Vulcan Materials Company (VMC) Q1 2017 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the U.S. Concrete Incorporated First Quarter 2017 Earnings Conference Call. [Operator Instructions] And as a reminder, this conference maybe recorded. I would now like to introduce your host for today's conference Mr. Jody Tusa, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Sabrina. Good morning, and welcome to U.S. Concrete's First Quarter 2017 Earnings Conference Call. Joining me 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 and risk factors contained in our filings with the Securities and Exchange Commission. Please note that you can find the reconciliations and other information regarding the non-GAAP financial measures that we will discuss on this call in the Form 8-K that we will file today under the investor relation section of our website, www.us-concrete.com. 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 Email 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 & Presentations. Now I would like to turn the call over to Bill to discuss the highlights for the quarter.

Thank you, Jody, and welcome everyone to our call this morning. I'm very pleased to announce that despite weather-related headwinds in California and Texas, U.S. Concrete reported very strong growth in revenue from volumes and pricing, in both our ready-mixed concrete and aggregate products segments for the first quarter of 2017. Total revenue, as compared to the same period last year, increased 22% to $299 million. Income from continuing operations improved from the loss of $9.8 million to income of $7 million, and total adjusted EBITDA increased 60% to $41 million. We had income from continuing operations margin of 2.3% and a total adjusted EBITDA margin of 13.7% for the quarter, In addition, we increased our average selling prices and ready-mixed concrete raw material margins year-over-year and sequentially over the previous quarters. These continuing trends support comments we made on our year-end call. Demand remains strong in our Metropolitan markets and our leading market positions allow us to capitalize on that demand with increased volume, pricing and underlying margins. To better understand our results, you have to understand our fundamental strategy. We shape selective markets to meet our growth objectives irrespective of any underlying need for external government stimulus. Rather, our markets have been selected and developed in Metropolitan areas of the country, with higher than average mid- and long-term underlying economic growth drivers, and government funded activities simply supplement our growth rates. Our market development activities, in the high-end spectrum of the ready-mixed concrete product set, allow us to have a significant competitive advantage in competing for high-volume high-margin opportunities. The density of our plant networks allow us full low-cost market coverage to be positioned to service jobs better than competing alternative suppliers. The sheer volume of raw materials that our regional plant networks consume, makes us a very valuable customers for our cement and aggregates suppliers for which we are rewarded. Additionally, those regional plant networks are large consumers of our own internal aggregate supply which elevates our total company margin profile. The culmination of this strategy, complimented by integration synergies, has been reflected in our 2016 fourth quarter and 2017 first quarter results, and we expect these trends to continue. We have not waited for good weather to yield good results, which certainly helps but we have strategically positioned ourselves to deliver these improvements. In addition, while only 18% of our current revenues are directly generated through infrastructure project spending, we remain well-positioned to take advantage of the robust multi-year construction infrastructure spending plans that have been put into place in all of our major markets. While these initiatives, as well as FAST Act flow through funds, or some future enhanced federal infrastructure spending would be a tailwind, we're not waiting for government-funded projects to improve our results. Our year-over-year organic growth rate in ready-mixed concrete for the first quarter of 2017 was approximately 3%. We estimate that the increment weather in Northern California in Quarter 1 of 2017 caused the delay in delivering approximately 1,000 cubic yards of ready-mixed concrete, which would have represented a year-over-year organic growth rate for ready-mixed concrete volumes of approximately 9%, absent these weather-related delays. We believe that our platform will continue to deliver consistent results for the balance of the year with high single-digit growth in ready-mixed concrete organic volumes for the full year of 2017, along with mid-single-digit growth in pricing. We are optimistic that these organic growth trends could continue for the next several years. In addition, we believe our strategic focus and approach to acquisitions will allow us to expand and strengthen our positions in existing and potentially new markets to meet the higher demand resulting from these capital plans and general construction growth. Our acquisition approach also includes strengthening our aggregates product position around our ready-mixed concrete operations. On April 7, we acquired certain assets of Corbett aggregate, a provider of high-quality concrete sand in Southern New Jersey. The acquisition furthers our strategy in vertical integration and increases our self-sufficiency on internal aggregates in a market where natural sand is rapidly depleting. In addition, our ability to move these materials by water, using our strategic portfolio of distribution docks in the New York metropolitan area, reduces our dependency on third-party suppliers and land-based truck deliveries. Beyond this acquisition, we continue to have a large, attractive pipeline of potential accretive