Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the U.S. concrete Inc. third quarter 2019 earnings conference call.
At this time all participants are in a listen only mode. After the speakers presentation. There will be a question and answer session to ask a question on the session you would need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Mr., John Cooper, Senior Vice President and Chief.
Financial Officer. Thank you. Please go ahead.
Thank you were saying good morning, and welcome to U.S. concrete third quarter 2019 earnings call.
Joining me on the call today, or Bill Sandbrook, our chairman and Chief Executive Officer, Inrone, Pruitt, our president and Chief operating Officer.
We will make some prepared remarks, after which we'll open the call. It a question before I turn the call over to Bill I would like to cover a few administrative items a presentation to facilitate Hayes discussion is available in the Investor Relations section of our website.
As detailed on page two of our presentation. Today's call will include forward looking statements as defined by the U.S. Private Securities Litigation Reform Act of 1995.
Such forward looking statements are subject to risks uncertainties and other factors, which could cause actual results could differ materially except as legally required we undertake no obligation to update what conform such statements to actual results or changes in our expectations for illicit lease factors. Please refer to the legal disclaimers.
In risk factors contained in our filings with the FCC.
Please note that you can find 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, if you would like to be on an email distribution list to receive future news releases. Please sign up in the Investor Relations section of our web site under email alerts.
You would like to listen to a replay of today's call. It will be available in the Investor Relations section of our website under events and presentations with that I'll now turn the call over to Bill.
Thank you John Good morning, ladies and gentlemen, and welcome to our call.
In light of continued strength in each of our markets and improved weather patterns I am pleased to announce that our quarterly revenue hit a record high a $409 million.
The growth in revenue was driven by higher ready mix volumes and increased average sales prices in our aggregate and ready mixed product lines. Our total adjusted EBITDA for the quarter, what $62 million a record high as well and our adjusted EBITDA margins came in at 15.2% with <unk>.
Increased volumes contributing to these improvements.
With over with our overall volume and revenue growth are a bit lower than we anticipated. We did however, see meaningful volume growth in our Texas markets. Our volume growth was tempered somewhat by labor shortages in Texas.
Softness in the residential housing markets in Northern California, and the continued erosion of the New York City Union ready mixed markets by non Union competitors. They continued economic expansion and the overall growth of the North Texas markets has limited the availability of commercial truck drivers, we continue to aggressively recruit drivers but.
The strength U.S economy, the low unemployment rate and the numerous alternate alternate employment opportunities makes the job of recruitment and retention more difficult than it has been in the past limiting our ability to future fully utilize our fleet and capture additional incremental market share while the driver shortage presented challenges it.
Does speak to the continued strength.
Underlying demand environment in our North Texas markets, we are aggressively pursuing non traditional avenues to source.
Retain drivers in these markets and fully expect to overcome these challenges going into the new year.
Our volumes in northern California market are being impacted by a temporary slowdown in the residential housing markets. While there was an increase in housing in the central in Sacramento Valley areas, where we do not participate the exact opposite is the case for markets in the Bay area. However, both at the state and local government levels and within.
On the tech industry itself. The critical shortage of available affordable housing is recognized as being aggressively addressed through creative changes in permitting zoning and financing alternatives. Additionally, while funding for new infrastructure projects under SB. One is being released some of the larger projects.
Yes, its highway 99, and Interstate five at its central Valley are outside of our surface area.
Furthermore, in certain California regions. The release of funds seems to be taking a bit longer than initially expected and these funding delays were not anticipated earlier in the year.
However, the Silicon Valley Tech industry, and the commercial sector remain vibrant with many new projects on the horizon in 2020.
In New York, the competitive dynamic continues to migrate towards the Dod and Union markets. The migration of work is not overly concerning as we participate in both the union and non union markets, but the management of the workforce between the two presented challenges and we're confident that we have the correct operating model going into 2020.
Okay.
As for pricing, we experienced some negative mix effects from a higher percentage by ready mix business shifting to the Dallas Metro markets from our Northern California markets due to the factors previously discussed as we've described on previous calls our pricing in Dallas is materially lower than San Francisco because.
Structural cost differences do not what mix.
And its effect on average selling price masked the truth strength of underlying regional real price increases.
Turning to our aggregate results, while we did experience a slight decline in aggregate volumes during the quarter. The decline was driven primarily by the logistics associated with our Polaris aggregate supply chain and a temporary law the bay area residential markets.
