our third quarter operating performance and market trends as we move toward 2021. Jim Nickolas will then review our financial results and liquidity position, and then Ward will provide some closing comments. A question-and-answer session will follow our prepared remarks. I will now turn the call over to Ward.

Thank you, Suzanne, and thank you all for joining today's teleconference. We sincerely hope that you and your families are safe and healthy. Martin Marietta's strong business execution and commitment to operational excellence provide the foundation for our company to consistently deliver record financial, operational and safety performance. As highlighted in today's release, we established new profitability and safety records for the first nine months of 2020. Year-to-date, gross profit increased to $927 million and adjusted earnings before interest, taxes, depreciation and amortization, or adjusted EBITDA, surpassed the $1 billion mark. We have also achieved the best safety performance in Martin Marietta's history with the company-wide lost time and total injury incident rates exceeding world-class levels. For the third quarter, increased pricing across all product lines and disciplined cost management help mitigate anticipated shipment declines driven by the COVID-19 pandemic. Third quarter financial highlights as compared with the prior-year period included, consolidated gross margin increased 100 basis points to a record 30.6%, despite a 7% reduction in revenues, demonstrating the resiliency of our business and our focus on cost control. Selling, general and administrative or SG&A expenses as a percentage of total revenues improved 10 basis points to an industry-leading 5.4%. Adjusted EBITDA was $502 million inclusive of $70 million of non-recurring gains, and diluted earnings per share was $4.71. For clarity, the non-recurring gains contributed $0.87 per diluted share. These results are a testament to our dedicated and talented employees who are managing through today's challenging public health and economic environment, as well as the proactive steps we've taken to adjust the company's cost profile. Now, for a review of our third quarter operating performance, aggregates shipments declined nearly 9% versus a robust prior-year comparison. As anticipated, given the widespread COVID-19 disruptions across the United States, shipment declines were…

Thank you, Ward, and good morning to all. For the third quarter, the Building Materials business delivered products and services revenues of $1.2 billion, a 6% decrease from the prior year period and product gross profit of $384 million, a 3% decrease. Aggregates product gross margin expanded 130 basis point to 36.4% an all-time record despite lower shipment volume. Strong mix adjusted pricing gains, disciplined cost management and lower diesel fuel costs contributed to 6.5% growth in aggregates unit profitability. These results demonstrate the cost flexibility and resiliency of our aggregates-led business. Cement product gross margin was 40.2%, a 40 basis point decline. Despite lower revenues, the Cement business benefited from lower fuel cost and prior year tail investments that have improved reliability and throughput. For our downstream businesses, ready-mix concrete product gross margin declined 90 basis, 9.7% attributable, the higher cost to raw material. Asphalt and paving achieved record gross profit of $32 million and a 140 basis point improvement margin despite lower revenue. Magnesia Specialties third quarter product revenues decreased 7% to $55 million reflecting lower demand for chemicals and lime products. So revenues and reduced fixed cost absorption resulted in a 240 basis point decline and product gross margin to 38%. Our consolidated results included $70 million of gains on surplus from non-core land sales and divested assets. These gains, which were recorded in other operating income net are non-recurring and should not be extrapolated in a run-rate calculation. As a reminder, surplus land sales were part of the value proposition of our TXI acquisition and that's exactly what you see in this quarter. Since 2016, we have sold nearly $200 million of excess land that was not used for operations and did not contain operating assets. While we cannot predict the timing of any future land…

Thanks Jim. We're confident that our favorable pricing dynamics will continue and that attractive underlying fundamentals and long-term secular growth trends across our key geographies will remain intact. To offer some specific color on how this is playing out, it's notable that both our upstream and downstream businesses have seen improvements in daily shipment trends since July lows with October average data shipments above prior year levels. While we're cautiously optimistic about these trends, we believe COVID-19 related uncertainty will likely persist through the winter and spring season. Keeping that in mind, we currently anticipate product demand will remain modest through the first half of 2021 and product pricing will remain strong. As the U.S. economy resets from COVID-19 disruptions, the longer-term macroeconomic indicators such as undeveloped conditions, historically low interest rates and hourly workforce availability are favorable and should support a construction-led recovery. We're seeing encouraging long-term trends across our three primary end use markets and key geographies, including bipartisan support for robust multi-year federal surface transportation reauthorization, heavy industrial activity to support e-commerce and remote work needs and single-family housing expansion, driven by accelerated de-organization. We believe these trends bode well for more aggregates intensive construction cycle that experience during the slow but steady recovery from the Great Recession. Infrastructure activity, particularly for aggregates intensive highways, roads and streets continues to be resilient. With gas and tax sales revenue shortfalls less than originally anticipated, State Departments of Transportation or DOT budgets are in better condition than expected at the pandemics onset. For example, Texas DOT scheduled lettings for fiscal year 2021 which began September 1 are currently planned at $10 billion, an increase of 35% over the comparable fiscal year 2020 lettings. Updated Colorado DOT projections indicate relatively flat transportation spending levels for 2021 and North Carolina DOT…

[Operator Instructions] Our first question comes from Trey Grooms with Stephens. Your line is now open.