acquisitions which we expect to further enhance and supplement our organic growth. We expect that our acquisition pipeline will enable us to enter a new major Metropolitan market this year. I'll now take you through each of our markets. In Northern California, which represented 20% of our revenue this quarter, significant rainfall for the second straight quarter resulted in continued deferral of sales volumes. Demand remains strong in the Bay Area with many projects now underway and several large projects recently awarded, including the new Google campus, Warriors Arena and The San Francisco Redevelopment Project. On April 28, Gov. Jerry Brown, signed The Road Repair and Accountability Act of 2017. The bill provides $52 billion in transportation funding over the next 10 years with $41 billion allocated to state, local roads, highways, bridges and trade quarters. The comprehensive funding plan was passed to partially address with its state notes is approximately $140 billion backlog of deferred maintenance on state and local roads. We have an extensive plant network in the Bay Area and we remain active to capture the pent-up demand driven by weather-related delays, organic growth in technology sector and the recent approval to transportation bill. In the greater New York metro area, which represented 34% of our revenue in this quarter, we continue to see strong demand for offices, hotels and multifamily residential in the entire region. On April 10, Gov. Andrew Cuomo, signed the affordable New York Housing Program as the successor to the expired 421a tax abatement program. The bill is aimed to stimulate multifamily residential construction in New York City, which should provide 2,500 new affordable apartments annually through 2022. Because of the expiration of 421a, future projects for the Hollis area of Queens were put on hold. These projects are now back on track on with plans for more than 2,000 new apartment units to be built on the waterfront in Astoria. The New York metro area was ranked the top metro area for new multifamily permits through February 2017, with an 88.4% increase over the prior-year period. We have significantly increased and strengthened our New York City market position over the last year to capture not only the robust residential and commercial project pipeline but also the increased demand arising from the Port Authority's recently approved long-range capital plan. The 10-year $32 billion plan will refocus on redevelopment and revitalization of the metro area's infrastructure. In addition, in a report recently issued by the New York Economic Development Corporation, $1.6 billion in public and private funding is being directed towards the revitalization of the North Shore waterfront on Staten Island. The development, which will generate over 2,000 new jobs and include over 4,000 housing units and 200,000 square feet of space, will include new housing, major retail developments, iconic attractions, transportation upgrades and waterfront parks. Our unrivaled plant network, in the New York City market and in Staten Island in particular, will allow us to capture a significant portion of the increased demand from this additional robust project pipeline on Staten Island. Our Washington D.C. and Northern Virginia markets remain an area of significant growth. Over 100 projects have currently broken ground representing over 20 million square feet and $9 billion of construction to be delivered in the next 3 years. Our ready-mixed concrete plants are well-positioned to take advantage of the population influx in the area driving office, retail and residential construction. In Dallas, Fort Worth, which represented 30% of our revenue this quarter, we remain extremely active in this very vibrant market. DFW has one of the strongest population inflows and employment growth rates in the country. Housing permits have increased 55.3% from this time last year and continued growth is expected. Dallas/Fort Worth was already the top apartment building market in the U.S. before starts increased by 95% in the first 2 months of 2017. Over 50,000 units are currently under construction with less than 5% of the current units unoccupied. The nonresidential sector is also expanding at a rapid pace. For instance, Kohler recently announced that its planning to build a 1.3 million square foot distribution facility in the Dallas/Fort Worth area. CyrusOne just announced plans for a new data center on 64 acres in Allen, and Facebook continues to grow in the region with another data center in Fort Worth. Opportunities continue to expand in this market and we continue to add to our backlog, which increased once again this quarter and is 16% higher in the DFW Metroplex than this time last year. Our West Texas region, which comprised 10% of our first quarter revenue, continues to contribute very favorably to our results. As we have discussed on past calls, this market mainly comprises operations west of Fort Worth, in the Wichita Falls, Abilene, Lubbock, Odessa and San Angelo areas. Although growth had slowed over the last year, Dodge projects compound annual growth in ready-mixed concrete volumes of almost 6% over the next 4 years in this region. The active rig count in the Permian Basin has increased 120% from the end of the first quarter last year. We operate in a diverse range of economies throughout the West Texas region where we enjoy favorable industry dynamics and a higher mix of vertically integrated aggregate positions that should allow us to capitalize on future accelerated growth. Overall, the economic fundamentals across our markets continue to indicate a very positive outlook and we have a healthy pipeline of projects for 2017. Ready-mixed concrete backlog continues to increase and as of March 31, 2017 was approximately $7.4 million cubic yards, up 13% for the same time last year. Now I would like to turn the call back to Jody to discuss our first quarter results in more detail.