Some of our shipments were deferred into the fourth quarter as one of the ships in the rotation experienced propeller issue, causing it to be temporarily taken out of service.
However, the loss volume in the quarter did not limit the team's ability to improve efficiency and profitability.
Aggregate volumes and our central Atlantic regions were up versus the prior year period due to continued steady demand in those regions. The flooding on the Red River has subsided and production is returning to more normal levels at that location as well.
Significant operational improvements in both our Texas and New Jersey aggregate operations were evident in our improved margins in the quarter.
I'll now turn the call over to Ronnie to take us through each of our markets and to highlight our margin improvement progress.
Thanks, Bill and good morning, everyone.
As I mentioned on previous calls we've undertaken several strategic strategic initiatives to improve margins across all areas of our company.
These initiatives include delivery mix process and customer optimization.
The continued development of our proprietary dispatching system Where's my concrete along with the embedded CRM system will play a critical role in the success of these initiatives.
To that end I recently traveled throughout our regions hosting a series of town Hall meetings with numerous members of our U.S concrete team.
During these meetings, we discussed our C discipline of courage compassion and credibility within our workforce, while also reinforcing our process improvement initiatives throughout the regions.
The overwhelming positive response from our team members not only embracing but owning these goals is extremely encouraging.
We have a tremendous amount of work ahead, but I'm confident in our margin improvement initiatives.
As I mentioned before our digital transformation strategy will be critical piece of our successful path.
As such we're continuing to increase our investment and the technology with the objective of improving the customer experience while at the same time, increasing revenue and reducing costs. Our digital platform Where's my concrete will be the cornerstone of the digital transformation initiative with the continued development of its core quote to cash.
Functionality mobile applications, <unk> analytics and artificial intelligence.
Feedback from our early adopters of Where's my concrete confirms the substantial benefits to our regional teams and customer based on enhanced transparency and approved data analytics, which is leading to more informed and quicker decision making.
Beyond the targeted value proposition that Where's my concrete delivers to our business. Our technology team is identifying even more ways to leverage this technology to further enhance the customer experience along with our delivery efficiencies.
Now, let me spend some time on our regional performance.
Our central region, which includes Texas, Oklahoma and the U.S., we I operations represented 37% of our revenue. This quarter. This region continues to show strong demand as we see the north Dallas area attract new corporate office relocations, leading to added jobs and population growth.
One of the more exciting additions to the corporate landscape is hoover, bringing 3000 jobs and its plan to spend more than $75 million and capital outside of downtown Dallas.
Microsoft has also expanded gets region in the North Texas market by moving more of its operations to Irving, while investing over 31 million and capital.
These investments will further enhance dialysis position as a technology hub, which should drive further investment from this sector in the future.
We're also continuing to see vertical construction outside of the traditional downtown Dallas setting.
The West Plano area, a major area of recent job growth is getting its tallest tower yet.
Plans for 415000 square foot mixed use development that will top out at 18 stories is set to begin construction in early 2020.
The continued future growth in the north Dallas market will be supported by the record Lettings expected and the many non beauty projects planned.
Recently, Dallas Fort Worth International Airport, and American Airlines announced plans to invest $3.5 billion to develop a sick terminal.
Hey, significant non duty project that is showing major potential passing many hurdles to get towards construction is the 16 billion dollar high speed rail project that will connect Dallas to Houston, which will utilize nearly 10 million cubic yards of concrete.
Just to put that in perspective, that's nearly three times as much as we used to ours was used to construct the Hoover dam.
Strengthening our position in this market, we continue to focus on vertical integration opportunities.
We recently began commissioning on one of our previously mentioned Greenfield aggregate plant MW ranch located south of the DFW Metroplex.
This operation will serve both internal needs as well as grow our external customer base in this high growth area of the Metroplex, we anticipate this plant being fully operational by the end of this year.
We're also progressing with the modernization of our Amarillo aggregate operation.
This new production facility should be fully operational in the first half of 2020 and add much needed production capacity as well as lower production cost supporting our downstream assets in this high growth West Texas market.
Our West region, which includes northern California, ready mix operations and Polaris aggregates represented approximately 30% of our revenue this quarter.
This market is seeing strong results in commercial construction driven by the tech sector and public programs.
We're confident that infrastructure spend will continue to support this sector as funding from California is SB. One legislation continues to be more widely rolled out.
This is an important step for the safety of all the constituents of California, and further supports both our aggregate and ready mixed concrete operations more specifically Polaris will benefit from increased aggregate demand in both northern and southern California as ready mixed demand increases from these public projects.