Well, thanks for taking my question, and thanks for the color. And really, I want to dive in first on the aggregates margins. I mean, very strong, especially given the lower volume and also, one of your highest priced highest market states, North Carolina is pretty challenged, so pretty strong there. And so, Ward, could you update us on maybe some of the cost tailwinds that you're seeing in the aggregates business? Clearly diesel but it seems like there is much more at work here and how do you think about the sustainability?

Trey, thanks for the question. No, you are entirely right to put up these numbers, but as you said, North Carolina is not at peak of its game right now, we think it's going to be back to normal, by the way mid half year, next year, but what we've done in this very impressive quarter is done a good by arm and half tied behind our back because North Carolina is down, but it's not going to stay down. Then Magnesia Specialties is going through the foot moral right now, but it's not going to stay down either. So what you're seeing is really a two-fold impact Trey, one, pricing was very good and that's something that we come to expect and you come to expect as have our shareholders. So there are no surprises there. It's nice to see it performing in resilient fashion. Again, one of your closed down to double-digits on volume. But to your point, I think what we're really seeing, even separate and distinct from the energy piece of it, is very good cost performance and that's something that our team has been focused on, it's nothing that's new to Martin Marietta, you can see it also in the SG&A numbers. But if I go through and look at where we'll be not just in energy, but where we'll be relative to contract services, repairs, supplies, and other plant costs, all down, and that's exactly what we would anticipate. As you recall, Trey, we've gone through cycles. We tend to invest very carefully in our company. And when we were going through the financial crisis in the Great Recession, we did pull back on CapEx. At the same time in the last few years, we've taken CapEx up and that has truly been an investment in our business. So what we're seeing the benefits of is a better cost profile, operational excellence, cost performance across the spectrum that we would anticipate. And the other thing that's important, Trey, is the way that we've grown our business. So when we've added businesses as we have in Colorado and what we've done in Texas with TXI and what you're seeing from excess real estate sales and similarly, what we've done with Bluegrass, these have all been enhancing this organization, but it's truly aggregates led and you're seeing good performance come through on the cost side, which again is exactly what we would have expected. And the thing that I've really enjoyed and I am so grateful with this team on is continuing to show their agility and being able to manage that on the fly and as they would need. We're always going to remember 2020 as the year that could have been, because if you're seeing this type of performance with volumes down, you can imagine what I believe we'd be doing this year if we were not in the midst of the pandemic.

Thanks, Ward, that's encouraging and helpful. So my follow-up product demand. I think you mentioned in your prepared remarks, you're expecting to be modest through the first half of '21 and pricing will remain strong. Could you go into any more color there for next year, maybe a high-level look at the end markets? And does this imply a return to volume growth in the back half or an acceleration, what's the - what's your messaging there?

Trey, that's another great question. I would say several things. I would think in the back half, which is certainly big calling towards volume growth. I mean, here we are in Q3, which is the single largest quarter for the industry, it's the largest quarter for Martin Marietta, and we're down 9%. So, I would expect, in half through next year, we are seeing growth. Keep in mind, half - quarter one is really a rather inconsequential quarter. There is very little volume that goes in Q1. The season really begins in earnest for a business like ours in May because that's when you'll have everything open across an enterprise including those parts of the country, it tend to be more weather-affected. So what I say on a comparative basis, Q1 would be a tough compare, yes, but it's not going to be huge tonnage. As a practical matter, the pandemic really started settling in as we went into Q2. But I would think, when we get to the back half of next year we should start to see the economy grow in some ways. I do think the deurbanization trends that we're seeing, will help us nicely on housing. I think Martin Marietta is going to be a very nice beneficiary of that because you saw the data that I revealed even on North Carolina relative to United Van Lines data, but that same data is true for Georgia, and it's true for Florida, and it's true for Texas, and it's true for Colorado. And again, when we start going through those impacts states, it matters. I think that's something that's real, and we're going launch we go into 2021. The other thing that I would say relative to 2021, Trey, is infrastructure looks a lot better today than…

Absolutely. Well, thanks for taking my questions. I do want to say one last thing though. I think this goes overlooked sometimes by the analyst and investor community, but I did want to call out the safety record that you guys have achieved, I mean blasting rock and working around heavy equipment can be a dangerous business, so hats off to you on that achievement.

Our next question comes from Kathryn Thompson with Thompson Research. Your line is now open.

First, focusing on the Cement segment, could you give some more color on the backlogs for this segment, particularly when you look over the next 12 months? And what does this mean for pricing environment, given it was, needless to say, an unusual year this year for pricing? Thanks.

