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Edited Transcript of USCR earnings conference call or presentation 5-May-20 12:30pm GMT

Q1 2020 US Concrete Inc Earnings Call

HOUSTON May 26, 2020 (Thomson StreetEvents) -- Edited Transcript of US Concrete Inc earnings conference call or presentation Tuesday, May 5, 2020 at 12:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* John E. Kunz

U.S. Concrete, Inc. - Senior VP & CFO

* Ronnie A. Pruitt

U.S. Concrete, Inc. - President, COO & Director

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Conference Call Participants

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* Adam Robert Thalhimer

Thompson, Davis & Company, Inc., Research Division - Director of Research

* Julio Alberto Romero

Sidoti & Company, LLC - Equity Analyst

* Kathryn Ingram Thompson

Thompson Research Group, LLC - Founding Partner, CEO & Director of Research

* Paul Barry Roger

Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials

* Peter Kirk Lukas

CJS Securities, Inc. - Analyst

* Rohit Seth

SunTrust Robinson Humphrey, Inc., Research Division - Associate

* Stanley Stoker Elliott

Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst

* Trey Grooms

Stephens Inc., Research Division - MD

* Zane Adam Karimi

D.A. Davidson & Co., Research Division - Research Associate

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the U.S. Concrete, Inc. First Quarter 2020 Earnings Conference Call. (Operator Instructions)

I would now like to introduce your host for this conference call, Mr. John Kunz, Senior Vice President and Chief Financial Officer. You may begin, sir.

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John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [2]

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Good morning, and welcome to U.S. Concrete's first quarter earnings call. Joining me on the call today is Ronnie Pruitt, our President and Chief Executive Officer. During the call, we will review our first quarter performance and spend the balance of the time addressing the current environment and outlook as well as our vision for some of the reengineering we are undertaking to optimize our organization and processes. Then we'll open the call to questions. A presentation to facilitate today's discussion is available on the Investor Relations section of our website.

As detailed on Page 2 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 to differ materially. Except as legally required, we undertake no obligation to update or conform such statements to actual results or to changes in our expectations. 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, which was filed earlier today.

With that, I'll now turn the call over to Ronnie.

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [3]

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Thank you, John. I would first like to take the opportunity to recognize the incredible work of our Concrete delivery professionals, our aggregate production teams as well as the other hard working women and men of U.S. Concrete. These are unprecedented days for the world, our nation and all of our families. On behalf of the employees of U.S. Concrete, please accept our best wishes for you and your family during these times.

The global pandemic has created a challenging environment for our economies, almost every company and the construction market in which we operate. U.S. Concrete is following the guidance and direction of the CDC and other healthcare leaders as well as applicable government authorities in all of our markets.

Now as always, our #1 priority is the safety and health of our employees and their families, our customers and our communities. Every effort is being made to ensure that we're providing a working environment across all of our markets that enables our employees to carry out their daily activities in accordance with the CDC's protocols to promote health and safety. These include: enhanced safety and sanitation protocols; social distancing; observing new work practices in our plants and in our offices; contactless tickets across the East region in DFW, our contactless tickets and invoices are available through our proprietary dispatching system, WheresMyConcrete, or as it is commonly known, WMC. No need for signatures or handling of items between our drivers and our customers with this fully digital platform; digital ticketing, across the entire U.S. Concrete platform, all of our ready-mixed customers can access digital ticketing through our WMC app. I'm also proud of our local employees who have donated PPE to local hospitals and resources to food pantries during this crisis.

As you know, the construction and building material industries are considered essential services. We are operating in each market as demand and business conditions dictate during a dynamic environment. With this spirit in mind, I will now walk you through how U.S. Concrete has been operating and how we are evolving during this remarkable time. My remarks today will be focused on 3 periods: our performance and trajectory in the first quarter prior to the impact of the pandemic slowdown; our actions and business assessments during the onset of COVID-19; and our vision for U.S. Concrete as we transition through and out of the pandemic. And while the economic implications of the pandemic started in the first quarter, we were off to a good start and in line with our previously communicated annual guidance.

Please refer to Slide 5 and 6 in our earnings presentation. For the quarter, our consolidated revenue was $334.4 million, an increase of 0.4% versus the prior year quarter. Adjusted EBITDA for the quarter was $34.2 million compared to $34.5 million for the prior year quarter.

Aggregate products revenue increased 1.6% from last year's first quarter to $43.6 million, while volumes increased 5.4% from last year's first quarter to 2.6 million tons. Aggregate's adjusted EBITDA was $11.3 million versus $10.4 million in the prior year quarter. Coram contributed $1.7 million to our EBITDA performance during the quarter.

Ready-mixed concrete revenue increased 0.6% from last year's first quarter to $292.2 million. Ready-mixed ASP increased 3.4%, influenced by regional mix. Our material spread was $70.36 per yard compared to $67.94 per yard in the prior year quarter. Our ready-mixed adjusted EBITDA was $31.7 million versus $34.5 million in the prior year quarter. The record rainfall during the quarter in Texas and the operating restrictions had an impact on our results for the quarter.

I will now turn it over to John for additional comments on our first quarter financial performance.

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John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [4]

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Our EBITDA adjustments for the quarter relate primarily to the stock compensation, acquisition-related costs and officer transition expenses. You may recall that stock awards were not granted until the second quarter of 2019, which resulted in a lower first quarter 2019 expense than would otherwise be expected.

SG&A was 10.1% of revenue for the first quarter of 2020 compared to 9.6% in the prior year period. Adjusted SG&A, excluding stock compensation, acquisition-related costs and officer transition expenses, was 8.5% of revenue in the first quarter compared to 9.1% in the year ago period.