Well, we have seen some softness in the residential housing markets that we serve we feel confident that to spend for commercial industrial and infrastructure projects should mitigate the softness in fact, Facebook recently announced they are committing $1 billion towards better land utilization for housing middle income workers and more appropriate housing the hell.
Solve many other into these needs Apple has committed 2.5 billion towards affordable housing in California, While Google has also committed $1 billion for housing development.
The East region, which includes New York, New Jersey, Philadelphia, and DC, Virginia represented 33% of our revenue this quarter.
We have a high degree of optimism in this regional market and are seeing the benefits from strategic changes, we made to ourselves structure earlier this year, specifically greater alignment with our customers and markets.
In the New York region, we are experiencing a more competitive landscape of non union contractor is getting opportunities from union projects.
With the shift in work to the outer boroughs our footprint gives us a distinct advantage that allows us to competitively pursue work while controlling delivery costs. This can be seen in our high profile work that we have across all boroughs that we'll continue to drop volumes well into next year.
We're also aggressively focused on driver recruitment training and training to help us overcome delivery issues and further reduce delivery and personnel costs.
York has also taking infrastructure very seriously.
Like many of our other markets. They are doing what is necessary to handle the specific needs to support the safety and sustainability of their community.
The New York Metropolitan Transportation Authority recently approved a 51.5 billion billion dollar capital plan to overhaul the city's transportation system.
Plans for the Big view, the 1 billion dollar wall in park around the southern tip of Manhattan seems to be moving forward with funds awarded in the September flooding, providing a stark reminder of the need.
Staten Island has also planning to build a protective all to defend against the possibility of storm surges and reduce the impact of flood related damages.
With regards to aggregates, we're in the process of enhancing the output of both of our northern New Jersey aggregate operations.
Through both increased reserves as well as additional processing equipment, we anticipate better efficiencies and increased production throughout the next calendar year. We have also continue to enhance our sand operations, and South Jersey, which we transport by water into the New York market. We anticipate these enhancements to continue to provide more.
Adding cost as well as additional long term capacity improvements.
And our Washington, DC market, we continue to see gross spurred by Amazon's HQ too.
A 19 storey mixed use tower was approved to bill to be built in Pentagon City.
Recent news is also out about one of Amazon subsidiaries, Perspecta, expanding Amazon's data center portfolio with a new facility in Northern Virginia.
This adds to what is expected to be an economic boom for the northern Virginia area from the data center market.
Each of our markets present their own positive outlook for continued building in growth reaffirming confidence in our construction markets now I'd like to turn the call over to Don to discuss our financial results.
Thanks Ronny.
For the third quarter, our total revenue of $409 million and adjusted EBITDA of $62 million, both of which were all time company records were driven by higher ready mix volumes, which resulted from more favorable weather conditions and an active construction economy.
Gross spread was $65 a 94 cents on a dollar per cubic yard basis.
Our EBITDA adjustments for the quarter relate primarily to stock compensation acquisition related costs and officer transition expenses.
SGN a was 7.8% of revenue for the third quarter of 2019 compared to 8% in the prior year quarter adjusted EPS DNA, excluding stock compensation acquisition related costs, and obviously transition expenses was 6.3% of revenue in the third quarter of 2019.
Compared to 6.6% in the prior year quarter, primarily reflecting the impact of higher revenue as we discussed previously stock compensation expense was higher as our annual awards were made at the beginning of March but the valuation for accounting purposes did not take place until shareholder approval at our annual meeting in May and.
2019, we expect our adjusted effective tax rate to be approximately 27% for the full year in our interest expense is expected to be around $46 million.
Adjusted effective tax rate of 27% is based on the expectation that language unfavorable to manufacturers related to the interest deduction limitation. Currently included the proposed regulation is removed by the treasury in the final version.
As of September Thirtyth, our total debt, including current maturities was $706 million and we reported $72 million and operating lease liabilities as of September Thirtyth, we had total liquidity of $263 million, including $27 million, a cash and cash equivalents and 236.
Million dollars availability under our revolver.
Our net debt to adjusted EBITDA was 3.7 times with our anticipated improvement in volumes and performance in the fourth quarter versus the year ago quarter, We would expect to see a further reduction in this ratio at year end. We continue to have a solid liquidity position no near term maturities associated with our senior notes or.
Facility.