No, look, you're right, it's been an unusual year but at the same time, what I'd say Kathryn is, pricing, if we're really looking cement segments it's up 3.4%. So pricing in cement, in Texas is behaving like aggregates. And keep in mind, that's something that we've long said we thought it would be the case. If we look at our cement backlogs, I'll tell you that that's one of the great stories because we're seeing cement backlogs up 24% on strong infrastructure bookings and primarily a large job that Tesla has going on in the Austin area and some property that we sold them. So the backlog situation looks quite good there. And actually the pricing was pretty good, Kathryn. If you look at it, the optics, the pricing and the reality of them are two very different things. Because the reality is, energy sector sales for us, which are not a big amount of tons were down 74% in West Texas. So a big percentage, but small tons. But the reason that's so important and we call it out in the prepared comments, that's where that cement sales were over $200 a ton. So if we're coming back and just looking at Type 1 and Type 2 cement in San Antonio and in Dallas, those numbers are actually up very nicely, and we think that that's likely what we're going to see next year as well. Now, in fairness, we have said that we're going to take cement pricing up in April of next year and we have a letter out to that effect right now and we're talking about $9 in that Texas marketplace next year. So I think that gives you a sense of how pricing has behaved this year, what has been the mix effect on it, what this Type 1 and Type 2 look like. The other thing that I'll note Kathryn, because this is important too, is we have continued to see efficiency improvement quarter-over-quarter, year-over-year in our cement business. So kind of what I would call out for you is volume is down, but the cement EBITDA in Q3, the margin of 46.2%, represents actually a new quarterly record. So we're getting it both ways, we're doing it the hard way on costs, but we're doing it the other way on pricing as well, but again backlogs up 23%. We're a little bit over 270,000 tons.

And then the follow-up question is more on the infrastructure side, particularly with state DOTs. You have confirmed that in all of the Gulf issues, that the worst appears to be behind for North Carolina. Could you - just got to confirm what gives you optimism for that, but also looking at other key states like Georgia, who is still continuing to move along and Texas and other key markets that are important for you, from an infrastructure standpoint. Particularly against the backdrop of how they are looking into next year? Thank you.

Sure. Happy to, couple of things. One, Texas, I'll just go through them in order of revenues. So Texas has huge FY '20, '21 lettings of $10.2 billion, we spoke about that just a minute ago. That's going to have a multi-year benefit to Martin Marietta. Our backlogs in that state are up in all three product lines and we see some very large projects coming in 2021. What's important to our members across seven funding is currently projected at a full $2.5 billion, even as we're looking at cropped one that's looking at $620 million. And keep in mind, none of that anticipates Texas having to tap into their $10 billion rainy day funds. So again, Texas feels very healthy even compared to where we were half year. Colorado looks pretty flattish and that's what we are expecting. We see construction activity there that's being supported by about a $1.8 billion four-year bond program. Two years remain on that and that could provide an additional $1 billion or more. So we're feeling good about where that state is, again, a nice improvement over where it was at half year. The North Carolina DOT situation that you called out very specifically and appropriately is improving. And part of what we've seen even in the last week is North Carolina mail is sending out some double A-rated bonds, they were just rated last week. It's going to be $700 million of build North Carolina bonds. And importantly, the state has started - what we started lettings and anticipates about $1.3 billion of it - of FY '21 lettings and that's pretty similar to the pre-pandemic numbers of about $1.4 billion. So again, we're feeling much better about North Carolina and that's one that we obviously stay very close to. Similarly, you asked about Georgia and we're anticipating there relatively flat DOT spending at about $2 billion. But part of what we think is important is it appears that Georgia is going to advance at least two of the major mobility projects in Atlanta. They're not going to have a '21 start, but they're likely to have a '22 start. And remember, these are major mobility projects at about $12 billion and their primary aim is to reduce congestion along key corridors in Georgia. And the last one, at least in our top five is Florida DOT, and again, we're looking at something there that we think is going to be very steady year-over-year. Keep in mind, they've got a very healthy P3 program in that state, so you've got a lot of activity in Florida. So again, if we look at our top five states and that's exactly what I've just taken you through from an infrastructure perspective, year-over-year, we like the looks of that.

Our next question comes from Paul Roger with Exane. Your line is open.

It's Paul Roger. Yes, can you just say they - obviously, it's a big week next week with the election, can you just speak a bit about the potential implications of the different outcomes? And also, if there is a new highway bill or maybe some stimulus as well, when you think that would impact demand on the ground, is it likely to be a 2022 story?

Paul, thanks for the question. It's good to hear your voice. Yes, I would say that we are one of the few industries that probably can't lose next week and here's what I mean by that. If the President is re-elected, we anticipate there is going to be a new highway bill and we think it's probably going to be up very similar to the Senate's number, that's 28% over FAST Act and that being the largest increase all by itself in 15 years. Similarly, if we should have a change in part of the White House and Mr. Biden is elected and the fact is, the democratic-controlled House is looking at a 41% increase in highway spending. So here's what I would say, if the President's re-elected, it's going up and it's going up with less regulation. If Mr. Biden is elected, it's going up with probably more regulation. And the irony of that is, we actually do pretty well with regulation. Well, we've got great teams, they are very sophisticated, they can deal with that very efficiently. So we - I believe, either way, Martin Marietta will be well-positioned. If there is more regulation, one of the things that we certainly see that drive in the past is perhaps more M&A opportunity as well, because often times, if you're looking at a higher tax, higher regulatory environment, closely-held kind of businesses start reconsidering what their long-term future is as well. So, as we sit here and anticipate what different outcomes could be, it can change the way that we're going to think about some things around the margin, but in large measure, we think under either one of those scenarios, Martin Marietta does very well.

