Vulcan Materials Company (VMC) Q1 2018 Earnings Report, Transcript and Summary

Good day ladies and gentlemen, and welcome to U.S. Concrete Incorporated’s First Quarter 2018 Earnings Conference Call. [Operator Instructions] I’d now like to turn the conference over to Senior Vice President and Chief Financial Officer, John Kunz. Please go ahead.

Thank you, James. Good morning, and welcome to U.S. Concrete's First Quarter 2018 Earnings Conference Call. Joining me on the call today is Bill Sandbrook, our President, CEO, and Vice-Chairman. Bill and I will make some prepared remarks after which we will open up 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 SEC. 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 filed earlier today and under the Investor Relation's section of our website. If you would like to be on an e-mail distribution list to receive future news releases, please sign up in the Investor Relations section of our website under e-mail alerts. If you would like to listen to a replay of today's call, it will be available in the Investor Relation's 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.

Thanks, John. Good morning, ladies and gentlemen, and welcome to our call. I’m happy to report that it’s not snowing today in New York. It’s not raining today in Dallas, and sunny California is actually sunny today. I wish we can say the same for the first quarter of 2018, where we experienced the wettest February on record in Dallas/Ft. Worth metroplex. And as many of you live through, four nor'easters impacted our Atlantic region during the month of March. The good news is that through it all we maintained our focus on operating excellence and pushed forward with accelerated efforts on integration of our recent acquisitions. And that’s yet another challenging quarter due to weather; we continue to our streak of year-of-year growth in both revenue and ASP for the first quarter of 2018 and set a new record with $328 million of revenue for the first quarter. I’d remind everyone once again that weather delays no matter how severe do not result in the cancellation of work, but only a deferral in the future quarters. I am pleased to see that in April as you would expect as we shrink together consecutive weeks of normalized weather the demand in all of our markets and segments is driving meaningful volume growth over prior year. We have a lot to be excited about heading into the peak months of the construction season and remain very optimistic about the prospects for the remainder of the year. We have grown and maintained record levels of backlogs. We have just scratched the surface from the production and earnings capacity of our recent acquisitions and demand remains high in all of our markets which we intend to capitalize on in the coming months with the cooperation of more normalized weather. We’ve been consistent on our message over the years that we have a two pronged strategy to grow both organically through operating excellence and through acquisitions. In a quarter where weather hindered organic growth in two of our largest markets, our acquisition strategy played a critical role in our continued overall growth. Our prior year acquisitions of Corbett Aggregates in South Jersey and Polaris Materials on Vancouver Island are already paying off and drilled significant improvement in our aggregate product segment for the quarter, with revenue growth of 83% over the prior year quarter from combined volume growth of 71% and pricing growth of 14%. On the ready-mix side, our recently completed acquisitions in Texas and Philadelphia were strong contributors for the quarter. While organic growth was challenging, the incremental contribution from our acquisitions drove segment growth of 5% compared to the prior year quarter on 2% growth in both volume and pricing. We continue to expect strong contributions from our acquisitions which still served as more of a compliment to our organic growth as we capitalize on pent up demand from deferred volumes to the remainder of 2018. Organically, volumes were down in both segments from our business from the inclement weather, resulting in a 2% decline in total organic revenue compared to prior year quarter. We estimate that approximately 250,000 cubic yards of concrete sales and associated internal aggregate sales were deferred during the first quarter due to weather. Absent the weather impact, our adjusted EBITDA would have shown growth over the prior year quarter. We look to the balance of the year to recover a significant portion of the deferred volume from the past several quarters. Backlog is at an all time high at 8.2 million yards and 11% increase over this time last year and 4% higher than reported at the end of 2017. It is also interesting to note that our current backlog is 20.3% and 38.1% higher than Q1, 2016 and Q1, 2015 respectively demonstrating the direct co-relation between our visibility into our book-to-work and our annual growth rate year-over-year. I would like to take a moment to talk about our recent acquisition of Polaris Materials. The addition of Polaris Materials represents a key success in our aggregate growth strategy and provides our company and shareholders extensive long term value. The addition means, more than just an internal aggregate source for our ready-mix business in Northern California and entrance into new markets. It represents our ability to provide high quality materials in otherwise supply constraint areas on the entire west coast for the foreseeable future. The integration of Polaris remains ahead of our internal plan and we continue to aggressively work on the acceleration of higher volumes into the various markets that we serve as well as plan to further develop land acquired as part of the transaction to meet increasing demand. We are confident that we will exceed our internal full year target 4 million tons of aggregate sold for 2018. In fact, we have already exceeded any prior year individual month’s shipments across the Long Beach terminal for the month of April. Given the significant construction growth ongoing in California, the relatively untapped infrastructure demand to be funded under SP-1 and potential construction boom that will almost certainly pre-empt the 2028 Olympics in Los Angeles, we are extremely excited and confident with the anticipated returns from this dynamic acquisition. Overall the construction industry is showing strong signs versus continued growth across the country and specifically in our markets. The architectural billings index shows growth in our key sectors; commercial, residential and mixed-use. As a reminder, the ABI serves as a leading economic indicator that leads non-residential construction activity by 9 months to 12 months. A score above 50 shows an increase from the previous month. Both design contracts and inquiries showed increases from February with scores of 51 and 57 respectively. Likewise, the West and South led the country with scores of 53.4 and 53.2 respectively. Finally, the commercial sector score was 53.1 and the residential score was a healthy 53.4. The Dodge Momentum Index which measures non-residential projects in the planning stage will tire in the quarter, with major projects entering planning in our operating markets, further indicating our early to early mid position in the construction cycle. Specifically, the Dodge Momentum Index moves 6.1% higher in March, rising to 155 from the revised February reading of 146. March’s gain was the result of a 9.6% increase in the commercial component. During the first nine months of 2017, the overall momentum index made little progress. However, planning activity shot up in the fourth quarter with that emphasis continuing into the first three months of 2018. In the latest quarter, the momentum index gained by 5.1%. This maybe a sign that planners are reacting in a positive fashion to the Tax Cuts and Jobs Act that President Trump signed at the end of December. There are many other forecasts and data points that are leading to our optimistic outlook. The consensus construction forecast released in January averages the Outlook from Dodge, IHS economics, Moody’s, FMI, Construct Act, Associated Builders and Contractors and Wells Fargo Securities. Their forecast indicates a 4.0% increase in non-residential building in 2018 followed by a 3.9% increase in 2019. Notably, the forecast indicated a robust 4.4% increase in commercial construction in 2018. The U.S. Bureau Census is forecasting an increase in residential construction of 5.4% in 2018, while Deutsche Bank is forecasting a single-family increase of 10% and 5% increase in multifamily starts. There still remains very tight supply in the residential markets with existing supply of new homes and existing homes at six months and 3.5 months of inventory respectively, maintaining the level of pent-up demand and housing shortage that has persisted