As of March 31, we had total liquidity of $153 million, including $26 million of cash and cash equivalents and $126 million of availability under our revolver. Our total debt, including current maturities, was $790 million, and we reported $75 million in operating lease liabilities. Our net-debt-to-LTM-adjusted EBITDA was 4.2x.

As you will recall, the Coram acquisition was financed with borrowings from our revolver. And on April 17, we announced the completion of a delayed draw term loan which further increased our liquidity position. The term loan has a 5-year tenure, attractive interest rate options and contains no financial maintenance covenants. On a pro forma basis, after giving effect to the additional $180 million of liquidity from the term loan, our liquidity would be $333 million at the end of the quarter, well in excess of where we were at year-end. Furthermore, we continue to have no near-term maturities associated with our senior notes, term loan or ABL facility.

Moving on to cash flow. During the first quarter, we generated $44 million of cash provided by operating activities as compared to $22 million in the prior year quarter. Year-over-year, we generated $37 million of adjusted free cash flow compared to $15 million last year. Our cash flow in the quarter benefited from our working capital management activities and cost containment measures. Our highly variable ready-mixed cost structure and our ability to manage our capital expenditures puts us in a position to clearly navigate the economic uncertainty with liquidity on hand.

During the first quarter, we spent $7 million on capital expenditures, primarily related to our plants and equipment, to support the continued demand in our markets compared to $7 million for the same period last year. While we made commitments for certain capital equipment late last year and earlier in the first quarter, which we will take delivery of in the second and third quarters, we are cutting back our capital expenditures in light of the concerns surrounding the economic environment. While there is uncertainty regarding the demand environment, as we look to the coming quarters, we feel confident that with our variable ready-mixed cost structure, cost containment actions and ample liquidity, we are well positioned to weather these uncertain economic times.

I'll now turn the call back over to Ronnie.

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [5]

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Thanks, John. It has been a remarkable couple of months. Through the middle of March, we were experiencing a strong start to the year. Despite our mixed weather patterns in our regions, mild weather in the Northeast, drier weather in California, offset by record-setting precipitation across our Texas footprint, and yet, we were trending above prior year volumes. Our ability to deliver these types of results despite adverse weather is a real testament to our team's ability to manage and perform.

Turning to our regional performance. The East region, which is New York, New Jersey, Philadelphia and Washington, D.C., represented 36% of our total revenue during the quarter. Productivity was enhanced by mild weather conditions with increases in concrete and aggregate volumes across all markets until the middle of March.

The Central region, which consists of aggregates and ready-mixed operations of Dallas-Fort Worth, West Texas, Custom-Crete and the U.S. Virgin Islands, represented 34% of our total revenue during the quarter with very good demand.

The West region, which consists of Polaris Materials, which supplies aggregates to the West Coast and Hawaii, coupled with our concrete operations in the Bay Area, specifically San Francisco, Oakland and San Jose, the West region represented 30% of our total revenue during the quarter with volume and pricing improvements over last year until the middle of March.

During the last 2 weeks of March, we experienced a slowdown in construction activity, notably in the East and West regions with the local government interpretations of essential services within the construction markets. San Francisco was the first place to announce shelter-in-place orders on March 18, followed by the entire state of California as well as New York on March 20. Daily, we adjusted our operations to serve our customers and their projects that were deemed essential in a very dynamic environment. Meanwhile, Texas continued with solid performance, it was mainly impacted by rain.

Now I'd like to turn my comments to several significant and positive events that have recently occurred. On February 24, we closed on the acquisition of Coram Materials, a sand and gravel operation in Long Island, which enhanced our vertically integrated position in the greater New York market. While our production volumes have understandably decreased due to the slowdown in New York City, we are pleased with the business and it shows the promise that we expected. Our teams are extremely efficient in integrating acquisitions, and this slowdown allows us the opportunity to expedite those activities.

Enhancing the company's growth potential, Coram possesses significant premium sand reserves that will provide us with self-sufficiency in meeting our sand supply needs to our concrete operations in New York City as well as providing external sales to third-party customers. Since the acquisition closed during the first quarter, we recognized $1.7 million of EBITDA from Coram.

During my first few weeks as CEO, I can report to you that all of U.S. Concrete, from the Board of Directors to senior management to the dedicated employees in the regions, are all working diligently and efficiently under highly stressful conditions to manage the business, implement painful but necessary cost cutting, all while actively reengineering the business so that it can respond to changes in each of our operating environment. As you can see from the Coram acquisition and the new credit facility, we're doing positive things for the long-term growth of the company.

With the onset of the pandemic, we experienced virtually daily shifts in the guidelines or laws governing commercial activity and our personal and professional lives. The majority of our markets in which we operate continue to see strong demand, while certain projects in New York and San Francisco have been delayed or deferred due to the definition of essential construction work in the local markets.

Texas continues to see robust activity levels. The association of general contractors reported at Dallas-Fort Worth added more than 10,000 building jobs, the biggest gain in the country during the month of March. As a reminder, U.S. Concrete has evolved significantly since the Great Recession.

Please refer to Slide 11 in our presentation. Our aggregate production has increased from 2.6 million tons in 2010 to nearly 11.4 million tons of production today. Highlighting the growth in our aggregates business, our external sales have increased from 49% of total production in 2016 to 66% of total aggregate production in 2019. Our internal consumption of fine and coarse aggregates has increased almost 40% during the same time period, allowing us to be more efficient with our cost and operating performance. For example, with the acquisition of Coram, our internal sand usage in New York market has increased from 26% to 74% pre and post acquisition.