And that's very clear. I mean, within spinning your opening remarks, you inferred that this would have obviously been a fantastic year were it not the COVID. If you see a situation where we do get some volume growth again in 2021, are you basically suggesting there is a lot so if you can go on the margins? And I guess particularly if some of the more profitable market, like the Carolina's stabilized all good.

Well, I would say a couple of things. One, volume will always be this industry's friend because you're going to have a certain degree of cost, but as much as we'd like to be at a flex costs as much as we can, some of them are going to be fixed, it's a big heavy industry, but I think we control cost extraordinarily well. Again, I think geography, from a mixed perspective, actually this quarter, was not particularly upper end. So, if we see these Eastern markets behaving in a more robust fashion and volume hits those markets, it could be pretty impressive relative to margin. Keep in mind, in the East this year, we saw a significant project delays and we saw extremely wet weather in what was formerly the Mid-Atlantic Division. And again, we've discussed the fact that we saw lower NCDOT funding, that's going to be remedy, and we saw most win part activity. So, if we look at that didn't happen in the East and things that we don't think will continue to recur into the future, we think that's probably very attractive for our margins. The other thing that I would say is I would not expect the cost that we have been very good at controlling this year to go backwards on us. I think the investments that we have made on capital will be our friend. Now in fairness, there is a piece of that that's tied up in energy and there are a lot of things we can control. I wish, I could tell you that we could control overall energy prices, but we can't, but at the same time, as energy has tended to move upward, keep in mind, that's also served historically as the mechanism plus to make sure that we can cover that with increased average selling prices as well. So, I do think relative to margins, geography is likely to be more of a friend, they are not going forward, and I think this is the type of cost performance that you should expect us to continue to deliver.

Our next question comes from Jerry Revich with Goldman Sachs. Your line is now open.

Ward, in your opening remarks, you were optimistic about pricing into '21, which is really interesting considering pricing typically falls volumes, and obviously we're looking at a pretty tough back half of this year and first half of '21. So could you just expand on those comments, what's enabling you to achieve the strong pricing and what have you announced the customers for '21 if I got the gist of your opening remarks right?

No, you did, Jerry. I guess what I would say is that, I'm not sure if there was anything strikingly new about the observations I was making on '21. I think the primary thing that I just want to underscore is that pricing is something that we tend to do really well in Martin Marietta. When volumes go up, pricing goes up, when volumes go down, pricing still goes up. And in this quarter I thought it was pretty good, because there are not a lot of industries that could come forward with volume down line and pricing up the way that we saw pricing up this year. So I think that's the underlying theme that I want to make sure that I underscore. I think the other thing to remember, Jerry, is we're seeing that as we pointed out in some of the conversations we've had, with actually one of our higher-priced - higher profitable businesses not at the top of their game this year, because of what's not coming out of NCDOT. So again, I think we'll continue to see a good price trajectory in large part because we're in many good locations. And I think as we continue to see superfamily housing go up, that's actually an area that we tend to do quite well in housing on, because if you're thinking about people who will at least try to utilize some form of volume, on occasion, as a lever to talk to you about pricing, that's typically not the home door, because at the end of the day, there is so many things they care deeply about in the home, but the news flash is the price of crushed stone usually is not one of them. So I think if we end up seeing a new highway bill, we see the volume that we think will come from that, probably not in '21, but as practical matter coming in '22, but we see a very healthy residential market and then we see the drag along in the growth of time of the like non-res. I think all of that pretends very well for pricing. And again, if we look at those top five states that are disproportionately important to us and you look at even what's happened with cement pricing in Texas, I think that tells you that the overall marketplace is at a pretty healthy spot.

And so we're normally in this type of volume environment, I would have thought aggregates pricing should be up in the 2% range. And it sounds like, based on your comments that, you're announcing the customers is more or like the pricing we saw in '20 than what I'm describing.

Well, and again, we'll give you even more granularity around that when we come out in February, because some of those conversations are still ongoing. But again, I think you get the overall sense that there is nothing in our pricing model that we feel like has been shaken by this strange time to the world navigating together.

Our next question comes from Anthony Pettinari with Citi. Your line is now open.

Ward on the decision to re-establish full-year guidance, I mean is it fair to say you were surprised by the resilience you saw in your end markets or maybe some of those cost factors that boosted margins, or was it just more of a function of having one quarter left in the year? I'm just wondering if you could talk - you kind of walk us through the decision-making process and what you saw specifically that may be comfortable with re-establishing the guide.

Yes, Anthony, thank you for the question. I think part of it is - you could deepen up into something that strange and you start to figure it out a little bit. So, I think candidly, that's part of it. The other - another part of it is, Anthony, there is just not that much runway left this year and we've got a pretty good sense of how October is looking. Obviously, Q4 itself can have some swing factors to it, and obviously one of them is, when does weather really set in earnest. It's been interesting Anthony, because there have been years that we have been paving almost up to Christmas in Colorado and equally, there have been years that well before Thanksgiving, it was shut down. So, obviously, we'll try to bracket but we think Q4 can like from just a volume perspective, we know what it's going to look like from a pricing perspective. And we believe we've got a pretty good handle on what it's going to look like from a cost perspective as well. So, I think those were the factors candidly that went into it and again in the conversation that I was having just a few minutes ago with Jerry and others on the end users. We're trying to get as - we are just taking a look into '21 as we can, but again, we feel pretty good about all of them.