for the past five years. Finally, on the infrastructure side, forecast from the American Road and Transportation Builders Association indicates some positive news on total national infrastructure spend with both increased federal and state monies being authorized. The current forecast of $89.4 billion spent on highway, street, bridges and tunnels represents a 2.4% increase year-on-year which reverses the decline experienced in 2017. In March, highway street and bridge construction starts increased 19% year-on-year to the highest dollar value reported in almost three years. It is also encouraging that 24 states have increased the gas taxes in the past three years to fund state level infrastructure investment. I’ll now take you through each of our markets. In Northern California, which represented 27% of the revenue this quarter, we continue the positive momentum from the back half of 2017 and have provided a great example of the recovery that we can experience in our markets following adverse weather, as it normalizes, knowing that this region set an all-time high for first-quarter revenue for the region but it was the sixth largest revenue quarter in the company’s history for any quarter or any region. Remember that even in California, the first quarter is typically the lowest of year. In addition, with increased focus in the market on multifamily housing, and our ability to supply high strength concrete, and meet stringent specifications, it is hard to operate urban market, we remain in a strong position to compete while providing the market with the ability to build better buildings and experience the true value of sustainability and innovation. To demonstrate the strength of the Bay Area market, not only in high-tech campus spend, but the 2018 year-to-date residential permit building permits awarded were up 20.8% compared to last year and higher than any other first quarter in the past 15 years. Additionally, the average monthly rent increased 2% in the quarter, re-affirming the strong demand for units in the Bay Area. And Dallas/Ft. Worth which represented 24% of her revenue this quarter, we endured a 100-year record rainfall in February with more than 11 inches of rain, creating a deferral sales volume of more than 100,000 yards ready-mix concrete and associated internal consumption of aggregates in the quarter. Taxes, in specifically the North Texas area continues to attract corporate relocations with over 70 companies moving to the Metroplex since 2010, bringing an increase in population, residential and commercial construction and infrastructure needs. This area’s construction pipeline was reported to be valued at $23 billion in 2017 and we continue to see expectations of growth to this robust outlook. Our pipeline of work in North Texas is vast, with office towers being planned in Plano, a new major league baseball stadium in Arlington and a National Soccer Hall of Fame Museum in Frisco. One of the most exciting projects in this area, Hidden Ridge, is a billion dollar mixed-use project in Irving. This fast-track construction project will require the adherence to a strict specification while delivering sustainability innovation and the ability to service a high volume of concrete quickly. These types of projects further validate our investment in the best people, trucks and labs to tackle these increasingly complex projects that take a level of sophistication that most suppliers cannot deliver, and differentiates U.S. concrete from smaller, more commoditized producers as well as larger less focus producers. In the residential sector, Dallas/Ft. Worth year-to-date March permits were the second highest issued since 2005. The DFW occupancy rate for multifamily units remained at approximately 91% even as 3900 units were introduced. In the industrial sector, DFW delivered a record 26.4 million square feet of industrial space last year. This market’s inventory has grown at an average rate of 3.7% per year since 2014 and it shows little signs of slowing down with another 22.8 million square feet underway today and continuing at the same pace of 3.7% of current inventory. Despite this robust growth, vacancy has hardly moved and in fact has started to trend down. Finally on the Texas infrastructure front, increase optimism is warranted as funding -- available funding is expected to increase by more than 50% between fiscal year 2018 and fiscal year 2020 increasing to $14.4 billion. In New York City, which represented 21% of our revenue in this quarter, our operations experienced one of the most intriguing and infuriating weather systems, or should I say continuous weather systems in modern history. Never before have we seen four nor'easters of this magnitude continued to impact an area as we saw over the winter season and all in the same month. This type of seasonal setback really highlights what people are made and our entire team in this region stepped up and made the most of what they were given. Megaprojects seem to be ubiquitous around New York City, not only in Manhattan, but in the surrounding boroughs as well which are very close to many of our concrete plants. As we see, the commercial property market began the year very strong. It is further evidence of early position the construction cycle and what is yet to come. As with our other urban markets, residential construction in New York City especially the outer boroughs remains robust. Total residential permits for future construction, while less than issued in 2017 still remains at the second highest level since 2007. Additionally, only 3100 units were delivered in the first quarter, while 9100 were absorbed increasing average occupancy to 90% and boding well for tight supply and additional construction needs in the future. Rental rates increased an additional 1% during the first quarter according to ALN apartment data. With our robust pipeline of infrastructure projects, entrance into a new market segment whether our expanded Teamster Bureau contracts, ability to move increased volumes of owned sand and aggregates into our downstream ready-mix operations and record backlog, we remain extremely optimistic on the future of our New York City operations. Our backlog in this market is 30% higher than it was at this time last year. Our West Texas region which comprised 11% of our first quarter revenue, welcomed the large acquisition in the first quarter. We have begun to successfully integrate golden spread ready-mix with 15 ready mix concrete plants and an aggregate production facility to self supply our operations. The acquisition of Golden Spread significantly broadened our region in West Texas and brought an entirely new customer base to our operations. Golden Spread was yet another bright spot for the quarter, driving meaningful growth in volumes, revenue and profitability for the company. The increase in oil prices has also resulted in increased construction activity in both the Permian and Eagle Ford basins. We are seeing increased demand in both regions as the active rig counts have increased dramatically since the middle of 2016. The Permian has increased rigs by threefold to 450 and Eagle Ford has more than doubled to over 70. While we do not provide down the whole concrete, we do benefit from the growth of employment and the concurrent needs for expanded residential, commercial and educational facilities. It is good to see this segment of our geography coming back so strongly. Energy self-sufficiency is good for our economy, and good for Texas, and good for U.S. Concrete. Before I conclude on our market outlook, I want to highlight that we are extremely excited to have entered the Philadelphia and Los Angeles markets in 2017. We have great expectations to grow those positions in the future. With those additions, U.S. Concrete now has meaningful positions in six of the largest nine Metro economies in the United States. This fact continued with our significant expanded area position, differentiates us from other concrete producers and in fact differentiates our current strategy and footprint from U.S. Concrete of earlier years. In that light, we continue to provide significant value to our shareholders with our disciplined acquisition strategy. Our completed acquisitions remain increasingly accretive, as we progress forward through integrations and will continue to provide additional growth to the remainder of 2018. Our pipeline of both aggregate and ready-mix operation remains full, and I am optimistic that we will see continued activity in 2018. Overall, we are very excited to see our strategic plan come into place at a time of great growth and prospects, as I have previously described. All of our markets continue to exhibit positive fundamentals and robust key leading indicators that support a strong construction cycle. Now, I’d like to turn the call back over to John to discuss our first quarter results in more detail.