We are actively aligning our operations and our cost structure in all markets with our activity levels. We are also using this time to carefully evaluate all of the processes and workflows of our business. Any company that has grown as much as ours over a decade, including through multiple acquisitions, will be able to identify reengineering opportunities. We are evolving our business model by standardizing all back-office processes across the company, automating with our proprietary WheresMyConcrete software, we anticipate significant savings of our transactional cost with the adoption of best practices.

Technology investments. We are continuing our technology investments to make better decisions in the field, for example, in dispatching and fuel efficiency. Earlier this year, we successfully implemented WheresMyConcrete in the DFW market and plan to roll it out in West Texas during the second quarter and California later this year. We will continue to innovate and create new functionality with WMC to drive efficiencies in our operations.

We have been very focused on rightsizing our cost structure to align with our operating volumes. As a reminder, the cost of materials and the direct variable cost of delivery and labor represented nearly 86% of each cubic yard of concrete in 2019.

Our cost-cutting and cash preservation measures include the following: reduction of capital expenditures for the balance of the year; reduction in guaranteed hours for our nonunion drivers; labor productivity, we have cut hourly payroll across the entire business; discretionary spending, we have a disciplined approach to spending and have suspended substantially all discretionary spending; operational utilization, we're idling certain plants to maximize utilization rates; SG&A expenses, we estimate that the adjusted SG&A could range between 6% and 9% of revenues depending on the strength of the recovery and correlated revenue performance; lower fuel cost, we are evaluating locking in lower diesel fuel; and refining our working capital management processes.

I now want to provide you with commentary about what recovery could look like and how we are modeling our financial performance. We are planning our business based on a variety of scenarios. Overall, we are seeing downward pressures on concrete and aggregate volumes in April when compared to last year's pace of business. These pressures, again, are highly correlated to the markets that have had the greatest impact of COVID cases. Forward-looking orders and a favorable bidding environment continue to support our business with the anticipation of restrictions being lifted across our markets.

Current demand outlook remains resilient as all of our regions are reporting a very active level of new projects on which we are bidding. Since the initial onset of local regulations, we continue to see weekly improvements in volumes and productivity in every market. When local governments loosen their restrictions and our markets respond, we are positioned to reengage with our jobs and projects.

It is natural to expect that each of our markets will further open at different rates with different rules. For example, in Texas, where Phase I plans to reopen were announced last week, our West Texas markets will see fewer restrictions than the DFW market based on the number of confirmed cases. While there is growing speculation about a federally-sponsored infrastructure bill, we are well positioned in each of our markets to capitalize on highly related projects. For example, we're currently participating in the Bay Area's U.S. Highway 101 project.

Recent volume in our aggregates business has been better and is benefiting from a diverse customer base. Historically, PCA data supports that markets in which we operate rebound out of a recession more quickly than the balance of the country. For modeling purposes regarding sales price for concrete and aggregates, the producer price index for concrete increased 3.5% from 2012 to 2019, while the PPI for aggregates increased 3.6%. We are observing material price increases in the market, and we're passing along the increases to maintain our margin when bidding on new projects.

While we are focused on proactive measures to cut expenses and manage cash flow, we are also positioned to accelerate growth and drive profit when conditions stabilize. We will continue to pursue value-creating opportunities, particularly with our aggregates position, like we did with Coram and Polaris before that, to further strengthen our defensible vertically integrated positions in major metropolitan markets.

We will maximize the technology advantage of WheresMyConcrete to improve our efficiency as well as capture additional revenue opportunities with the goal of becoming the technology leader in our field. We will focus on our customers where we can continue to differentiate U.S. Concrete through value-added solutions and service. We will train, develop and engage our dedicated team of talented employees to compete and win in this dynamic environment.

We are committed to our strategy. We are well positioned for the market recovery with high-quality aggregates and ready-mixed assets in locations in attractive markets across the United States. We have the financial profile and the available liquidity to weather this storm, and we will emerge stronger on the other side.

In closing, we wish you, your colleagues and everyone's families the very best during these trying times. We are deeply committed to maximizing shareholder value and supporting our communities in the coming days and weeks ahead.

We will now open the call to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Kathryn Thompson with Thompson Research Group.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO & Director of Research [2]

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First, I'd like to focus on cost structure, and very much appreciate the detail that you gave in today's prepared commentary. Understanding that you have a highly variable cost structure, I wanted to really categorize in terms of the biggest levers to pull to adjust for the near-term impact to COVID-19 and the -- when I say near term, really, over the next 12 to 18-plus months. But what are the opportunities to more -- fine-tune more structural cost on a go-forward basis in this environment?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [3]

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Thanks, Kathryn. Great question. And as we look at -- and we've talked about the variable side of our business, obviously, labor and fuel and raw materials are a big piece of when the markets or the volumes decrease, those things are really variable. Our focus right now is what we talked about on standardizing processes, centralization of a lot of roles in the back office.

We're a very transactional-driven business. And so as transactions have increased over the past several years, that's equated to headcount. And so for us, it's really focused on rightsizing that and making that where it's very sustainable as the markets recover. And so that's our goal is to be able to sustain those reductions and -- which should directly correlate to better margins as we come out.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO & Director of Research [4]

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Okay. Helpful. And then on the color by end market and the end market, I mean, res, nonres infrastructure. Could you give a little bit more color on current demand trends? And if you could focus on the 3 broad regions and how we should frame how those 3 end markets are performing currently?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [5]

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Yes. I would -- one, at a high level, what we've talked about in the past is forward-looking. Our commercial use represents about 64% of our forward-looking, residential for us is about 13%, and government and infrastructure is around 17%.