Okay, that's very helpful. And then you talked about some of the project delays that you saw earlier in the year. I'm just wondering from a big picture perspective, the pace of project delays or cancellations that you saw over the course of the quarter, did that pace - was apparently stable or did it is ease, maybe you saw some more projects come back than you expected or any kind of general thoughts there.

Yes, I would say several things. One, we see deferrals, we don't see cancellations and I think that's an important bifurcation to draw, because pushing projects to the right is an entirely different animal than calling them off. So during the financial crisis in the Great Recession, we saw projects cancel, that's not what we're seeing. So I want to call that. The other is, in some instances, we simply saw weather deferrals. So obviously, we've had some hurricanes that have come in through the Southwest this year and we've had a good bit of rain in the Southeast. But the primary place that, again, I think we're taking some good comfort is when we're seeing North Carolina DOT start re-letting some surface transportation again, in some respects for the first time in almost a year. So when we see that state beginning to return to something that feels more like in a patience, a normal start as rhythm, that certainly feels better to us. So we're - we did not see anything relative to deferrals in the quarter that we thought were extraordinary or surprised us. And in many respects, what I would say is from a volume perspective, I don't think we're very surprised this quarter. I think from a pricing perspective, we were not surprised. And I'm not going to tell you that from a cost perspective we were surprised, I would tell you, gratified, is probably the right word, but again, we expect to see more of that going into the future, not less up.

Our next question comes from Stanley Elliott with Stifel. Your line is now open.

Thank you for taking the question. Ward, when you talked about or talking to your residential contractors, are you getting a sense that they're actually looking to buy land now and build out new subdivisions or that, they're busy enough just keeping pace with what they are? And I am curious kind of in the context that we've heard about a lot of delays for higher lumber prices and things like that. Any thoughts to what extent that could be kind of a governor on the residential recovery into next year?

Stanley, that's a great question. And what I think is this, one, they're busy and busy usually begets busy. And number two, I do think the shift that we're seeing in the Great American move - moving more away from multifamily, moving to single-family where people frankly want some space but they haven't had for the last several years is going to lead to the necessity of buying more land. And by the way, we don't think that's a bad thing. We actually think that's a good thing, because if we look at the markets in which we are operating one, they tend to have land, two, the entitlement for new subdivisions isn't something that's highly difficult to do, and three, the ability to borrow money is there. So we feel like all of that's important. The other piece of it, Stanley, that we think is important is these markets are not overbuilt and that's such a fundamentally different place. And part of what we spoke about in the half-year call is, we've seen single-family move around over the last couple of decades. So single-family recovery is, we're really looking at coming out with the great financial crisis. So also about 70% of starts versus what had typically been closer to 80%. So if we're seeing it move back to a more of a normalized portion of what we would expect single-family to be, particularly as we're looking at these deurbanization trends, that is we're looking at states in which we have a significant presence, Texas, Colorado, North Carolina, Georgia, Florida. Those are going to be cities and those are going to be states that would be grown out, not states that will be growing up and places that are growing out tend to be more aggregates intensive. So yes, I think our builders are busy. Yes, I think they will have to buy more land. I think they will be in the entitlement business but I think in the areas where we are the entitlements, would not end up being significant, I'll have to use your word, I think it's a good one, a governor, on what housing growth is going to look like.

Great. And then just switching gears, thinking about kind of the leverage range that you guys have talked about operating in the past, I mean you are kind of there right now. Barring any sort of thing on the CapEx side, it should be another good year of cash flow. How - are you more comfortable given the uncertain environment to kind of let the cash build? Is there some things on the M&A front that seem intriguing right now, just curious how you're thinking about the capital deployment into next year.

Stanley, that's a great question and you're right, we're at the low end of our range. So our debt-to-EBITDA ratio is at two times today. You've seen that steadily come down and I'm proud of the way that we pulled that down. As you know, our capital priorities have not changed. And our capital priorities are to find the right acquisition. We think there may be some opportunities in 2021 that we're certainly looking at, the deal pipeline has become more active here over the last few months and that does not surprise us. And equally, the other thing that we're waiting to watch and everybody else in this call is too, what happens in the election? And it will be odd. For example, if we do see a wider new streak go to the United States and we see a higher regulatory regime come in, as I indicated earlier, we have certainly seen that as something that they can serve as a bit of a catalyst for M&A activity as well. So I think we want to make sure that we keep ourselves in a very flexible spot. Obviously, it's in management's discretion whether we go in and turn back on the repurchases, we will certainly look at that and think through it carefully. You did see us - as Jim commented in his opening comments, we raised our dividend in September, so our September shareholders have already benefited from that. So I like where we sit from a balance sheet perspective, but equally Stanley, and I think this is important as we think about M&A, I like where we sit from a regulatory perspective as well. The areas the country where we would be most interested in growing particularly if we're looking to establish new footprints. We've got a lot of white space and we have a lot of regulatory ability, from a Hart-Scott-Rodino perspective. And I think our teams have proven that they are very good at one, identifying transactions, number two, going through the process of memorializing it and then upon closing, pulling the synergy side of it as well. So we're going to find good uses for that cash, whether it's investing in Martin Marietta, returning to shareholders or finding right deal, but you know how we rank those in order, Stanley.