Thanks, Bill. In light of another heavily weather impacted quarter, we were able to take away many positives from our first quarter results. Driven by the impact of our recent acquisitions, consolidated revenue increased 10% compared to the first quarter of 2017 with volumes and average selling prices improving in both ready-mix concrete and aggregate product. This represents our 29th consecutive quarter of year-over-year revenue growth in our 28 consecutive quarter of year-over-year pricing growth. Our material spread margin on a dollar per cubic yard basis for the quarter increased both year-over-year and sequentially over the fourth quarter of 2017, although down from our record-setting level in the first quarter of 2017, our adjusted EBITDA margin was healthy at 11%, the second highest mark for such measure in our history for the first quarter. This is particularly encouraging given the larger contribution from our recently acquired businesses which generally take 18 to 24 months to fully integrate into our company. During the integration, recently completed acquisitions may produce lower margins and a world class ready-mix margins that our company is accustomed to, but we expect improvement as we integrate these businesses. During the quarter, we also generated solid cash flow and maintained healthy liquidity. For the first quarter, consolidated revenue were $328 million, and adjusted EBITDA was $36 million. Average selling prices for ready-mix concrete and aggregate products increased 2% and 14% respectively compared to the prior year quarter. We estimate the inclement weather in Dallas and our Atlantic regions once again resulted in a deferral of approximately 250,000 yards of concrete sales. For ready-mix concrete business, our raw material margin on a dollar per cubic yard basis increased to $67.43 from $66.70 in the prior quarter. SG&A was 9.8% of revenue for the first quarter of 2018 compared to 8.6% in the prior year quarter. Adjusted SG&A excluding stock compensation and acquisition-related cost was 8.4% of revenue in the first quarter of 2018 compared to 7.8% in the prior year quarter, due to higher costs to support the growth of the company and recently completed acquisitions that have not yet realized their full synergy. Moving to our cash flow and balance sheet, during the first quarter of 2018, we generated $25.9 million of net cash provided by our operating activities as compared to $29.5 million in the prior year quarter. We generated $19.5 million of adjusted free cash flow as compared to $19.6 million in the prior year quarter. We spent approximately $8.4 million on capital expenditures during the first quarter of 2018, primarily purchased plant, machinery and equipment and support our growing demand in our markets compared to approximately $10.7 million for the same period last year. As of March 31, our total debt including current maturities was $756 million. This included $610 million of senior unsecured notes -- due 2024, $75 million outstanding on our revolving credit facility and approximately $81 million of other debt consisting mainly of equipment financing for new mixer trucks and mobile equipment, less $10 million of debt issuance cost. As of March 31, 2018 we had total liquidity of $174 million including $37 million of cash and cash equivalent and $137 million of availability under our revolver. At March 31, 2018 our net debt to adjusted EBITDA was 3.8 times. We remain confident with our outlook for the remainder of the year and anticipate continued solid cash flow generation and adequate liquidity to support our ongoing operations and near-term acquisition strategy. I’ll now turn the call back over to Bill.