Within commercial we kind of group -- everything in the commercial is kind of catch-all. And as you look at our commercial business, we have education, we have health, we have public space as far as libraries, schools, those things, warehouses, data centers. So there's a lot of things within that group that we're focused on is saying, what's going to be the most impacted, what's going to be the least impacted.

As you get into the individual markets, I think that's where our crystal ball is probably as fuzzy as anyone. And I don't think we want to be out there trying to predict what New York and San Francisco are going to do. We're seeing a lot of bidding activity, and we're encouraged by the amount of bidding activity. But we're being very patient around what it looks like as they open these markets back up.

So I think we're in a good position as far as the end-use in the markets that we can. And then we can -- as we've talked before in the past, and we continue to be focused on, if there's an infrastructure build or when there's an infrastructure build, we're very agile and we can pivot to that extremely easy.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO & Director of Research [6]

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And just a clarification on the residential end market. Our work has shown that spec construction home had really come to a halt, but we're starting to see a few green shoots. Particularly in the state of Texas, what are you seeing right now in terms of that, more specifically the resi end market?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [7]

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Yes. So the resi side, really in West Texas and Dallas-Fort Worth, we've seen similar communications from our customers saying that things that were under construction were going to be completed and then new starts were going to be paused.

But there was such a backlog or demand of things that were already under construction, and I think to be able to get a sense of things that were already under construction, it's really carried us through this time frame of the markets now starting to reopen. So we may see a gap in there, but there's a lot of demand. I mean it's not like we're at the housing levels in the -- prior to the last recession. So we still have a lot of runway. And I would anticipate that Texas is going to be one that's a little more resilient than some other markets.

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Kathryn Ingram Thompson, Thompson Research Group, LLC - Founding Partner, CEO & Director of Research [8]

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Okay. A final point, just another clarification. The nonres end market, what type of projects are you seeing bidding on? And has that type changed?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [9]

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I wouldn't say the type has changed because we've been really highly busy in bidding a lot of data warehouse flat work. We've been doing that and it's continued.

I would tell you in the -- and we've talked about it in the transition in New York to the boroughs and the mid-rise to low-rise, that had already started and those are things that we continue to see. And then in the -- on the West Coast side, still a lot of technology-driven investments, and those projects are the ones that we're continuing to see.

So we haven't seen any big change in what our bidding activity looks like today. And again, I think that's where we're taking this approach to say we're going to be there to supply what our customers' needs are, and we'll be available to swing with the market of what demands.

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Operator [10]

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Our next question comes from Larry Solow with CJS Securities.

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Peter Kirk Lukas, CJS Securities, Inc. - Analyst [11]

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It's Pete Lukas for Larry. You guys covered a lot of it, and thank you for that. Just one question on Coram Materials which you mentioned in the prepared remarks. Do you still feel EBITDA can rise in the first 12 months just to satisfy internal aggregate demand as you see a slowdown in external demand there?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [12]

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Thanks, Peter. Yes. Good question. Yes, I think we're confident in what we see with Coram. And like we said in our prepared comments, that Coram has performed as we had expected it. It's all going to depend on what the level of -- what is the baseline of New York? Where does it fall off to? We have a lot of not only good internal business, we have a lot of good external accounts there, too.

So we do have the opportunity to not only consume more internally, but we will continue to focus on our external sales as well. But we'll just have to wait and see kind of what the market demand does.

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Peter Kirk Lukas, CJS Securities, Inc. - Analyst [13]

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Great. And just last one for me on a macro level. You talked about, obviously, delays here with everything that's going on and -- but bidding remaining okay. But have you seen any canceled projects or worries about funding for future projects? Has that become a concern as of late?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [14]

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We haven't seen as far as just directly canceled. I mean, I think there's a lot of pause and I think there's a lot of conversations about deferred, delayed, those kind of words being used. As far as canceled goes, we have not heard of many things that have been canceled.

But I still think that people are trying to just get their arms around what the impact has been to their local side, what the impact has been to their own vision. And we're kind of on the tail end of that.

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Operator [15]

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Next question comes from Zane Karimi with D.A. Davidson.

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Zane Adam Karimi, D.A. Davidson & Co., Research Division - Research Associate [16]

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So first off, kind of on the CapEx, but is management going to provide any outlook for CapEx? And how should we be thinking about maintenance versus growth? Or will there be any growth spend there?

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John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [17]

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Yes. So we're not specifically going to provide any CapEx. As I said in the prepared remarks, we did have orders that we placed late last year, early in the first quarter that we're going to be taking delivery on in the second and third quarter. It's always hard to distinguish maintenance versus growth CapEx.

What we're also cognizant of as well is there are projects in our CapEx portfolio that had relatively short payback periods, something like a black bear, where we have some CapEx. It is obviously incrementally beneficial to move forward with that at moderate amounts and see how the recovery takes shape.

So I'll have more guidance when we'll be able to give more guidance as the months play out. What we can tell you is we're very cognizant of where we are. We have certainly sufficient liquidity from that perspective, and we want to capitalize on those opportunities -- or continue to capitalize on those opportunities that will provide a very short payback.

So that's sort of the way that we're thinking about it. And it's all going to depend on how quickly or slowly the economy turns, and we should know that within another 3 to 6 months, I would assume.

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Zane Adam Karimi, D.A. Davidson & Co., Research Division - Research Associate [18]

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Of course. And then maybe can you provide any color on like the ready-mixed backlog today versus last year? And are you seeing any pricing degradation or competitive responses in areas with greater disruption?