Moving to our cash flow and balance sheet. During the third quarter of 2019, we generated $51.5 million of cash provided by our operating activity as compared to $42.3 million in the prior year quarter, we generated $41.5 million and adjusted free cash flow compared to 45.5.
A million dollars in the prior year quarter, remembering that last year's cash flow included $15 million from the sale of our Dallas line business.
We will continue to focus on managing working capital and capital expenditures in the coming quarter to generate increased cash flow.
We may contingent consideration payments associated with past acquisitions of approximately $23 million during the third quarter of 2019 and expect that any further contingent consideration payments in Q4 would not be significant.
During the third quarter of 2019, we spent approximately $10.5 million on capital expenditures, primarily related to our plants and machinery and equipment to support the continued demand in our markets compared to approximately $11.4 million for the same period last year.
The full year 2019, we continue to anticipate managing capital expenditures in the range of $30 million to $35 million and anticipate that our equipment acquired through capital leases will be in the $20 million to $25 million range, excluding capital for the development of Texas average core.
Our cash flow from operating activities expected to be in a range of 50% to 60% of adjusted EBITDA.
We continue to see a robust demand environment as we look to build upon our third quarter results. We anticipate to continue continued solid cash flow generation, along with sufficient liquidity to support our ongoing operational need I.
Ill now turn the call back over to Bill.
Thanks, John .
As we look into the fourth quarter and into 2020, our customers are telling us to expect a continuation of the type of activity that we have seen in the past few years. There continues to be a solid pipeline of projects coming to market with meaningful volumes and solid margin potential.
Visibility for 2020 is becoming clearer as we near the end of the year and our customers remain positive what the cycle and the outlook for continued growth.
So far the fourth quarter has gotten off to a good start with volumes exceeding their levels of a year ago.
As we refine our 2019 full year guidance, we anticipate total revenue and EBITDA be around the lower range of our previous guidance as we look out into 2020, our preliminary view anticipates low to mid single digit volume growth and low to mid single digit growth and pricing in closing I want to emphasize.
We will continue to work strategically and operationally on the areas of our business that we believe will most efficiently and effectively enhance shareholder value.
We intend to actively pursue our strategic vision to build and profitably grow defensible vertically integrated positions in major metropolitan markets within increasing concentration on aggregates in order to create unique market, leading and value enhancing franchises, which are in Pos.
A couple to replicate.
With this focused strategic vision, we believe we are well positioned to successfully execute on our plans to maximize shareholder value.
Over the long term.
Thank you for your interest in U.S concrete, we would now like to turn the call back over to Derisk Shay foot question and answer session. Thank.
Thank you as a reminder to assay questioning you need to press star one on your telephone to withdraw your question press the pound key please standby, while we capacity Q when a roster.
And your first question in light of Trey Grooms with Stephens, Inc.
Hey, good morning.
Turning to our money.
So.
On.
End markets.
So north, Texas, clearly strong fundamentals, but your.
Constrained by.
The.
Drivers are availability of drivers so.
I know the outlook for demand is good there but.
Why would this labor issue change anytime soon.
Do you think thats going to continue to kind of constrain you guys ability to to benefit from the.
The strong market going forward.
Hey trade this is running.
Yes, I think as we move into the future of what we're doing for labor I mean, our focus has been really on on hiring and hiring and hiring and I think we're doing a really good job of attracting.
Where we've seen the most impact on that is really on our turnover and the ability for these drivers to to pick and choose to move not only to other companies that may be competitors, but also other industries like bill referred to earlier. So our focus now is really a retention effort just as heavy as.
As a hiring effort and I truly believe we can have an impact on that.
The demand like you said is there and it's really going to come down to our ability in our customers' ability on the labor side as well customers that place and finish also have been struggling with labor as well so so in a positive side.
I think we've got a lot of good programs in place that we'll be focusing on the turnover piece in the retention piece.
But at the end of the day Trey I mean, what this also should bold two is better pricing in DFW thats, what we have to see is better pricing moving forward in DFW, and that's where we're going to be pushing.
Okay.
All right.
And then.
Just on the guidance so low end of the full year topline guide implies a pretty good rebound in your year over year topline growth in the for Q.
Versus what we saw.
In Threeq.
It's not the easiest comp in the world. So.
Given the headwinds that you mentioned that kind of constrained due in the threeq.
What's the level of confidence in kind of getting to that low in the range.
Okay, we feel pretty confident I mean, if you look at the guidance early April if we're guiding to the low end there the range, it's really suggesting the revenue right around that 400 million more maybe a little higher.