Thanks, Bill. We were very pleased with our first quarter results with the continuation of our track record of profitable growth, and which were highlighted by a 25th consecutive quarter year-over-year revenue growth. We have also delivered stronger balance sheet metrics and continue to enhance cash flow generation. We reported to $299.1 million of revenue. Income from continued operations of $7 million and total adjusted EBITDA of $41.1 million. Our ready-mixed concrete average selling price increased to $134.28 per cubic yard as compared to $126.44 per cubic yard for the same period last year, an increase of 6.2% to achieve a 24th straight quarter of year-over-year price increases. We also improved our year-over-year ready-mixed concrete raw material margins from $62.78 on a dollar per cubic yard basis to $66.70. In aggregate products we increased our sales volumes by 4% and our average selling prices by 10.6% versus the same period last year. During the quarter, consolidated revenue increased 22.1% on a year-over-year basis on higher volume and average selling prices in both ready-mixed concrete and aggregate products along with the impact of acquisitions we made during 2016. In ready-mixed concrete, we improved our average selling price by 6.2% as compared to the same period last year. These price increases drove increases in our raw material dollar per cubic yard margins during the first quarter 2017, due to strength of our position in each of our markets. Looking forward to the balance of 2017, we expect to continue to improve both our ready-mixed concrete average selling prices and dollar per cubic yard raw material margin spreads, in part due to high levels of demand in our markets and our proven ability to pass along raw material price increases to our customers. First quarter 2017 ready-mixed concrete revenue increased by $51.4 million, or 22.9% year-over-year, and our ready-mixed volume increased 16.2% to 2 million cubic yards with higher average selling prices driving the remaining component of this revenue increase. We believe these trends in selling prices and margin expansion reflect a continued strong construction activity in the well-structured markets where we operate. During the first quarter of 2017, aggregate products revenue increased by $2.7 million, or 17.7% year-over-year, to $17.8 million. Approximately 50% of our aggregates product shipments were supplied internally to our ready-mixed concrete operations across our vertically integrated positions. Looking at our profit and margins. First quarter 2017 income from continuing operations increased to $7 million from a loss of $9.8 million in the prior-year quarter. On a non-GAAP basis, total adjusted EBITDA increased by approximately 60% to $41.1 million compared to $25.6 million in the prior-year quarter. Income from continued operations, as a percentage of revenue, increased to 2.3% for the first quarter of 2017, compared to a negative 4% in the prior-year first quarter. Total adjusted EBITDA, as a percentage of revenue, was 13.7% for the first quarter of 2017, compared to 10.5% in the prior-year first quarter. Notably, our ready-mixed concrete raw material margins, as a percentage of revenue, continue to remain near the 50% level in the first quarter of 2017, despite weather-related volume challenges in California, which is one of our highest margin regions. Our SG&A expense in the 2017 first quarter, was 8.6% of revenue compared to 9.5% of revenue in the prior-year quarter. We continue to aggressively manage our SG&A expense levels and expect this metric to continue to improve as we drive organic growth and complete the integration of acquired companies. On a GAAP basis, our net income was $6.9 million in the 2017 first quarter or $0.42 per diluted share. On a non-GAAP basis, adjusted net income from continuing operations was $9 million or $0.55 per diluted share for the first quarter, representing a 77.4% increase compared to the prior-year period. The adjusted net income from continuing operations for the first quarter of 2017, is net of a normalized tax rate of 40%. This normalized tax amount is consistent with our positions as a full cash taxpayer in 2017. Now moving on to cash flow and balance sheet. As I mentioned in our fourth quarter and full-year 2016 earnings call, in January we closed a $200 million add-on to the $400 million single and secure notes we issued in June of 2016. We are very pleased with the execution of the placement of this add-on as it was priced at 105.75% of par value, which further improves our cost of capital. We deployed a portion of our cash position, as of March 31, 2017, for the cash at closing for the, Corbett acquisition in April, 2017, and based on our acquisition pipeline, we continue to expect to efficiently deploy the net proceeds from this tack on notes offering in 2017. During the first quarter of 2017, we generated $29.5 million of net cash provided by operating activities as compared with $20 million in the prior-year quarter. On a non-GAAP basis, we generated $19.6 million of adjusted free cash flow as compared to $9 million in the prior-year quarter, primarily as a result of improved operating profit. We continue to maintain a critical focus on working capital management, particularly in our cash collections and timing of vendor payments. We spent approximately $10.7 million on capital expenditures during the first quarter of 2017, mainly to purchase plant, machinery and equipment in support of growing demand in our markets, compared to $11.2 million for the same period last year. As of March 31, 2017, the book value of our long-term debt, including current maturities, was $658.6 million. This included $611 million of unsecured senior notes due in 2024, no amount outstanding under our revolving credit facility and approximately $58.6 million of other debt consisting mainly of equipment financing for new mixer trucks and mobile equipment, less $11 million of debt issuance costs. As of March 31, 2017, we had total liquidity of $500 million, including $291.8 million of cash and cash equivalents, and $208.2 million of availability under our revolver. Our availability is net of an $18.1 million reserve for outstanding loans of credit in sales tax and other reserves. Our availability is also limited by the eligible amount of our accounts receivable, inventory and rolling stock, which was $226.3 million as of March 31, 2017. At March 31, 2017, our total debt-to-LTM income from continuing operations was 25x and our net debt-to-LTM total adjusted EBITDA ratio remains conservative at 2.09x, which would be lower on a pro forma basis with the full run rate of EBITDA from acquisitions we completed in 2016. We ended the quarter with a strong capital position to continue investing in our business, in deploying capital opportunistically on select accretive growth opportunities. I'll now turn the call back over to Bill.

Thank you, Jody. I want to take a minute to thank Jody for his hard work and dedication to the success of U.S. Concrete over the past year and a half. Leading 2 extremely successful debt raises has been instrumental in positioning the company for future growth. We wish him the best of luck in his professional endeavors. As to our progress, we are actively engaged in the CFO search and have progressed to the interview stage with numerous very highly qualified candidates. I'm confident that we will seamlessly seat a high caliber individual in the role, without missing a beat, as we have a seasoned finance team in place to assist in the transition. We are pleased to continue to deliver on our growth objectives and create a sustainable platform for continued success. We continue to believe that the construction cycle has a healthy runway for continued expansion. We have established our company in attractive geographic markets with leading share positions to deliver consistent profit improvement and generate attractive returns for many years to come. As we look to the balance of 2017, we're optimistic on the prospects for growth in our existing markets and our acquisition pipeline remains a viable avenue for additional growth, including potential new Metropolitan market areas and increased vertical integration with additional aggregates. We expect our markets to continue to outpace the national average for construction spending, allowing us to maintain our relentless focus on our 2-pronged strategy. The first, grow organically through operating excellence, superior product delivery and service. And second, expand through acquisitions that bolster our existing market positions and capitalize on potential opportunities in new high-growth markets. We expect that the disciplined execution of our strategic growth plan should lead to increased value for our shareholders. Thank you for your interest in U.S. Concrete. We look forward to updating you on our future successes. We would now like to turn the call back over to Sabrina for the question-and-answer session.

[Operator Instructions] And our first question will come from the line of Rohit Seth from SunTrust.

Just trends in the footprint, clearly you had strong volumes, margins were good in the ready-mix, given the rain in California. Are you seeing that volume come back?

In California, Seth, or overall?

Yes, in California.

Yes it was. The weather has moderated obviously, it's more conducive to placing and pouring and supplying concrete. So I would - it's as simple as just watching the weather in any of our footprint, and specifically in California, because all of the pent-up demand for our projects that were delayed.

You already had good margin expansion in the first quarter, so it's fair to assume that 2Q could get, I guess significantly better just on the change in the mix?

Seth, this is Jody. As you rightly noted down, and as we included in our commentary, Northern California is one of our highest margin markets and so Q2 and Q3 are generally our strongest quarters, and with that volume coming into the mix, we would expect improvement directionally in Q2 and the margins.

And the backlog was also up pretty nicely. Can you provide any color on the mix of projects entering the pipeline?

The mix are fairly consistent. We have seen a little bit more influx in the transportation infrastructure area, as you can well imagine from some flow through of the FAST Act and some of these other projects that we won, notably the LaGuardia Airport which is in the infrastructure side. We shift it little bit for Q1, 2017, we shifted a little bit more into the infrastructure side at 18%, decreased marginally in the commercial industrial sector, dropped from 60% to 56%. Res is up now 0.2. So a minor shift into the res.

Okay. And then the California infrastructure bill, you touched on that. I know you haven't historically gone after that market, but I'd imagine it's going to change your market dynamics in California. How do you see this playing out, if we assume that tomorrow is going to be the beginning of the big lift in the amount of spending? How would you anticipate the dynamics play out for you guys specifically?

I wouldn't characterize as we haven't gone after those job or haven't focused on those jobs. You remember 2 years ago, we completed the Oakland Bay Bridge which is a massive infrastructure project. So it's more opportunistic. So the more of the opportunities are there for enhanced margin difficult to perform projects, we would focus more of our capacity towards those. They just haven't been that available in some of our markets because of the lack of the infrastructure spend available. So as more projects become available, we'll focus more on that for our existing capacity.

And then, on the New York City plan that I know the awards are up pretty significantly, I calculated 70%. Is that stuff coming to the market yet from the city of New York?

Not as a result of the new plan passed by Governor Cuomo. Those would've been done irrespective of that maybe on the come, hoping that there would be a replacement for the 421a program, but this is - the projects that we are doing now, they've been planned 1 year to 2 years ago, so all of this is to come.

Got you. And then on the M&A front. You did that acquisition in South Jersey. I think you talked about it supplying the New York operation, but I kind of looked at that as potentially the beachhead into Philly. Is that the right way to think about as well?

It's close to Philadelphia but the purpose of that acquisition was primarily to self-consume in our existing ready-mixed operations where sand is extremely expensive and expensive to truck-in from various land-based sources. So it could give us opportunities for additional markets in the future, the primary reason for that was self-consumption in the five boroughs of New York.

And you're still looking south in terms of entering new geographic markets? Anything change on that front?

We're looking in all potential markets, east-west, north-south. Our preferred is high-growth urban markets, but we are looking across the country.

The strategy around markets, not only geographically, but the characteristics of those markets are still very consistent with what we communicated over the last year.

Just on the cost structure production cost per unit, seems to be coming down. I know you guys look at it differently but just from your public statements looks like it's coming down. Is that synergy coming from the New York operations and you know we have 2 quarter with actuals since you did those and is it fair to assume kind of the overhead and labor cost we're seeing, that's good run rate to project forward?

As far the synergies, the New York market we had 4 acquisitions within the last 12 months and it takes 18 months to 24 months to fully synergize them. So as that clock ticks forward and with those companies under our umbrella and the rationalization of the operating footprint, so that we can more effectively and more cost-effectively and more cheaply service large projects, comes into our operating model that obviously is going to help our operating costs. I can - irrespective of post-acquisition synergies. We are constantly striving for operational and process improvements.

And the next question will come from the line of Craig Bibb with CJS Securities.

It look here the volume growth was really encouraging given the rain in California, you have a tough compare in Dallas. Was this a New York-driven quarter?

Obviously we were impacted negatively in California, so the results that we did put on the paper had to overcome that and it would be a combination of New York and Dallas Metroplex, Northern Texas.

Okay. It looks like your contribution, given the spread between organic growth and total growth, your contribution from your New York purchases appear to be as well above what I was expecting. Was New York less seasonal than normal in Q1?

It had marginally - it had basically marginally improved weather, except if you remember at the end of March, the third week of March we had that big blizzard in New York. So we had to overcome that as well in the last 2 weeks, and obviously, March is seasonally better weather than January and February and then we lost a full week in March. I'm very pleased with our results even given some weather disruptions in that market.

And the naysayers on your stock are concerned that New York is going to slow down. Are you guys seeing that?

No, from my commentary, what's in the project pipeline, what we papered, what we're working on right now, what's in our backlog, what's not even in our backlog but was projected on Staten Island with the Port Authority spend and the governor's new proposal for the 421a replacement, I'm very happy to be operating in New York with a footprint we have.

It sounded like you're a little bit more optimistic about the D.C. market. Is there potential for M&A and building out your position there?

Yes, we are looking in that market, as all of our markets for potential opportunities. I'm optimistic about the growth prospects in D.C. as well.

Okay. And then last one. Are there any looming costs for trucks, drivers, maintenance or anything that could derail margins later in the year?

No, Craig, as Bill mentioned, the effort continually on further optimizing the cost structure is very active. Maintenance CapEx that we have mainly for our truck fleet, is very predictable as you know. And so we don't expect or see spikes in any of the cost components that would be unanticipated or in the organic CapEx as well.

And the next question comes on the line of Trey Grooms with Stephens.

I've got 9 questions I want to ask to but I'll probably just keep it to 2 since its earnings season. That was a joke. The deferred 100,000 tons that you're talking about, you said just watch the weather but - excuse me, not 100,000 tons, 100,000 cubic yards, you said kind of watch the weather in California that sort of thing. But do we - is capacity there to get it all done in 2Q? Or is that something just takes a bit longer to kind of roll out, just depending on the ability to get the work done? The manpower?

Yes, Trey. Just - very similar to what we experienced with the heavy rainfall in the past 2 years in the state of Texas. It takes more than just 1 quarter to absorb that level of disruption. So that maybe 2 quarters or 3 quarters to get all of that work back into the schedule, and remember, that as Bill mentioned, Northern California is very, very active market right now. So that we don't expect to get fully made up in Q2.

Okay, got it. And then you mentioned about West Texas obviously starting to improve. What's the opportunity - you said 10% of sales but just trying to get an idea of what the opportunity is there? How much is at all from a few years ago? I would think it would be pretty considerable, but just trying to gauge the opportunity you have in West Texas because I think that's a market that goes - kind of doesn't get much attention with the Dallas/Fort Worth being a bigger market for your guys and a hot market just trying to gauge the opportunity there.

Yes, Trey. The opportunity is significant, particularly as some components of the energy patch continue to recover, mainly around the Permian, and so the capacity there, you have to look at a little different from say the Dallas market proper. And so the capacity to ramp up is pretty significant in the West Texas market. You are correct, that 10% of revenue component is down from previous year. So there is opportunity to move that up and the capacity - and we'll largely depend on the timing and size of projects that come into that market.

In the next question comes from the line of Adam Thalhimer with Thompson, Davis.

I want to ask a first on ready-mixed volumes. I don't know how granular you really want to get. Does the environment exists that would support continued double-digit growth?

We've answered that, that we expect high single-digit organic growth. Supplemented by selective acquisitions that we're able to accomplish. So we're right under double-digit if you're counting 10 as a double digit. So I would stick with outside of any acquisitions those high single-digit projections we've given you.

Maybe on to the acquisition strategies. You look at new metro areas. What's the preferred way to enter those? Is it, buy 5 or 6 smaller companies? Or is it buy 1 big company?

It depends on the market. The ultimate endgame is what you have to keep in mind, you have to have a path to consolidation so that we can replicate the market concentration and the ability of purchase raw materials extremely cost effectively and the ability to cover an entire metro region with a robust plant network. So depending on the underlying commercial characteristics and competitive environment within each of those regions, would dictate the strategy. So it's situational, depending on the underlying market fundamentals or dynamics with in each of those metro areas.

And then I wanted to ask lastly, on cement price increases. How successful were those in your markets for the spring?

Success like beauty is in the eyes of the beholder. As I said in my prepared comments, our ability to buy large quantities of cement and aggregates in our markets allow us to be very efficient in our purchases, vis-à-vis what some of our smaller competitors might have to pay. Our supplier's value our volume.

And your next question will come from the line of Brent Thielman with D.A. Davidson.

I saw the metrics you offered, the high single-digit volume growth, mid-single digit price organic, even with the potential to sustain that over the next few years. Any sense of what kind of margin expansion you kind of see from that? Because I know you have some easier comps this year, so it's not necessarily apples-to-apples after this year?

Well. I think, Brent, we've been pretty consistent in saying that we do expect mid-single digit price increases for ready-mix and we see that it, also in our prepared remarks today, that potential to continue for a few years. So the way we look at it is with that kind of pricing power, with a position that we have in our markets, we would have the ability to further widen out the margin spread, and so we have some variabilities, as you know, in our margins by markets but we are very well poised to take advantage. Not only have improving the volumes in our higher-margin markets, but also widening out our margin spreads across everywhere where we operate.

Okay. And then Bill, as you look out over the next few years not just California but the whole spread of assets you got. Do you think the business overall is likely to see a more material shift towards infrastructure work that you have in the past. And if that's the case, even if you go after these more complex jobs, is that still somewhat of a headwind in terms of the ASP and continue to grow at the pace you have.

No I don't think it's a headwind at all. Because some of these infrastructure jobs are very complicated with significantly difficult quality specifications that not all ready-mix suppliers can perform to, as well as the service requirements of the number of trucks and robust plant networks. So I think that those are very high-priced high-margin opportunities, so I don't look at that as a headwind at all. We're not counting on it because some of these plants we still have to see the fruition and the flow through of the dollars to actual projects, but I would consider that a tailwind to our existing base of business which is very healthy right now, but not a headwind at all.

And the next question comes on the line of Stanley Elliott with Stifel.

On the price mix, both on or the price side both on ready-mix and on the aggregates, can you break out what was a regional impact, maybe what was a product mix impact, anything to help with that? Or should we just assumed that's just straight price?

There are mix implications there obviously, but in this respect it kind of works. Our underlying price worked in favor of the shifting mix. Obviously, the 2 coasts are more expensive ready-mix and because of the decline in volume, because of the weather impacts in California, we lost some of that high-priced California pricing. So when you see a mid-single-digit or a 6% price increase, that's overcoming a mix shift that goes against us. So there's very strong underlying fundamental pricing dynamics in all of our markets.

And did you say the Texas market was a little soft as well or not soft but just had some weather impacts.

It did have some weather impacts; it's been noted in various forms over the last couple of days. In our markets, when you look at the precipitation rank first quarter 2017 versus first quarter 2016. In our major Texas market, would be the Dallas Metroplex it was a 74th wettest quarter on record. Last year was the 59th so marginally wetter in Dallas. And as far as our West Texas markets, last year it was the 39th wettest which is fairly low out of 118 years. And this year was the 109th wettest. So there were impacts in our West Texas business, minor impacts in our Dallas business which we overcame.

Perfect. And now with the business at a steady state you certainly feel like we're hearing more about in-fill acquisitions in the past. I was thinking more kind of new platforms; I know that was still on the table for you. But am I correct in picking up that there seems to be more in-fill deals within existing markets kind of in the - on the wish list now?