I guess the project work potentially when you're saying paused or delayed in some cases, how is that looking in New York or California? How is that bidding environment -- kind of that bidding environment dynamic changed post end of quarter?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [19]

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Yes, Zane. I would tell you again, when we look at our forward-looking and how we look at those opportunities, those numbers are pretty similar to last year, as we currently said.

As far as pricing goes, we're not seeing -- and I think it's just a dynamic of the -- how this is so much different than what happened in the Great Recession, where it was more of a slower trend down and people were chasing the market down. And this just happened so quick that pricing has really not been something that people have been focused on. They've been more focused on the safety of our employees, the safety of the work sites. Things that were deemed essential, let's go. Things that were not, were put on hold.

It really hasn't been something that -- this was a market-driven thing that some of the old factors that you would have thought about in a normal recession just have not been in what's happened currently. So I just think it's so much different. That's why it's probably a lot more difficult to model as well. So that's kind of what we're seeing today.

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Operator [20]

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Our next question comes from Stanley Elliott with Stifel.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [21]

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Quick question. Can you guys talk about the synergies and the cost savings you get as you're progressively rolling out WheresMyConcrete in some of the other markets and in Dallas-Fort Worth? And then kind of -- try to help us frame out what the savings could end up being out in California and West Texas.

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [22]

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Yes. Stanley, I mean, it's -- obviously, it's a lot tied to the demand of the business as well. So as we look at the opportunities that WMC gives us, it's throughout the whole process from cradle to grave, booking the orders, more efficient labor scheduling, more -- better usage of our trucks. And it's really an opportunity for us to work a lot closer with our customers because in our business, our customers' ability to order, to place, to stay within the guidelines of their production schedules is critically important on the way we look at our scheduling of that labor.

So as you look at the whole picture, it's just truly an analytical tool that makes us smarter in the decisions we make. And so when we think about the efficiencies that we measure, we measure it in what we call yards per man hour. And so when we're looking at the total amount of labor it takes us to place yards of concrete in the markets, that's what we're trying to drive, is better efficiencies in our labor cost.

Obviously, with some of the markets and what we've seen through this pandemic is there's been a lot less traffic. There's been a lot more predictability in times that it takes us to get from plant to jobs. And so that's been also a tailwind. Fuel efficiency has been a big -- fuel cost has been a big tailwind. We get fuel efficiency as well because of the markets and the less amount of traffic.

So ultimately, I would tell you that's a long answer to say, it's really going to depend on how these markets look coming out of this. But it just gives us way more insight and way more educated planning around labor costs, labor efficiencies, customer profitability, being able to make better decisions with each down to the customer level. And that's -- really what in the end drives our businesses is our ability to predict and to meet the needs of our customers in a very efficient way.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [23]

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Great. And I appreciate the commentary on kind of the ready-mixed pricing PPIs. Should we think of a regional mix impact as we're planning out the year when you're talking about the West and the East Coast markets being maybe a little bit slower to start relative to the Texas markets?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [24]

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I would say on the regional mix, yes, you should think about that. I would tell you, again, it's -- the regional mix to us would more drive the top line ASP. From a margin perspective, our margins in Texas are as good or very similar to those other markets. So it's not -- it should not affect the margin side. The margin side will be more, to us, the variability side, the things we're taking out, the costs we're trying to take out. And so that's where the focus for us is. It's really rightsizing the things we talked about around centralization.

So you will see on the regional mix at the top line some influence on the ASP. I would tell you, from our side, we're going to be very supportive of material price increases. But at the same time, I will not be giving up margins. It's just not something that we can do.

So again, the correlation between ready-mixed pricing, aggregate pricing and cement pricing has been proven that all of it moves. But I would just tell you, for your purposes, we will not be giving up any margin as far as material price increases go.

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Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [25]

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Perfect. And then lastly, Ronnie, you guys have mentioned in the release kind of capitalized opportunities. I'm assuming there's a lot going on internally. I'm assuming there's some plans to take market share, outperforming your peers. Can you really just help kind of frame out a little more context around kind of what you all meant by that?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [26]

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Yes. I don't know that we said anything about taking market share. I think what we talked about on our comments are more around the things we can do to take out -- really converting some of our things that have been historically classified as fixed and making those more variable.

So as we talk about the growth of this company, we've grown tremendously over the last 5 years. Those opportunities to centralize, streamline, reprocess, just things that we can do internally to drive cost out of the company, and those are the things we're focused on.

From a market perspective, we're going to be very, very disciplined around what we're doing in the market. So I mean, that's -- this is not a time to go out and try to do anything that would be disruptive in markets. So we're going to take care of our customers. We're going to continue to analyze. We're going to take the work that is best suited for what we're good at. But we're going to be very disciplined and we're going to be very smart about that.

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John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [27]

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Yes, let me add a little color on that too, Stanley. Our strategy, what we've been talking about for the past 5 years or more, has been building defensible market positions in the markets where we are.

That's -- really what distinguishes us from our competitors out there is we're really the only ones that are concentrated in specific markets and can defend the markets that we're in with our positions, our #1, #2 positions in those markets. So as we're in those markets in very concentrated positions in those markets, we feel that we're able to defend our market share and the like versus other competitors that may be out there who may be more susceptible to the fringe players.

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Operator [28]

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Our next question comes from Julio Romero with Sidoti.

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Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [29]

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Can you discuss those utilization rates at all? I know you mentioned idling certain plants. But maybe can you touch on the geographies that you may be doing that in and maybe how much more flexibility you have there to either idle additional plants if the drop-off maybe gets worse?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [30]

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Yes. So when you think about our East, West and Central groups, I mean, we have multiple plants in every region and multiple plants serving those regions. So our ability to -- again I mean, when you think about especially New York and the Northern California markets, I mean, it's one of the biggest headwinds we've always had in those markets has just been the growth of congestion, traffic, everything there.

And so when we think about what the shutting down of those markets did for a lot of the other businesses and construction continued, it just gave us the natural ability to serve more of the market from less operating plants. And so it was -- it's a very easy thing for us to do as far as -- these plants aren't -- they don't have a ton of inventory sitting. They don't have a ton of things going. So our ability to open and close and move plants around to drive that productivity is very easy, easy from a standpoint of actually enacting it really quick. From a modeling standpoint, it's more for us to be able to manage that and get the efficiencies out of it.

It's not a ton -- we don't have a ton of headcount at those plants, and so it's a very easy thing for us to do to flex up and down like that. And we will continue to do that literally on a daily, weekly, monthly basis. It's just something we've always naturally done that. It's just been more focused on during this time frame.

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Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [31]

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Understood. And Ronnie, I know you've talked in the past about necessary changes that the industry needed to make on customers and competitors. Does business disruption potentially accelerate those changes? And how does the ready-mixed industry kind of change structurally as a result of this on the other side?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [32]

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Yes. It's a great question. I mean, I think this disruption, this pandemic, the suddenality of it, the -- it gives the industry, it gives us a great opportunity to make a lot of changes that were probably going to be slower to make, were kind of -- were needed, but we were a lot of people stuck in old ways. And I think what this did was give us a chance to move extremely fast in making changes.

Longer term, I think we're going to take this opportunity just to look at some of our loan pricing models and convert concrete to more of a variability side. I mean a lot of the variability on things we can predict with WheresMyConcrete today it gives us a lot more opportunity to do that than we could in the past.

And again, I've talked to you before about -- it's one thing to be able to tell people this is what I want to do. It's a whole another thing to be able to actually do it. And now we can actually do it. And so I think this is an opportunity for us as U.S. Concrete for a lot of the things we've talked about in the past, a lot of things we want to accomplish. It's just 110 miles an hour now.

Let's just go. Let's do it. Let's implement it. Let's get it done. And then -- and I think this just gives us the opportunity to do that.

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Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [33]

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Got it. And maybe just one more for me here is on the working capital side, are you potentially giving better terms to customers? Are they asking for that? And just touch on anything you're potentially doing on your side to better manage your capital.

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John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [34]

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Yes. So Julio, if you really look at the breakdown of our DSOs, what you're referring to, quarter-over-quarter, our DSO actually improved. We improved about 2.5 days. That's reflected in the cash flow statement too, because you can see the change in working capital provided excess cash flow during the quarter as well. So we really haven't seen a slowdown in terms or payments or anything to that nature.

Our terms are consistent with where they've historically been. We've not seen a need to increase payment terms to anyone. And we'll continue to focus on collecting our AR. We feel we have very good position to collect it. We're not expecting any increase in bad debt. We have lien rights associated with it.

So we are in a very good position to get paid with everything that we deliver. So that's really not a concern from our perspective.

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Operator [35]

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Our next question comes from Adam Thalhimer with Thompson, Davis.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [36]

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Nice quarter. Can you quantify just for modeling purposes the volume declines in April?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [37]

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The volume declines in April. I would tell you, we're not giving guidance. And I think that kind of gets you into -- if I tell you April, then you model that for May and then you model it for June.

And I would just tell you, from our real-time experience right now that we continue to see our daily, weekly averages, and we measure everything down to the day, we've continued to see improvement every week in April. And so I think we saw, with the onset of this, a lot of very quick reactions, a lot of things that happened. We reacted. The markets reacted. Local authorities reacted. And that continued through the early part of March and mid-March and then late March. And I would tell you that I believe we've seen at least some stabilization where as these markets start to reopen, we'll continue to see that.

I don't think April would be a fair indication to you to say -- if you just take April and ran it out, we're not confident of what that -- we've just continue to see improvement.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [38]

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No. I get that, Ronnie. I was just thinking if you -- just if we had the baseline of kind of where to start from the improvement.

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [39]

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I appreciate the question. I know it would be helpful.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [40]

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Okay. If you're not going to do that. How about -- it looks like, so for both San Francisco and New York, construction is in the Phase 1 of the reopening. But I don't know for either one when Phase I starts. Do you guys have a good sense for that?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [41]

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Yes. That's a great question, and we try to get that clarification ourselves. And I would tell you, it's kind of like the reopening was similar to the onset of the closing. And each project was looked at, and then each project has kind of got into more of the developers, the contractors, the whatever form that was of seeking out exemptions and essential terminology there. We're seeing the same thing as it reopens.

There's projects on one side that we say, wow, that's that should be deemed essential, and it's not. There's another one that, wow, that shouldn't be deemed essential, and it is. And so we're not really involved as far as how that works other than being in constant communication with our customers, and our customers literally calling us at the first week and deciding, hey, we just got deemed essential. We're going. And we're ready to do that. And there's all kinds of factors in there. Some are percentage of affordable housing, some are percentage of government versus private money.

There's just so many mixes out there of why things are essential and why they're not that it's even hard for us to understand that. But we're ready. And like we said on our call, we're prepared for whatever those markets offer us, we're going to take advantage of.

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Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [42]

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Okay. And then just kind of bigger picture, I mean, it sounds like you guys are in the camp that -- this was a health crisis, not an economic crisis and caused a lot of short-term pain and dislocation. But bidding is still strong and you'll be fully back to work, hopefully, at some point later, Q2. And you're not really concerned about the kind of economy or the project funnel. Is that fair?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [43]

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Yes. I wouldn't say we're not concerned. I mean, I think that's a little -- a little generous there. I would say we're taking the approach again. We're modeling all kinds of different scenarios, up, down, sideways, any way you want to look at it. I think this is an opportune time that, again, no one -- and I guess, unless they're over 100 years old today has ever been through anything like this. And so a lot of those playbooks that we had were more focused around normal-type recessions that were predictable. They were multiyear going down, multiyear coming out.

So this one is just so unpredictable. And I think that's why the companies are taking the same approach we are, as saying we're not going to try to get ahead of it. We're not going to try to predict something that we don't know. But we are prepared.

We're prepared for multiple scenarios, up, down and all kinds of different ways. And we're going to control what we can control. And if it happens that it's a quick recovery, we'll be a big beneficiary of that. But we're not going to try to get out there and predict that.

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Operator [44]

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Our next question comes from Paul Roger with Exane.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [45]

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I hope you're well. Apologies, my line actually got cut off at the start. So hopefully, I'm not repetitive. But I've got a question on raw materials input costs. If you listen to what the aggregate producers are saying, they're all going to sort of mid-single-digit price rises. If you think about the cement side, I think most of them are going for $8 per ton, albeit some of them are delayed until June.

Are these the type of magnitude of raw materials cost inflation from those 2 sides that you expect? And are you confident that you'll be able to pass it all on?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [46]

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Yes. Paul, thanks for the question and welcome. I would tell you again, I mean, we're in support and we do support raw material price increases because it does give us the ability to move our pricing as well. And again, all I would tell you in this time and the way that we're going to be taking care of U.S. Concrete would be we're not going to give up our material margins.

And so we'll be supportive. It will be pretty choppy. It will be different delays, different -- I just think from our side, what we're seeing is different messages from different suppliers that are all trying to get their arms around what they anticipate. And each market is different. And so I don't think it's a consistent model that you can say, cement can just go $8 across the board because markets are going to be so different.

It is a demand-driven product and we do realize that. But we are going to be supportive because we do feel like it adds value to our products as well. I'm just not going to give up my margins. So that's -- if you're modeling it, that's what you should model.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [47]

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Okay. That's very clear. And I guess this is a bit of a related question. You've talked a bit about the regional mix impact on pricing.

Could there be an impact as well from the end market mix? And I'm thinking in particular because public, if I understand correctly, is typically more sort of bidding work, whereas private, you have a bit more flexibility on the pricing. So if you do pivot a bit more just on the infrastructure side, and I appreciate to the minute that's not massive for you. But could that have a negative impact on the pricing mix as well?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [48]

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Historically, on the ready-mixed side, public works has not been -- it really gets down to the type of public works. And so when you talk about just straight main lane paving, that you're coming out of a central mix plant into a dump truck and you're basically selling FOB concrete, even though the margins may be really good, the pricing may look different.

When you're talking about a tunnel, you're shooting gunite, you're doing shotcrete, you're doing dry mix. There's a very, very big price point on that, really good margin on that.

When you're talking about bridge decks, it's a whole different mix.

And so really, for us, when we get into infrastructure-type work, it is project by project, mix by mix and our ability through our QC side and the product developments that we do, working closely with those big GCs, we've got a lot of opportunities there to do things on the performance side that should actually be a benefit to your pricing.

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Paul Barry Roger, Exane BNP Paribas, Research Division - Sector Head of the Building Materials Team & Analyst of Building Materials [49]

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Okay. And just finally, I understand you don't want to give a volume figure for April. Are you able to say anything more though in terms of quantifying the backlogs? Just so that we can think more about the sort of medium-term pent-up potential. And again, apologies if you've already answered that.

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [50]

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Yes. No. As we talked about earlier, our forward-looking orders are very similar on a year-over-year basis as of today. We've not seen really any impact in what the forward-looking demand is.

Now again, I mean, those are as good as the information as we have today. And that's why we're not getting out there ahead of that. But statistically, our numbers are very similar to where they were last year.

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Operator [51]

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Our next question comes from Rohit Seth with SunTrust.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [52]

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Two questions on April, just kind of building on what you've already said. When you said demand got better week-on-week in April and there's some stabilization, was that recovery to, say, maybe the first quarter rate? Or is it kind of stabilizing at a lower level?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [53]

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You're good, Seth. You're asking in a different way. I like that. Again, I mean, I think we would just continue to tell you that April's trends have continued to improve. And obviously, that's very or highly correlated to the markets that we saw the greatest impact in and as those markets continue to loosen back up. And the markets that we didn't see the greatest impact in, those markets stayed pretty constant. So as we see those markets open back up, and like I said in my comments, it's really the East and West Coast that had the greatest number of cases, the greatest number of shelter-in-place restrictions. All those things, as they loosen back up, is where we're seeing the daily and weekly averages continue to improve.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [54]

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Got it. Okay. And then there's a lot of puts and takes on the cost side with your actions, idle plants and reduced labor costs and overhead. And I know diesel is down pretty significantly. I mean is there -- when you stress test your P&L and you do scenario analysis, is there like an EBITDA margin level that you feel highly confident and able to defend?

Margins have come off from where they were, but you talked a lot about maintaining your margin over maybe market share. So I mean is there a level that you can maybe say with high confidence that you can sustain and, say, in a recession scenario typical around-the-mill recession?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [55]

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Yes. I think a typical mill recession scenario is probably easier for us. I don't think this is -- the problem is this is not a typical recession scenario. And so I would tell you, when we talked about the different scenarios we've modeled our business in -- and I'm not exaggerating, we've modeled it from 0 to 100. We modeled from everything going to nothing the first week to set in.

And I can remember back having the conversations with my teams in February that we didn't know. We didn't know what was going to happen. We didn't know how these local restrictions were being applied. And so we began, at that time, running many, many scenarios and many different models and really just trying to be prepared. And I can remember, back then, we were preparing for the worst and hoping for the best, which is what a lot of people were saying at that time.

I would tell you, we've been pleased with the things that we've done, the things we can control and the things we're going to continue to try to push through. I mean you know our business really well. And so as volume declines, we're just going to have to pull a lot of levers, and we still have levers that, if markets go back and retread, we've got more levers to pull.

But today, I think we've done a lot of things. And again, with just the nature of this, it really gave us an opportunity to just do it really fast and not wait. And so I'm really proud of what we've been able to accomplish there.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [56]

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Okay. And then on diesel, you mentioned that you might take advantage of the lower diesel. What was the strategy there? What did you mean by that?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [57]

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So we consume roughly on a normal year 10 million to 12 million gallons of diesel a year. And so as we continue to watch and we're watching it, and it's a very, very nice tailwind for us, where that bottom is and where we think if we wanted to layer in some forward-looking locking in of diesel, we're analyzing that.

It's an opportunity for us. Its budget is certain. I mean you never want to look back on that. But it's a big tailwind for us today, and we're going to take advantage of once we feel like we should institute that.

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Rohit Seth, SunTrust Robinson Humphrey, Inc., Research Division - Associate [58]

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Okay. And then is there any way to quantify maybe the impacts of some of the cost saving issues you've put in place on reducing the capacity and labor hours? Anything we can grab a hold of?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [59]

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Well, I think as you -- I mean, as you look at what we talked about with the 86% variable, I mean, what then you would -- you would then model is what percentage points above that 86% could you get to make that variable. And so as you start looking at that and saying, okay, could you get to 90% variable and I mean those are the things that we're looking at internally is what things have we historically said were fixed that we can take out? And then when you model the cuts we're making in SG&A -- and again, I mean, some of those immediate cuts that you're going to hear multiple companies talk about, just in travel and those things that just absolutely got restricted day 1, I mean, those are immediate savings.

And so there's a lot of buckets there that historically we've said were untouchable that all of a sudden became touchable. So I would just look at it as modeling that 86%, moving up more in the variability side and us being able to control that.

On the on the diesel side, the fuel side, for modeling purposes, it's on average about 1 to 1.1 gallons per yard of concrete. So you can really look at it and say -- and for where diesel moves and whatever pricing momentum we get there, it's almost a one-for-one on a yard of concrete.

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Operator [60]

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Our next question comes from Trey Grooms from Stephens.

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Trey Grooms, Stephens Inc., Research Division - MD [61]

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I'm sorry. I had some trouble getting on the call as well. But so in an effort to not be redundant, because I'm not sure exactly what all has been addressed, Ronnie, I want to ask you a question specifically. May be kind of generic, but I think it's important.

You've been on the job here as CEO for about a month or so now, and very unique times to be handed the reins for sure. So just curious what's the most important lesson you've learned through the first month on the job?

And then tied to this, secondly, has this situation changed the way you look at the bigger picture and how you expect to run the business longer term?

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [62]

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Yes, Trey. It's a great question. I guess, I want to be careful when you raise your hand. I would tell you from my personal experience in 1 month and probably looking back on a lot of the things that Bill prepared me for that probably neither one of us saw this is -- probably the word that comes to my mind is thankful. Being thankful for, personally, my family and the support I get there, my leadership team. And you really see the true colors of leadership come out in this kind of crisis.

And I would tell you, I've been extremely pleased with the decisions my leadership team has brought me and not even being forced on them or they reacted. We all reacted. It's a very good team here that -- I've said it in the past, there's no one else I'd rather be in the good times with, and there's really no one else I'd rather be in the bad times with.

So I think from a leadership perspective, probably tripling, quadrupling the importance of communication, communication within our team, communication with our customers. Communication with all of our employees on a daily basis has been critical. And I think it just brings out the touch points.

One of the things that has really pleased me with through this whole process is the investment we've made in technology. And I can tell you, from literally the very first days of this going into effect, we had immediate plans that if our central dispatching facilities in all of our markets were shut down, that we could remotely batch all of our company from people's houses. And our ability to do that literally in about 3 days, we put those plans in place.

We never really had to enact them in most places. We did do some remote batching in some places. But just proving to us that all these investments -- all the things that we've done to show ourselves of how good we could be and what we needed to be and what we could take out of this company has -- again, it just highlighted that.

And then I would just say, in the end, I would be thankful for the people of U.S. Concrete. I mean the men and the women out there in the field, we've been deemed essential, but that doesn't mean that people aren't scared. That doesn't mean that people don't show up in fear. So we've put a lot of safety protocols in place, but they still show up.

And we're not the medical workers. We don't have people cheering for us. But at the end of the day, we have employees out there on the front line every day that are executing their jobs. And I'm just really proud and thankful for them.

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Trey Grooms, Stephens Inc., Research Division - MD [63]

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Great. Well, thank you for all the insight. That's all good stuff. Best of luck as we make our way through all of this.

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [64]

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Thanks, Trey.

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Operator [65]

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(Operator Instructions) And I'm not showing any further questions at this time. I'd like to turn the conference back over to Ronnie Pruitt.

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Ronnie A. Pruitt, U.S. Concrete, Inc. - President, COO & Director [66]

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Thank you. Thank you for your interest in U.S. Concrete. Thank you for your support during this time, and we look forward to talking to you again in our second quarter call in August.

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Operator [67]

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Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.