Hello, low in the range and your EBIT Dot EBITDA number is going to be 56, plus right in that range. When you talk about that in light of.
How we performed in Q3 and your quarter over quarter comparison, we so relatively confident with where we are as bill mentioned our volumes. There are ahead of where we were last year at this time and we see continued.
Progress like we have enough in the first month or little bit over a month now.
We feel pretty confident we can get there.
Okay last one for me is.
The ship being down if you could quantify the impact.
From that in the quarter.
Shipments in those shipments delayed or.
Were they picked up by somebody else. So is it just kind of gone and then also is that.
Is that issue behind you at this point.
Yes, the issue is behind us and it is a delay in it is deferred and it does is not picked up by anyone else in really where it impact of this was in the southern California go into loan. It was a ship going to long beach and so the delay on if you said, there's 70 plus thousand tons per ship. It we missed about a ship and a half I mean, that's that's kind of the context of that but it's not it's not law.
Cost its deferred because those projects are specified with Polaris materials.
So we will be continuing to supply those projects was really just have a flow of and we'll make that up that's baked into the Q4 numbers as well our expectation is that that ship will be able to we'll be able to make those shipments up in Q4 and Trey I would also add on your previous question, what John said.
Don't underestimate the initiatives that we have I mean, I think we're seeing good improvement in our margin profile and I think the changes and and the focus we have on optimization of our delivery cost and all the other things that we're focused on we'll continue to show positive results into the fourth quarter. So.
I know it is a tough call, but but just understand that we're focused on those margin improvements and thats not going to stop yes.
I want to say good job on the.
Margin that was.
Showing there and I know that's something you guys have been striving for and working hard at so hats off to you on on the margin and I will thank you. Thanks a lot.
And your next question line of Larry Solow CJS Securities.
Great. Thanks, Good morning, guys.
Good morning.
Maybe just discuss a little bit more on the on the pricing fully get.
Mix shift obviously to.
Dallas area, which is growing faster, but can you maybe just give us a little more color on the on the individual markets and then.
Doug trends in Dallas, perhaps maybe I think a price increase late this year will help next year.
Yellow this is running.
So so I can give you some some broad trends on what we're seeing in the markets by but a regional profile I would I would tell you on the west side, even though we're seeing what we've talked about on the housing slow the pricing is extremely strong and we're seeing mid to high single digit price increases year over year in the in the west.
In the northeast the Atlantic market, we're seeing the same kind of trends with mid low single digit price increases year over year and yes in DFW, we've talked about the competitive nature here in the things we've seen in this market. So I would say.
And then what we define a central which is DFW West, Texas, Oklahoma and USPI. If you pull DFW, obviously DFW is flat to a little down the rest of the markets in Texas are good and so we're seeing the same mid level single digit increases year over year. So it's really DFW and I think the impact of DFW if you read.
Really go back to the second quarter and when all the weather that we talked about in the second quarter when material price increases and ready mix price increases are normally happening in that second quarter. There were so many headwinds there with whether that's coming out of that we just saw the flatness and I do believe you will see the content.
Due to improvement in our pricing in the DFW market going into this year into next year and that's our focus.
Okay and on the volume.
No you make you called out a couple things, which had been re occurring certainly on the on that's on the labor constraints.
Obviously, 2% a little disappointing coming off a pretty wet Q3 of last year.
The biggest driver sort of the.
Lower numbers were less than I think given you guys expect a little bit was it.
Northern California, just trying to bucket that lean on an area that could maybe improve as it or is it just a good mixture of residential link in California, the labor issues in Dallas or not.
Or is it just a mixture.
Yes, I mean, I think I think we called out mix and I would I would tell you. The most of that is driven by the northern California footprint that we have.
And if you look at I mean, it's.
You know expectation wise I know what people felt like we should have recovered in the third quarter in the DFW market, but but overall that was our second largest quarter volume wise for our DFW are ready mix assets.
So wouldn't that wouldn't overly bad but labor is there is more work out there. If we have more labor and I think everyone is consistent in saying that the labor is the biggest forced the market is extremely strong on the public works side on the commercial side on the residential side, new homes being built new buildings.
Being built everything is really strong in the DFW area. So it's just going to be a continued focused on labor inefficiencies.
I got it just to clarify would definitely wasn't bad it just maybe.
Some thought it could be a little better, but that's fun and just lastly, any update on just switching gears to players.