Thanks, John. We are excited about the success of our strategic plan and our growth into new and exciting markets. Our markets performed the best in a strong economy and we continued to see positive long-term indicators that support continued growth. We have chosen to participate the markets because we believe in their ability to give us the opportunity to consistently generate better than average growth and returns for shareholders. As we look to the balance of 2018, we are optimistic on the prospects for growth and our acquisition pipeline remains a key component of our strategic plan. By all indications, our markets will outperform the national average for construction spending, allowing us to execute our proven and successful business strategy. We continued to have a relentless focus on our two-pronged strategy to first grow organically through operating excellence, superior product delivery and service and second, expand through acquisitions to bolster our existing market positions and capitalize on potential opportunities in high, in new, high-growth markets. Thank you for your interest in U.S. Concrete. We look forward to updating you on our delivery of our commitments. We would now like to turn the call back over to the operator for the question and answer session.

Thank you. [Operator Instructions] Our first question comes from Rohit Seth with SunTrust. Your line is now open.

Hey thanks for taking my question. My first question is on your margins. You guys had reported some product mix headwind in the quarter, you have a number of recent acquisitions which have their own margin profile, and then you got some visibility in your backlogs. So I’m just trying to get a sense of – you know do you have – do you see an opportunity to expand your EBITDA margin this year, and if so, if you can talk about what some of the drivers are and perhaps some of the risks that we should be aware of? Thanks.