I would say that we desire to get both we have been very consistent, not only in in-fills new markets and in aggregate vertical integration. But I think there has been some more opportunities, some more sellers that have surfaced over the last 6 months. So wouldn't necessarily be our wish list has changed but opportunities to execute deals that weren't previously available to us, now are coming into the mix a little bit.

Perfect. And then last for me with a steady run rate business. Where we're doing now with good volume, good pricing outlook? Would you guys just hazard a guess kind of what you see as a margin potential within this new business kind of as it stands now, or is this still too early to say?

Stanley, we've mentioned in the past that moving the EBITDA - the total adjusted EBITDA margins in the mid-teens range and we are quite close in the performance in this quarter, is how we look at the business overall. So we do think there are still opportunities to further optimize the cost structure and then as I mentioned continue to widen out the raw material margin spreads. So that's sort of how we're looking at it in the near-term and again, based on the performance in Q1, that looks quite achievable.

And the next question comes from the line of Scotch Schrier with Citi.

I wanted to follow up on a couple of questions as you think about the infrastructure opportunity that you discuss. Do you plan on whether its green fielding new batch plants anywhere to kind of broaden out your footprint away from some of the metro areas to get more exposure to some of these infrastructure opportunities? Or how can we think about your footprint versus where some of these big infrastructure opportunities could be?

Sure. That's not a primary objective of our strategy. We do have mobile concrete plants and division that historically has followed infrastructure work, wind farm work for instance in Colorado, Montana, Oklahoma. We've kind of moved away from that to some extent because you just - it's difficult to find competitive advantages when you come into another market where you don't have a presence in, both in raw material purchasing and sourcing labor, and competing for that work with existing players that are in that market. Now having said that, when there are large infrastructure projects within our existing geographies, when we are at a fairly high level of capacity utilization within those major Metropolitan areas, it's our preferred means of supplying that job with a portable operation that supplements our existing fixed-plant capacity. So I would look at it more that we've had the ability, even when our other plants are busy, to set up additional capacity within markets that we currently exist to take advantage of those opportunities.

I want to follow up on the margin questions, and maybe hit it another way Jody. When I look at your incremental margins for the quarter, obviously, they were very strong. So is this a good run rate to think about the cadence of this margin expansion that you refer to? Were there any one-off items in there? Or are we just at a point where you are just leveraging your fixed cost you have that pricing power so this level of operating leverage is a good way to think about the business?

Yes. It's really the latter, Scott. So there were no one-time or nonrecurring types of components in the cost structure that drove these results, and so as you look at margins overall or on an incremental basis, we do think that trajectory is a good way to look at what will continue in the coming quarters and years. And it's attributed to the components exactly that you mentioned. Just underlying fundamentals improving in pricing, improved volumes over the fixed cost structure and further optimizing various components of our overall cost.

Great. And lastly I want to hit the question again, specifically the New York, so I see a lot of these projects you do here in our backyard and as you've alluded they're complicated so you have significant pricing power in those. If I think about the fact that we've some new cement capacity coming online, whether it's both in upstate New York and Canada, does that give you an even more opportunity to really push that materials spread, given that you might have some more purchasing power with the supply in the market versus the fact that you do have these projects where you're able to push pricing a little further?

Yes. Interesting that the capacity question in New York. Some of that excess capacity is going to be used up by overall market demand with us and our competitors, so I'm not that concerned about that. To the extent that we can efficiently take advantage of cost opportunities because of excess cement capacity our own purchasing ability because of the amount that we buy and our leverage in that relationship, and as we keep getting value for our products and service and delivery, as you've said, they're very complicated project and not many people - not many companies can do them and there has to be an inherent value for our customers in using us. That combination should continue to allow us to increase spreads.

[Operator Instructions] And I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Bill Sandbrook, President and Chief Executive Officer, for closing remarks.

Thank you, Sabrina. Thank you, everyone, for participating in the call this morning, and for your continued support of U.S. Concrete. This concludes our call, and we look forward to discussing our second quarter results with you later this summer. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone have a great day.