Our next question comes from Garik Shmois with Loop Capital. Your line is open.

On non-residential construction, is there any way to quantify how much of the non-res volume split is between the heavy industrial piece versus the retail and office, just given the shift you've made more towards the heavy non-res side over the last several years?

Absolutely, Stanley. Stanley, as you recall, historically, non-res would have been around 30% of our business and then over the last several quarters, you've seen it actually considerably more than that, it's closer to the mid-30s. And you'll recall historically, this was really when I give you this background. This is pre-TXI, this is pre river for the Rocky's, this is pre-Bluegrass. We would have said, it's almost a 50-50 break between light on one hand and heavy on the other. As we've done these large transactions, as we come out of the river, as we have focused our business increasingly on these large commerce corridors, we feel like it - now the heavy side of it is probably at least 60%. So it's probably moved that much just as we've done these transactions. And it's interesting to go back and revisit that number I gave just a few minutes ago, even talking about the fact that in the San Antonio area right now, we're bidding on seven Amazon warehouses data center projects at various stages of bidding. So the locations where we've been, whether it's on the I-25 corridor, whether it's on the I-35 corridor, whether it's on the l-85 corridor or the l-95 corridor has really helped move that. And if you think about those corridor, l-95 was significantly changed by Bluegrass. I-85 was significantly changed about what we did with the assets that we acquired in Atlanta. l-35 was significantly changed by what we did with TXI and I-25 was completely remade with what we did in the River for the River - I mean River for the Rocky swap. So the percentage shift is probably 60%, 40% today but again, non-res has moved to a bigger piece of the pie in large measure, because infrastructure has underperformed as we've gone through a series of re-authorizations that unlike next year, has not gone up in value over the last 15 years.

Okay, thanks for that. Also just wanted to follow up on the guidance that you provided for the year. I don't want to focus too much on 4Q because it's a seasonally slower part of the year, but just given that...

Yes.

How you provided on the October growth, I mean what do you think is driving the increase? Is it project timing, catch up from maybe some of the weather headwinds that you saw in 3Q? And then maybe just more broadly, how to calibrate the different ends of the guidance ranges?

Yes, I think several things probably. One, we don't have some things going on this year that we had going on last year. They were actually varying degrees of headwinds last year. So if you go back to it, part of what you'll see is, we did have some increased grading last year we're stripping employees, we did accelerate some maintenance at our Hunter Cement Plant. And our Granite Canyon quarry which sits in Southern Miami, which feeds that very vibrant Northern Colorado market was later coming on last year, then we would have hoped. And then Hurricane Dorian sided with Freeport Bahamas last year, a little bit longer that we would have wished though. Number one, they actually put some headwinds in Q4 last year and we're thinking we're probably past some of that this year, but equally, I think the October trends are nice. I think part of what we're seeing is some of the work, particularly in Central Texas as Tesla is building their bigger factory on the property that we sold them, that certainly add some benefits. And again, if we see something that feels like a normal winter cadence, we're very comfortable with what we feel like would be the midpoint of that range. So it - that at least gives you a sense of what the puts and takes would be in the little bit of the year that's left. I hope that's helpful.

And our next question comes from Phil Ng with Jefferies. Your line is now open.

If we think of some of the policy optionality go into next year. If we get a stimulus package this is separate from a longer-term authorization bill.

Yes.

Do you see that impact coming through a little quicker on the demand side where the lag is shorter because maybe states can dial-up lettings mid-year and see a benefit 2021? And then...

Yes.

…typically it's like a year plus lag. Okay, so you can…

No, Yes, I think they can, because part of what's happened, Phil is, if we go back over time, several things. If you look at the way different states came out of the financial crisis, some states ended up hiring more people in DOTs, Texas is a good example. Some states started doing more outsourcing, North Carolina is a good example, which means at least as we're sitting here today, they have more projects that are engineered the designed, right-of-way has been purchased and they're in a position if they want to go that they can. And I think that's a very fundamentally different place. So to your point, if there is a pace for or if there is anything else and there is simply as you know, AASHTO has long been advocating for about $37 billion that they feel like should go roughly to states to help fill the hole that was created because yes, tax revenues weren't there. Now keep in mind, early in the year, they said that hole is going to be $50 billion, so that hole got a lot narrower or - not as deep over time. But to your point, if that money went directly to NCDOT, do they have plenty of uses for today? Absolutely. It's weather floating $400 million worth of bonds, could Texas do the same thing? To be sure, and could Colorado do the same thing? Absolutely, because again if you look at that state they are metering out there buying activity over time and that can simply come in and help augment that. So I do think your point's a good one, because most of what we've been discussing to date has been around the reauthorized bill and what the timing would look like on that. And again, we're saying passage in '21, but the real event from a tonnage is probably '22. But I do think if you've got some near-term stimulus that could actually be at '21 about.

And then I think the margins in the quarter is certainly really impressive in light of the weaker volumes. But when we think out the 2021, assuming you have a little inflation not deflation like you've seen this year on energy, and you get some pricing and lower volumes. Do you have enough levers there to kind of drive unit economics higher or at least keep it flat and any color on the gross margin side as well.