Sure. Thanks. The margin in the first quarter I believe was our second highest margin ever in the first quarter as the first is always somewhat weather impacted and our slowest quarter of the year, which means a lot of fixed costs are not absorbed. When combined with the significant weather impacts that we have and when a lot of our ready mix truck drivers are more fixed cost than variable, margins are going to compress because the lack of fixed cost absorption in slower weather impacted volume on days. Now having said that, we have a large number of acquisitions in the quarter as well that will come in – that come in with the historically lower price point than we have and lower material margins and contribution margins that end up getting rationalized into our portfolio as we fully synergize them throughout the course of the next 18 and 24 months. I fully expect our margins to expand from the first quarter and to -- as a minimum reach where we have been in previous years. And hopefully with our expansion into more heavily weighted aggregate portfolio the overall EBITDA margin is going to expand from that point as well. But the long and short of it, it's very difficult to extrapolate future margin performance from any first quarter that is significantly impacted from weather as it was this time. But our margins and -- I would say our performance was satisfactory in the first quarter given our headwinds, and we look to growing it from there significantly.

Got you. Okay. Thank you. And then just on backlog, can you parse out how much of that was driven by acquisitions? Is it 11% growth during the quarter?

Its about half, so I'd say about half of that was from the new acquisitions and half was organic.

All right. Thanks. I'll get back in line. Thank you.

Okay. Thank you.

Thank you. Our next question comes from Craig Bibb with CJS Securities. Your line is now open.

All right. Try to better the agg margins. How much internal volume have you already shift it to the Polaris, maybe like an annualized run rate, and then how will that progress through the year?

Well, we dimensioned it at about 6,000 to 8,000 tons through Long Beach and one or two ships into Hawaii at about 70 tons to 140 tons. And in my script I said we're going to exceed 4 million, that the rest that means it just coming into at least this year into the Bay Area. Now that is for our internal consumption and for third-party sales into the Bay Area. And the rest – the other part of your question Craig was?

I guess what I'm really trying to get out like when will you need volume to normalize the margins at Polaris? And so could we get to normalized margins and volume by the end of the year or sooner than that or…?

We will there sooner than that. And as I called out in my script we had a single highest month in the history of Polaris across the Long Beach dock. I am expecting to exceed the 4 million ton mark meaningfully. So it will be -- before the end of the year we'll going to be normalized there and better than anything in Polaris's history.

Okay. And then have Cemex, Vulcan or any of your competitors change their competitive stance, particularly in Northern California since you guys bought Polaris?

No. I would say this is as usual. It’s a very robust underlying construction economy. There is demands and pressures on the system because of the level activity and the fairly good weather all of us experienced. So I would say that everybody is pushed right now on their production capabilities, but I don't think the underlying dynamics haven't changed. It’s a very robust fertile market, but I don't see any changes necessarily in the competitive dynamics.

Okay. And it sounds like from your commentary that the main thing that played in the increasing other cost of good sold per yard was just the inefficiently due to weather. But is there anything else like diesel or labor that's kind of pushing those costs?

Well, labor has continued to expand at about a constant 3% increase over the last three years. So, I wouldn't say that there's anything significant there other than some uptick in Dallas. And we had to guarantee ours even when there was no work available during increment weather in order to keep our drivers. They won't stay unless they have a wage they can depend on. But that's consistent with previous years. Diesel was about $1.5 million headwind, 1 million on like-for-like basis and additional 500,000 because of our increase in volume. So, we have had some diesel headwinds and are striving diligently now to alleviate that through fuel surcharges.

Okay. I'll get back in the queue. Thanks.

All right, Craig.

Thank you. Our next question comes from Trey Grooms with Stephens. Your line is now open.

Hey, good morning, gentlemen.

Hey, Trey.

So, Bill, on the New York market, I mean, you mentioned in the past that you've seen some additional work kind of moving into the boroughs outside of Manhattan. You mentioned again the day. Understanding there is less union labor generally outside of Manhattan, how does that impact your margin outlook for that market? How much of your business is expected to shift there? And really just trying to understand that dynamic and also to understand how to put the magnitude of the shift into perspective?

Yes. I won't say that you will see shift slowly over time. It might not be on a quarter-by-quarter basis that it's evident. You have to be careful because our reported average selling price includes that lower B rate were that we obtained to be competitive against non-union players. So it would be at a lower price point at significantly lower labor costs to increase total cost contribution margin and total EBITDA margin, although your material margin will suffer. And it's not about material margin. It's always about your EBITDA margin. So I have to remind you that we expect it to slowly shift about 60/40 Manhattan as some of the bigger projects wined down from A to B rate to maybe a 40/60 Manhattan to outer boroughs. And so that would be a 200 basis point shift there on the market shares. We're very optimistic about that B rate labor. You have to remember up until about the middle of last year we were non-competitive at all in that entire market segment. So if you have a large market like New York city and we're only competing for the union piece which might be let's say 65% of it, that meant 35% of New York we were non-competitive in. Our ability now to compete effectively in that opens up enormous amount of additional concrete at very lucrative final EBITDA margin. And I want everybody to make sure they understand that dynamic. But it will be a slow progression over a number of quarters.