Any update on recent our pending contracts.
Whether be.
Asia or what have you and then plans for the block there Clarion and 22000.
So as far as Blackberry goes we're progressing with everything that we've talked about in the past with permitting engineering plant design, we have several different projects going on there with the anticipation of that being full steam ahead in the following next year's calendar year. So I think we're right on plan and right on schedule for what we.
I think is going to be happening a black bear.
As far as.
Yeah.
No Polaris.
We're still.
We still have the opportunity is we're not baking in anything for Asia. The project. These were project specific opportunities the projects that we believe the the product would be used on in the Asian markets are some very large infrastructure projects. Those projects are still not started.
But we're not baking that into anything if that opportunity comes we're we're in a very good position to to take advantage of that and if it doesn't we're continuing to pursue other markets that we believe Polaris has the ability to serve as well.
Got it great. Thank you very much appreciate it thank you.
Your next question couple Atlanta, Paul Roger with Exane BNP Paribas.
Hi, its hutchence. Thank you very much for taking my questions. This is actually robots with Smith on for Paul.
Got a couple of questions I wanted to start with.
Some metrics how consent to you about leading indicators like the Dutch index, the CPI index, which suggest nonresi markets could actually full next year.
Yes.
Bill Robert.
We participate in all end markets infrastructure, which is anticipated to be fairly fairly healthy, especially with state self help projects.
Our.
Inshell in most of our markets as we described earlier on the call we're bullish going forward on Northern California.
Actually the New York housing numbers in September for total building permits that is four units to be constructed was up 68.3% over September 2018.
The U.S. chamber of Commerce commercial construction index as 83% of contractors reporting stable or increased project backlog backlog meeting projects still to be built.
And that's up 5% from quarter to.
I'm not that concerned about the leading indicators and in fact, I'm bullish with low unemployment rates continued low interest rates.
Healthy backlogs in our customer base I'm more concerned with what we've talked about on this call on the labor being able to be available in order to accomplish all that both on our side of the of the supply chain and on our customer side.
Every aspect of the.
Economic forecast that we looked at from PCH, Portland Cement Association.
The Mckenzie report all looks towards its stable to slightly growing construction environment in 2020, so I'm more concerned about making sure we have the human capital resources to accomplish the opportunities that we face add the offset of that in a constrained labor environment, it's going to be very.
Bullish for pricing as Ronnie has already said previous in the call.
Very clear thank you.
And just smart mile. The follow up question you briefly touched earlier on but in terms of concrete margins. They usually full sequentially between Q3 in Q4.
Do you expect this to happen so does this yet.
Could you hold sort of the Q3 levels.
That you've seen.
Yes.
Yes so.
Robert.
If you look quarter over quarter versus Q4 of last year Q4 last year was a challenging quarter for us. So we're certainly expecting to see margin improvement.
The Q4 of last year.
When you look at Q3, we expect we don't expect the achieved the type of margins that we had in Q3. So we would expect an overall decline.
In that area. When you look at the guidance that we had it if we're at the low end of the range for our guidance that would suggest right around a 13% full year margins. So if you back into the numbers that would suggest right around a 14% margin for EBITDA for the fourth quarter. So that's just the math of our guidance.
It's pretty much where we had thanks. Thanks for confining. Thank you very much yet.
Thanks, Rob.
Your next question a line of Adam Valmeyer with Thompson Davis.
Hey, good morning, guys.
Good morning, Adam.
Did.
So the ticket to 400 million of revenue for Q4.
I think that implies a pretty small sequential.
Decrease from Q3, Q4, I mean do you think that.
The ready mix volumes the AG volumes for Q4 can be close to Q3.
Well I think as bill talked about earlier.
As of October we were right in line with where we think we need to be.
So the remainder of the year is going to become I mean, we basis on normal weather. So that's the best we can do right now as say, what we believe normal weather is in our markets that we can get there and if if its abnormal weather and we've seen both sides of it we've seen drier weather in some places we've seen wetter weather in other places. So we believe right now based on normal.
Whether that we can.
So demand is there.
Okay.
Did you see any impact from the fires in California, we haven't seen any structural impact we have had some power outages, but some of our facilities, but we have not had any structural damages at all.
Okay.
And then Bill I mean, you sound good on New York. It's just this issue of the Union versus non Union is that correct.
I'm fine on New York, and I fully believe that we have our model.
Sorted out it's taken a while to source drivers in the be wage rate the lower level of our of our labor agreement and that is just about completely sorted out now the trick is.
Is delivering.
Non union or be level work will be drivers. So there's some structural differences in pricing of those jobs.
And we have to ensure that we have the structurally lower priced labor available to deliver those the projects.
Okay.
And just lastly that Dallas pricing I think there was a price increase in October we talk about that at all.
We did talk about an announced price increase in October .
And so do we have a sense of how that flow through at this point.
Yes, I think as we've explained in the past with announced price increases in.
Ready mix concrete.
We get a chance to negotiate those jobs one by one we get a chance everyday literally when we will work to move that price. We have very good confidence that that pricing is going to continue to improve and the labor is going to drive a lot of that we're in the past its been more tied to raw materials and when cement went up or when aggregates went up now it's going to be more.
Tied to labor, which I think so very good.
Force to move pricing in this market.
Okay. That's it for me thanks, guys.
Thank you. Thank you.
Your next question might Nelson, Leo Romero with SATA and company.
Hey, good morning, everyone.
Hey, Julio.
You had mentioned you focus on Texas is is really about those driver retention initiatives.
I wanted to ask how that.
How that works alongside the operational initiatives, you're doing at the same time to optimize some driver efficiency.
Just thinking about those two areas of focus.
From my point of view it looks like they might conflict going forward. So can you talk about how you're planning to maybe balance both retention efforts and at the same time optimized efficiency.
Yes, so so when we talk about retention efforts I mean, the and and we have a lot of studies, we've done a lot of work with.
So some of our national associations as well as some other of independent groups and the majority of people, leaving jobs is not due to pay so everyone. Just automatically so as well you must have to pay a more it's not it's scheduling it's an inconsistent in communications that there's there's pay is like.
MBR five on the list and so we're investing in technology to say, we're going to give our drivers more visibility in to controlling their workday in there in the times they want to spend time with their families. I mean, it's there's a lot of things going into this that there will not.
I believe it will be the opposite but I believe it will make our drivers more efficient, which is our efficiency goals and driving down better productivity and better delivery times.
With these things we're investing in to make our drivers have more control over their daily schedule and more buying into what's happening in more accountability into their performance. So it's not just we're just going to pay a more money, we think that solve the problem that's not yet.
Understood and.
Maybe if you can give us a sense of.
Maybe within this quarter.
What was the primary factor that may be pressured some of your your driver retention.
Was it other ready mix companies or other industries as you mentioned.
That also new drivers as well, but.
Looking at least for Threeq, you given the better what the better the better better weather backdrop.
Which one was maybe the biggest factor in the quarter.
Yes, I mean, if you look at it quarter over quarter.
On a year over year basis, Dallas was still up so so it's.
Our ability to maintain and put drivers in the seats is really our ability to meet anticipated growth moving forward.
I mean, it's not like we are looking up and saying, while we lost 15% or 10% I mean, we were up year over year. So it's more of our ability to predict and anticipate and put more drivers in the areas and when you look at Dallas.
Talk about the DFW metroplex, because it's not it's not as easy as saying well. It's just dollars. It's it's 20 plus plant scattered over 150 mile radius that we consider DFW metroplex. So it's a big area, where we're trying to attract in the northern suburbs of northwest Fort worth southeast and the middle.
Both in area out the Forney I mean, all these areas have so much growth going on that it's really our ability to to reach outside of Dallas and find drivers and lot of these remote areas and so that's our focus but but I just don't want to lose the fact that Dallas was up and and we're continuing to see great opportunities, which as Bill said.
As I want to reinforce gives us extreme confidence in our pricing in this in this market.
Helpful. If I could just squeeze one last one areas.
Do you still feel on track to drive those 150 basis points of margin expansion.
Underlying over the next.
Yes, 12 to 18 months, yes, I think we're very much on line and we then we have those programs in place and we're tracking everything.
At the end of the day is someone has mentioned I mean, it's our confidence in the market too. So when we have the confidence we have in the market. We can put these programs in place to drive more efficiencies based on the underlying demand of our products that we believe is very strong.
Great. Thanks, very much and best of luck in Q4, Thank you actually.
Again, if you like to ask your question. Please press Star then number one on your telephone keypad again, starting in number one to ask a question. Your next question why the Stanley Elliott with Stifel.
Hi, Good morning, guys. Thank you for taken taking my question.
I apologize if you guys mentioned this did you say anything about backlogs at the ended the quarter and I missed it.
No.
We didnt in one of the things I've mentioned and I think I mentioned with you and at your conference as well our backlog as Noncontractual. So I mean, it's not really a good indicator I mean, we provide revenue guidance.
But with that said our backlog is consistent with where it was last year, we're right around the 8 million yard Mark.
Last year in Q3 or backlog the same going forward, we don't anticipate continuing to provide that just because we do provide revenue guidance and its noncontractual.
That's fair.
You talked about some of the improvements that your customers are seeing at that Youre seeing from some of the analytics that you're putting out in the marketplace.
Yes, I guess, one is it going to require additional capital spend into next year for that and then too is there any sort of way to quantify some of the savings that you all are seeing or maybe.
They're seeing it making you more of a preferred vendor.
It is going to required additional capital spend so we're we're in the in the middle of both the rollout and the development and we'll continue to develop on Where's my concrete depend our CRM.
The benefits of provides doses that were in control and we know what drives our business. So we know what technology, we need to develop to focus on the areas that are really impactful around the lack of analytics or the lack of decision, making so everything we do in that system is going to make us a better company not only for ourselves operationally, but for our customers to do business with.
So we've we've rolled out not only the dispatching system in New York in Washington, DC, New Jersey now we're starting in Texas. We were also rolling up the customer apps that gives our customers more visibility into their orders into their timing of trucks into their into their billing electronic billing paper paperless I mean, all these things we're doing as an industry, which may sound.
Barry.
Slow to the normal person this as we've been doing this in our real labs for 10 years and the ready mix industries, just catching up which is true, but just think about the efficiencies. We believe we can gain just the efficiencies you gained in your life all for your technology, and that's where we're pushing is to catch up to where rely foods and we've got some.
A lot of steps to take so we're going to continue to invest and this both.
Development cost and head count in people and then as we rollout training and more development of our own internal users of it yes. So soon let me clarify to just for.
The accounting side of it when you talk about capital investment, it's both going to be capital from a Capex perspective, and then an investment from an operating expense perspective, So we will be incurring additional cost from an operating expense perspective.
Sure this as we head into 2020.
Okay, and then lastly is there a wait to kind of quantify the savings you all are going to see ought to kind of run rate go forward basis by.
Differentiating the though a labor rates from the be labor rates in New York or maybe how much you could save.
And then I guess last at the confidence around having all of that kind of matched up here on a go forward basis.
Yes, so the so so when you talk about the difference in a versus b and our ability to serve the b market with the right amount of drivers.
And in the seats and the right footprint that we have.
That differences is on the labor cost side of it is it's about a 10% to 15% savings on just labor cost alone and then our ability to write source that and so where we are located at being able to didnt affect the the delivery cost of it with the other efficiencies we gain so that's kind of.
The magnitude of where we could pick up on the delivery piece of that.
Perfect guys. Thank you very much excellent.
Thanks.
And your next question line of Bill Newby with da Davidson.
Good morning, guys Don for Brent today, Thanks for taking my question.
On the.
Bill you mentioned the strong permitted in New York I guess.
Any potential for a more significant volume shift I get back into the Manhattan area from the boroughs over the next year, just given what you see in front you.
Yes.
I would say, perhaps marginal because we are in a little bit of law on high rise construction in Manhattan.
But.
We're looking at it.
Well, let margins on a and B work so.
I Wouldnt look at the mix of they have high rise versus mid rise low rise construction Manhattan versus the other for burrows as it real determinant of our profitability or overall overall EBITDA opportunities in New York.
I think whats much more important is our ability to deliver fee rate work would be rate drivers to drive that that drive that margin effectively so I'd say some marginally some margin marginally.
Improved.
Hi, rise construction, but thats not the driver of it.
I'm bullish on overall, New York opportunities.
Got it got it.
That's helpful and then I guess on the aggregate side of things.
Industry commentary for next year seems to be for pricing tends to be kind in that mid single digit Randy I understand you don't want to.
It too far ahead and guide for next year, but does that kind of consistent with what you're seeing in a reasonable starting point as we think about 2020.
Yes, that's that's consistent.
Okay.
Hi, Thanks for taking my questions. Thank you. Thank you.
And I will talk we'll turn it back over to Bill Sandbrook, Chen Chairman and Chief Executive Officer for closing remarks.
Thank you reshaped and thank you everyone for participating in the call. This morning and for your continued support of US concrete. This concludes our call. We look forward to discussing our fourth quarter and full year earnings with you in February . Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.