Yes, that, I - we'll obviously give you some really good guidance on that in February, but I think part of what we're trying to outline bill is, this is a really impressive quarter with volumes down almost double-digits and our most profitable business with its arm tied behind its back. So again, our backlogs, for example, in Texas look very good. So I think we can feel good about where that business is heading into '21. Obviously NCDOT is letting some jobs. I think we've been increasingly good about that. If the Eastern business gets some momentum going into '21 even in the back half, so that's where your story would be.

Our next question comes from Seldon Clarke with Deutsche Bank. Your line is open.

I guess just based on where October is trending right now and obviously, weather can be a prevention to this. But just based on where October is trending and how you're positioned from a non-resi perspective, and the improvement there you're talking to in regards to the outlook for state and federal funding. Is it fair then to say that 3Q will probably represent the steepest of the volume declines throughout this sort of downturn?

Yes, that wouldn't surprise me. And again we'll come out with more granular information in February. But if we think about it, Seldon, this is the big quarter and keep in mind, this was a big quarter last year. So this was the beast of compares. And it's always interesting to look at how percentages can work in Q1, but I would suggest you percentages in Q1 helped me a lot because the tonnage is so slow. So it would not surprise me but this on a percentage down, unless we see things just changed dramatically. It would not surprise me that this would be your states single steepest client, to use your words.

And then you gave some context around aggregates potentially going from 38% to 45% of the shipments with one of these highway bills. But I guess, just can you just help us understand sort of the relationship between a 28% or 45% increase in annual spending on coming from the government? And how that relates to your actual product demand, if we go back and look at some of these historical highlights...

Yes. I guess...

It was actually 28% growth. So how do you think about that?

Yes. I guess the way we think of it, if we look at the states in which we see significant population trends and then that's going to be our top five states, where there will be capacity needs and capacity issue. So if you take that Georgia mobility program and think about that in more than just an Atlanta contracts and you think about the Atlanta, but you think also about Columbia, South Carolina and Jacksonville, Florida and Orlando and Raleigh and Charlotte, and then you start looking at 9 miles added. That's your single most aggregates intensive undertake because several things happen. So then it's taking a lot of tonnage, but it's taking a lot of vary tonnage as well. So you are you putting based products down, you are venture to put in clean stone and either asphalt or concrete and that's going down. So you're taking the entire way of more products. So number one, that's actually very healthy for inventories. Number two, it's actually very healthy for the way that we can run our business. Now can you take a crushing plant, hold it in some degree and produce less space and more clean stone so we - but I mean it's not a science and doing that because it's not that easy, but as a practical matter, if you've got a wider array of products going out that will intend to be the case, if you have a new highway bill and you've got capacity that is being added in states. What that does from an operating efficiency and what it does from an inventory efficiency is incredibly helpful. And part of that we've seen over the last several years is what would appear to be a fairly significant outperformance in non-residential. And what I would tell you is non-residential has actually been quite good but non-residential hasn't been really on fire. It's really that the public side of it has been slower than it should have been. So if we see more infrastructure go, it's high spec material, it's a material that we can deliver and we think of these states in which we're operating as they add needed capacity, it adds tonnage and it adds efficiency. I hope that helpful.

Our next question comes from David MacGregor with Longbow Research. Your line is now open.

So, I guess lot has been covered here in the past hour, so I'll just make a couple of quick ones. I guess in ready-mix, it seems like maybe there's just a price pass through issue, do we catch that up in the fourth quarter? Is this just a timing issue or is there something maybe more structural in the markets that's coming in the play here?

No, I would say several things, one, we saw good price in Colorado and we saw some mix shifts in Texas. So I think that's largely what you see. And look, the other piece of it is, hey, the concrete business paid more for aggregates and the concrete business paid more for cement and that's okay from where we sit, because we're providing most of the aggregates and we're providing most of the cement and so that's a lot of what was going on there. But really, if you look at it, nice 2.2% per ton better on ASP. So a lot of good things that we're seeing in ready-mix right now, but in large measure, it helps undergo a very attractive upstream business, so it's doing exactly what we would have thought.

Right, right. Second question is really just on Houston and in aggregates, you talked about the lower rail tons going into Houston. Is that a function just what's happening in energy or are you seeing congestion or any reduced level of service in rail?

Well, service and rail has been reasonably good and it's really not so much Houston, it's really more South Texas when you get down to the pure LNG projects that are - or even closer to the water. And that was really a piece of the mix issues in the Southwest, because if we had fewer tons coming out of those yards, as you know those tons are transportation loaded, David, so that was really the big shift there. So it wasn't as much of our Houston metro per se issue because there is some very good projects going on in Houston, including the Grand Parkway. And for example, we've seen a good amount of cement go to that and as you may recall that, actually cement is modestly lower priced in San Antonio than it is in Dallas and things are going to the Grand Parkway are really coming out of Hunter facility. So we're not seeing bad activity in Houston, whatsoever, it was really more cost to oriented on that commentary.

Our next question comes from Michael Dudas with Vertical Research. Your line is open.