That's super helpful. Bill, thanks for the color there. And the backlog that you talked about seeing the increase there, and I think you mentioned, a little bit of color, talk about the kind of what's organic and what was acquired there? But can you give us a little color into the type of projects as you look in the backlog, the margin kind of mix embedded there?

It's going to be more of the same. Our traditional A rate work which is downtown Manhattan and the largest projects in the outer boroughs, I mean, that remains. It opens up under 300,000 square foot market for us which would be low rise buildings non-commoditized which opens up the non-union market. And then we have significant infrastructure backlog. We're still going full steam ahead on LaGuardia. We're very hopefully that the Gateway project may be funded in the next couple years putting another tunnel under the Hudson River amongst all the other various infrastructure projects that are slated with the $30 billion port authority budget. So I would say its lot more the same. However a little bit more opportunity now on that 300,000 square foot market that we were not competitive in prior.

And backlog outside of the New York market as you look in to Dallas-Fort Worth and your West Texas markets and in San Francisco, can you talk about just kind of directionally what you're seeing there. I know it sounds like things are off to a pretty good start in April, but understanding the backlogs also I'm sure still up in those markets as well?

Yes. There's no question. The backlogs up in that and the Dallas market backlogs up in the Bay Area market at very healthy margins. We are not having right now to significantly or we're not having to compete on price for lot of these projects because San Francisco is so busy and Dallas is so busy, it’s a matter of fitting some of these projects into our schedule, at least the near-term projects. Once you get out to 12 months to 18 months obviously you have a little more flexibility in your schedule. But our plants are so busy now we can't even take on additional new work in some of these markets. And to put an exclamation point on that, we had our largest single ready-mix day in the history of the company earlier in April with 49,000 plus yards delivered in a single day. An average run rate for us in good weather is about 35,000 to 42,000 yards, when all segment -- when all markets had a good weather today we put out 49,000 yards in one day in April earlier in the month.

All right. Thanks a lot. That's all encouraging and good luck. Thank you.

Thanks, Trey.

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

Hi. Good morning, guys.

Hey, Adam.

Sir, I know you don't provide formal guidance, but in the past you've kind of given us directional help on organic volume growth and pricing growth in ready-mix. So what would be your thoughts on that, Bill?

I think organic will be back on track for mid-single digits. And organic pricing already is in the 2% to 3% for the first quarter. I would say, lower to middle single digits on pricing depending how our fuel surcharge is going and what not through the year.

Okay. Perfect. And then the corporate expenses were higher in the quarter. Just trying to get a sense for how those could trend going forward?

Sure. When you look at our SG&A there is a few things that were impacting our SG&A. Some of that related to the acquisition of Polaris about 1.5 million related to the acquisition of Polaris. We did have some compensation expense in there as well and then we had some outside service expense in the first quarter as well. The outside service is really to help us in the remediation process for our taxes and a few other special projects we had going, which I wouldn't expect to repeat. I don't expect that – remember on a normalized basis it's going to fixed cost and I wouldn't expect much volatility in that number. So when you're looking percent of revenue basis its going to be high, but I would expect that number come down that on a percentage basis as we go into the remainder of the year, and on absolute basis and on a dollar basis it will be within a relatively tight range. So, when you look at on a full year, I still think we'll be able to leverage some of that SG&A cost as our volume grows, because I don't -- I wouldn't expect that fixed cost base to grow much at all as we go into the remainder of the year.

Okay. That's helpful. And then just lastly on the aggregates margin. Was that -- my guess was would be that was more from New York weather than anything going on in California. Is that right?

That's right. I mean, it's not a Polaris issue. We were not only impacted significantly from those snowstorms in our New Jersey operations which is a bulk of our aggregates in the Northeast, but the rain events in Texas you can't discount that, that our Red River aggregate plant was flooded for a large part of the quarter which actually shutdown production of sand into our DFW market as well as some significant impacts at one of our West Texas quarries because of weather. So it's not a Polaris issues on this. It was weather impact and our other operations.

Perfect. Okay. Thanks guys.

Thanks Adam.

Thank you. Our next question comes from Scott Schrier with Citi. Your line is now open.

Hi. Good morning. Thanks for taking my questions. And thanks Bill for all the color in your prepared remarks that I found out really helpful. I wanted to ask again about aggregates and Polaris. As a standalone business a year it had 561,000 tons, 47 of that being in Long Beach, obviously looks like you're able to get substantial growth there coming in line with what you're expecting. When I look at pricing, pricing for the whole business was very strong. I would guess that most of that is coming from the pricing power in California with the strong demand environment. I'm curious if you could just help talk a little bit about especially what you're seeing in pricing in aggregates in your market and with this type of volume growth in California how you view the potential for even further pricing with Polaris?

Yes. First, I'm not sure where you got your references on the 500,000. In previous years, the most they've done it, but this was in the high three millions and that were pushing that up into four million.

Bill, I mean, its 561,000 tons for the quarter of 1Q…?

I'm sorry. Okay. As far as pricing dynamics in agg, they're pretty consistent across the country with what we're seeing in that supply and demand situation of depleting resource with little ability to Greenfield. Thus, it's above inflationary expectations for pricing in all of our aggregate markets. San Francisco is going to be at somewhat of an accelerated cadence to that tempo simply because of the scarcity of the resource and the difficult -- extreme difficulty in moving rock around the state by truck and the underlying demand characteristics of the downstream products such as concrete and asphalt which are very robust at this point. So I would say all aggregates around the country above inflation and California above that.

Great. And then, I wanted to follow-up on an earlier question about some of the competitive dynamics, but more specifically in Southern California, I mean, you said about April seems to suggest the answer of this question, but can you talk about what you're seeing in terms of customer receptiveness to the assets having a new owner and buying the aggregates from the new owner or potential competitor as you are making your progress in Southern California? And then, also if you can just give us an update on him on the attractiveness of those Southern California potential assets from a valuation perspective and how those ongoing discussions are going?

Okay. As far as receptiveness of the markets to new ownership, I would say, I am not only pleasantly surprised but extremely optimistic of how we been embraced not only in the Bay Area but in Southern California with new customers and a significant amount of inquiries into supplying other metropolitan areas along the coast that had not reached out to Polaris for whatever reason. I think we have a very good reputation in the markets, in all markets that we operated, in the markets that we compete in as reputable and quality supplier and a reliable supplier. And I think there's a certain comfort level that might be counterintuitive in the Bay Area with -- we compete against over our customers there. However I think the preponderance of the reputational aspects of U.S. Concrete and our ability and willingness to expand future production capacity i.e. the Black Bear quarry to become a major aggregate supplier on the West Coast has interested a lot of big downstream users that contacted us very shortly after the acquisition and trying to get that Polaris aggregate into their operations. As far as valuations, I think you question in the L.A. or Long Beach market, we are in discussions with the number of downstream ready-mix producers there, have not been able to move anything for this point because of some valuation expectations but negotiations and discussions continue.

Great. Thanks. Appreciate for that helpful color, Bill and good luck.

Okay, Scott. Thank you.

Thank you. Our next question comes from Brent Thielman with D.A. Davidson. Your line is now open.

Thanks. Good morning.

Hey, Brent.

Bill, On Polaris, I mean, it sounds like 4 million tons this year is – you sound awfully confident about that. I guess, is it presumptuous to think you can be at a $5 million run rate for next year?

Well, I wouldn't…

Excuse me, 85 million [ph] ton, I;m sorry.

I understand. I wouldn't think it's presumptuous. I'm not going to say exactly but our target is five plus over that 24-month period after acquisition, so that puts it in that window.

Got you. Okay. And then the material spread obviously still expanding little bit slower pace. As you start to kind of work through this backlog in ready-mix, and then maybe some of these jobs been held up? Do you anticipate seeing that spread expansion reaccelerate?

I'm not sure about reacceleration, but continued forward progress I think is still realistic. I do want to highlight one point. In that material spread margin we have one plant in New York City, a Harlem River plant that we've recently started in the last quarter selling FOB concrete. That means to non-U.S. Concrete jobs in one segment of the market we will sell to other concrete producers. Thus we do not handle the delivery charge and thus the price of that concrete is less. That is embedded in our average selling price numbers and embedded in our concrete material margin. Absent that Harlem River plant on the FOB basis our material margin spread is actually $0.39 a yard higher than reported when we average Harlem River in. So there is – it is even a little bit more robust than you'd see at first blush in the number.

So to extent on what Bill said, it's other companies coming with their trucks, so we're just delivering it to their trucks.

Okay. And then Bill, just on the mid-single digit organic volume growth for this year and obviously lot of things going to happen as we move through the year. But I mean, you have a couple of good quarters here, demand such that you can exceed that from your prospected?

It's possible, I mean, I don't want to give too much color, but April so far it's not over yet, we're still producing in April. Our volumes are up -- not on organic basis but on a total company basis are up over 15% now.

15% to 20%.

From previous last year's April. So, mid single digit, I mean, whether that would be four, five, six or seven, that's in that range.

Okay, guys. Best of luck for this quarter.

Okay. Thanks Brent.

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

Good morning, guys. Thank you for talking the question. Bill, you mentioned been able to or at least getting some interest levels from some other places sounded like beyond L.A. Would that moving slower on the M&A front? Does this kind of change your thought process and may be moving into some other markets on the West Coast where you could be more vertically integrated there?

Obviously it expands our ability to think broader than the original Los Angeles. With established dock in Los Angeles and an established acceptance of that rock into -- the Polaris rock into very highly specified seismic designs. My first choice would be still to continue our progression in Los Angeles. However having said that, depending on the market structures in the other markets that have showed interest in accepting our stone and depending upon the willingness of parties within those markets to entertain and offer obviously its probably has expanded our -- at least our thought process from our original point of view of Los Angeles. But I would still say we're focus on Los Angeles but there are – it's a bigger set of potential opportunities now.

That makes sense. And if I heard you correctly, you mentioned that the volume that you're getting out of Polaris through Long Beach was higher than anything that they've done, is that just because that some of the changes made to that business now can handle higher volumes? Help us maybe parse out a little bit more what's happening and why the volume uptake has been as successful as it has been there?

Yes. I mean, it’s a combination – I'm not going to put my finger on anyone magic bullet, but Los Angeles market is very vibrant right now, its one of the most dynamic markets in the country for concrete construction. So that's part of it. Polaris had done a very very good job of selling the attributes of their rock for high-strength -- and for high-strength hard to accomplish products and it is a superior product from other potential aggregate products within that market for these applications. And I think they've done a very excellent job even prior to our ownership on up selling that with architects and structural engineers and those projects now are coming to fruition. And as I have said earlier, we’ve had new calls not only from other markets, from potential customers but because of relationships that certain people in our company have within that market and within that customer base it’s opened up new opportunities for relational selling which I remember this is always local business, so that’s part of the selling matrix and our ability to have people that heads the familiarity with that market has also brought out potential new customers, for the combination of all three selling.

Perfect. And then the last from me, could you remind us again kind of CapEx expectation for the year, and does that change you know materially as we are looking into 2019 and beyond with Polaris and the mix?

Yes. The number we gave out earlier I think with our fourth quarter was in the $70 million to $75 million. I think right now we are so comfortable with that range and maybe it comes in a little bit lower as we progress through the remainder of the year. We didn’t spend what our level expectations were in Q1, so we might come in a little bit shy of that number. Going into 2019, I wouldn’t see a significant difference that is as an acquisition, so you guy remember you know the acquisitions and what we are doing there, what that $70 million, $75 million range is probably right and then you are probably at some additional capital on for acquisitions as well.

Perfect guys. Thanks and best of luck.

Okay. Thanks Stanley.

Thank you. [Operator Instructions] We do have a follow-up question from Craig Bibb with CJS. Your line is now open.

Hey Bill did you say that the backlog in New York City was up 30% year-over-year and that’s what’s in there, what’s driving that?

Part of it saw [Indiscernible] to go after that is what I’m talking about. And I think that the underlying construction is stronger than people realizing the five boroughs. I know everybody is looking at these individual data points but when looked at collectively, Concrete can be used in commercial, in residential, in industrial, in infrastructure and I think people are mixing the fact that New York is not just a one – a ball type family, multi-family Manhattan market for us. So, it’s up 30% across all segments.

Okay. And then – it sounded like from the pickup in volume that you are seeing in April, some of your plants could be running at capacity and I’m just wondering why we are looking at only load of mid-single digit increases in price particularly in – and diesel?

Well remember we are working on backlogs, so some of this work has been bid over a year ago or nine months ago. These are still competitive markets and we are striving diligently to make sure that this capacity pricing dynamic is reflected in future efforts to gain additional price. It’s not going – it’s not going unseen that dynamic within our sales force, but you can’t be just, you can’t – I can’t go out there and a job that were in the middle of raising the price $5 tomorrow because these are commitments.

All right, okay, all right thank you.

All right, thanks Craig.

Thank you. As I see no further questions in queue, I’d like to conclude today’s call. Thank you very much for your participation. And you may all disconnect. Have a wonderful day