Ward, we appreciate the insight on your - some of your tops important states, but maybe you can highlight quiet a couple in the - on the second side or others where you've seen some either positive or negative trends that might be helpful to help out a little bit more on say that the volume expectations is some of these macro events impact second quarter '21 and '22.

Look, I'll certainly time and if we're looking at South Carolina, they're going to FY 2021 program would buy $1.8 billion, that's up about 15%, so we like what we're seeing there. The South Carolina did something the other year that was very on South Carolina of them and that is they raise the gas tax. So they are taking that up incrementally over a period of six years. We're about halfway through that, so we're seeing good activity there. All of that, we're really Arkansas passed a 10-year $10 billion funding plan so that basically doubles their funding over $8 billion over a 10-year plan and we like where we see that business going. Keeping in mind, we've got a very attractive business in and around Arkansas City and we're seeing good activity at the airport there as well. Our business in Indiana, just to be clear, we call it our Indiana district that we have historically, it's really our Indianapolis district and what we've seen in that business and the leadership there has just done a superb job of controlling costs exceptionally well. I mean they really do deserve a call out on that, but they equally done very well and making sure we're getting good recognition on pricing on what we're doing in that marketplace. I think Indiana is looking quite strong. If I'm looking questions just to be completely open book with you on where we've seen more difficulty this year, it's been in places like Kentucky and portions of Savina Hill. Kentucky DOT has not had its finest moment this year and I think equally you've heard that from others is they have gone through, I think you would have heard a bit of that from Summit and its commentary earlier in the week as…

We're certainly was and I wasn't treating about the factoring on Iowa I was not aware of. Thank you.

That's would what we give for. Take care, Michael.

Thank you.

Our next question comes from Adam Thalhimer with Thompson Davis. Your line is now open.

Can I ask a quick question, and then I'll turn it over. But I wanted to ask on ready-mix, if you could comment on the backlogs in ready-mix and also the outlook for pricing forth?

No, no, happy to. I mean, it's interesting, but are different pricing is always a little bit challenging at least in half, outlook and pricing in Colorado tends to be very attractive pricing, outlook on pricing in Texas continues to look pretty steady. I would tell you is we look at backlogs year-over-year, there are 3% and if you're looking at a very dynamic market I like the way that works. So, again part of what we've done in Texas in particular item is, we've moved a certain degree of our volume in Texas from infrastructure, in some instances to housing and I will tell you very candidly, why we did it, we wanted to have it and a little bit more of that in housing, one, because housing look good; and two, housing does not tend to be as weather-sensitive it's infrastructure as. Now that said, housing tends to have a little bit lower ASPs. So we're picking and choosing very much by design there, but again we think pricing will be solid and we think backlogs in that business right now are actually up in the Southwest.

Our next question comes from Adrian Huerta with JPMorgan. Your line is now open.

Thank you for taking my question. I wanted to just to ask on, you have mentioned in the past there was room on recent acquisitions to increase prices, how far are you on that, is there still room to increase prices from recent acquisitions?

Adrian, it's always a journey, it's like safety, we never think we're done. And what I would say if we go back and look at the way things have worked. One of the best examples I can give you is Maryland and we were talking about just a moment ago with Michael, what some of the states look like that were not in our top five and I spoke, specifically the Maryland. And then what's interesting to me on that, Adrian, is Maryland for us in the Bluegrass transaction was not necessarily a consolidation play. We had a couple of facilities in that state there in the western part of the state, and most of what we acquired Bluegrass there was in Maryland, who was really more in Baltimore metro. And what we brought to that is a discipline and we brought to it a sense of not being ashamed to make sure we are getting the right value for a product that we're making that needs, state and federal specifications, and that we think it's not easy to do. And keeping in mind that, on the infrastructure side, stone is about 10% of the cost of building road, on the housing side, it's about 2% of the cost of a home and if we look at non-residential at somewhere between those two numbers. In other words, our product is never going to be, but it's going to make or break whether the project goes or not. Equally, our product isn't going to make or break whether that contractors typically low or not, but at the same time to do what we do with the scale that we do and do it as safely as we do. We want to make sure we're getting good value for something that's a depleting resource. Now that said, if we look on average at today's rates of taking start on the ground, we've got a century with reserves left. So we don't have an issue of the stone going away, but in a world that we think will continue to have higher regulatory barriers and burdens to entry, making sure we're getting value for this product is important. I will tell you, equally, you can see what our average selling prices and it's going to be in the low teens, right now, but there are plenty of markets in the United States where we're selling aggregates for numbers that have a two in front of it and we don't see those higher numbers having any degree of chilling effect on construction in those markets. So this has been an area for our company that has been one of strength for a long time. Back to my point, this continues to be a journey. I think it's going to be an area of strength for years yet to come, Adrian.

Thank you all for joining our third quarter 2020 earnings conference call. Moving forward, we are confident in Martin Marietta's opportunities to build on our successful track record of strong financial, safety and operational performance and remain focused on maximizing value for all shareholders. We look forward to discussing our fourth quarter and full year 2020 results in February. As always, we're available for any follow-up questions. Thank you for your time and continued support of Martin Marietta. Please stay safe and healthy.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating.