U.S. Markets closed

Edited Transcript of USCR earnings conference call or presentation 8-Nov-19 3:00pm GMT

Q3 2019 US Concrete Inc Earnings Call

HOUSTON Nov 14, 2019 (Thomson StreetEvents) -- Edited Transcript of US Concrete Inc earnings conference call or presentation Friday, November 8, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* John E. Kunz

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

* Ronnie A. Pruitt

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

* William J. Sandbrook

U.S. Concrete, Inc. - Chairman & CEO

================================================================================

Conference Call Participants

================================================================================

* Adam Robert Thalhimer

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

* Julio Alberto Romero

Sidoti & Company, LLC - Equity Analyst

* Lawrence Scott Solow

CJS Securities, Inc. - MD

* Robert Whitworth

Exane BNP Paribas, Research Division - Research Analyst

* Stanley Stoker Elliott

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

* Trey Grooms

Stephens Inc., Research Division - MD

* William James Newby

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

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by, and welcome to the U.S. Concrete, Inc. Third Quarter 2019 Earnings Conference Call. (Operator Instructions) I would now like to hand the conference over to your speaker today, Mr. John Kunz, Senior Vice President and Chief Financial Officer. Thank you. Please go ahead.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Thank you, Reshay. Good morning, and welcome to U.S. Concrete's Third Quarter 2019 Earnings Call. Joining me on the call today are Bill Sandbrook, our Chairman and Chief Executive Officer; and Ronnie Pruitt, our President and Chief Operating Officer. We will make some prepared remarks, after which we will open the call to questions.

Before I turn the call over to Bill, I would like to cover a few administrative items. A presentation to facilitate today's discussion is available in 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 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 filed earlier today.

If you would like to be on an e-mail distribution list to receive future news releases, please sign up in the Investor Relations section of our website under e-mail alerts. If you would like to listen to a replay of today's call, it will be available in the Investor Relations section of our website under Events and Presentations.

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

--------------------------------------------------------------------------------

William J. Sandbrook, U.S. Concrete, Inc. - Chairman & CEO [3]

--------------------------------------------------------------------------------

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 of $409 million.

The growth in revenue was driven by higher ready-mixed volumes and increased average sales prices in our aggregates and ready-mixed product lines. Our total adjusted EBITDA for the quarter was $62 million, a record high as well, and our adjusted EBITDA margins came in at 15.2%, with the increased volumes contributing to these improvements.

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, the softness in the residential housing markets in Northern California and a continued erosion of the New York City union ready-mixed markets by nonunion competitors.

The 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 strengthening economy, the low unemployment rate and the numerous alternate employment opportunities makes the job of recruitment and retention more difficult than it has been in the past, limiting our ability to fully utilize our fleet and capture additional incremental market share.

While the driver shortage presents its challenges, it does speak to the continued strength of the underlying demand environment in our North Texas markets. We are aggressively pursuing non-traditional avenues to source and 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 is an increase in housing in the Central and Sacramento Valley areas, where we do not participate, the exact opposite is the case for our markets in the Bay Area. However, both at the state and local government levels and within the tech industry itself, the critical shortage of available affordable housing is recognized and it's being aggressively addressed through creative changes in permitting, zoning and financing alternatives.

Additionally, while funding for new infrastructure projects under SB-1 is being released, some of the larger projects, such as Highway 99 and Interstate 5 in the Central Valley, are outside of our service 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 nonunion markets. The migration of work is not overly concerning as we participate in both the union and nonunion markets. But the management of the workforce between the 2 presents its challenges, and we are confident that we have the correct operating model going into 2020.

As for pricing, we experienced some negative mix effects from a higher percentage of our ready-mixed business shifting to the Dallas metro markets from our Northern California markets due to the factors previously discussed. As we have described on previous calls, our pricing in Dallas is materially lower than San Francisco because of structural cost differences. Do not let mix and its effect on average selling price mask the true 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 aggregates supply chain and a temporary lull in the Bay Area residential markets. Some of our shipments were deferred into the fourth quarter as one of the shifts in the rotation experienced a propeller issue, causing it to be temporarily taken out of service. However, the lost volume in the quarter did not limit the team's ability to improve efficiency and profitability.

Aggregate volumes in our Central and 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 in 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.

--------------------------------------------------------------------------------

Ronnie A. Pruitt, U.S. Concrete, Inc. - President & COO [4]

--------------------------------------------------------------------------------

Thanks, Bill, and good morning, everyone. As I mentioned on our previous calls, we have undertaken several 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, WheresMyConcrete, 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 C3 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 am confident in our margin improvement initiatives.

As I mentioned before, our digital transformation strategy will be a critical piece of our successful path. As such, we are continuing to increase our investment from the technology with the objective of improving the customer experience, while at the same time increasing revenue and reducing costs. Our digital platform, WheresMyConcrete, will be the cornerstone of the digital transformation initiative, with the continued development of its core quote-to-cash functionality, mobile applications, analytics and artificial intelligence.

Feedback from our early adopters of WheresMyConcrete confirms the substantial benefits to our regional teams and customer based on enhanced transparency and improved data analytics, which is leading to more informed and quicker decision-making. Beyond the targeted value proposition that WheresMyConcrete 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 USVI 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 Uber bringing 3,000 jobs and its plan to spend more than $75 million in capital outside of downtown Dallas. Microsoft is also expanding its reach in the North Texas market by moving more of its operations to Irving, while investing over $31 million in capital. These investments will further enhance Dallas' position as a technology hub, which should drive further investment from this sector in the future.

We are 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 a 415,000-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-DOT projects planned. Recently, Dallas/Fort Worth International Airport and American Airlines announced plans to invest $3.5 billion to develop a sixth terminal. A significant non-DOT project that is showing major potential, passing many hurdles to get towards construction, is the $16 billion 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 3x as much as we used to -- or as 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 plants, 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 are 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 costs, supporting our downstream assets in this high-growth West Texas market.

Our West region, which includes Northern California ready-mixed 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 are confident that infrastructure spend will continue to support this sector as funding from California's SB-1 legislation continues to be more widely rolled out. This is an important step for 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.

While we have seen some softness in the residential housing markets that we serve, we feel confident that the spend for commercial, industrial and infrastructure projects should mitigate this softness. In fact, Facebook recently announced they're committing $1 billion towards better land utilization for housing middle-income workers and more appropriate housing to help solve many other entities' 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 D.C., 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 our sales 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 nonunion contractors gaining 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 will continue to drive 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.

New York is 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 capital plan to overhaul the city's transportation system. Plans for the BIG U, the $1 billion wall and park around the southern tip of Manhattan, seems to be moving forward, with funds awarded and the September flooding providing a stark reminder of the need. Staten Island is also planning to build a protective wall to defend against the possibility of storm surges and reduce the impact of flood-related damages.

With regards to aggregates, we are 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 continued to enhance our sand operations in South Jersey, which we transport by water into the New York market. We anticipate these enhancements to continue to provide more efficient operating costs as well as additional long-term capacity improvements.

In our Washington, D.C. market, we continue to see growth spurred by Amazon's HQ2; a 19-story mixed-use tower was approved to be built in Pentagon City. Recent news is also out about one of Amazon's 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 boon for the Northern Virginia area from the data center market.

Each of our markets presents their own positive outlook for continued building and growth, reaffirming confidence in our construction markets. Now I would like to turn the call over to John to discuss our financial results.

--------------------------------------------------------------------------------

John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [5]

--------------------------------------------------------------------------------

Thanks, Ronnie. 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-mixed volumes, which resulted from more favorable weather conditions and an active construction economy. Our material spread was $65.94 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.

SG&A was 7.8% of revenue for the third quarter of 2019 compared to 8% in the prior year quarter. Adjusted SG&A, excluding stock compensation, acquisition-related costs and officer 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.

In 2019, we expect our adjusted effective tax rate to be approximately 27% for the full year, and our interest expense is expected to be around $46 million. Our adjusted effective tax rate of 27% is based on the expectation that language unfavorable to manufacturers related to the interest deduction limitation currently included in the proposed regulation is removed by the Treasury in the final version.

As of September 30, our total debt, including current maturities, was $706 million, and we reported $72 million in operating lease liabilities. As of September 30, we had total liquidity of $263 million, including $27 million of cash and cash equivalents and $236 million of availability under our revolver. Our net debt-to-adjusted EBITDA was 3.7x. 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 and no near-term maturities associated with our senior notes or ABL 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 of adjusted free cash flow compared to $45.5 million in the prior year quarter, remembering that last year's cash flow included $15 million from the sale of our Dallas lime business.

We will continue to focus on managing working capital and capital expenditures in the coming quarter to generate increased cash flow. We made 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. For the full year of 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 a Texas aggregates quarry.

Our cash flow from operating activities is expected to be in the 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'll now turn the call back over to Bill.

--------------------------------------------------------------------------------

William J. Sandbrook, U.S. Concrete, Inc. - Chairman & CEO [6]

--------------------------------------------------------------------------------

Thanks, John. As we look into the fourth quarter and into 2020, our customers are telling us to expect the 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 on this 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 to 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 in pricing.

In closing, I want to emphasize that 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 with an increasing concentration on aggregates in order to create unique, market-leading and value-enhancing franchises, which are impossible 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 Reshay for the question-and-answer session.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) And your first question, from the line of Trey Grooms with Stephens Inc.

--------------------------------------------------------------------------------

Trey Grooms, Stephens Inc., Research Division - MD [2]

--------------------------------------------------------------------------------

So a few on the end markets first. So North Texas, clearly strong fundamentals, but you're being constrained by the drivers or availability of drivers. So I know the outlook for demand is good there, but why would this labor issue change anytime soon? And do you think that's going to continue to kind of constrain you guys' ability to benefit from the strong market going forward?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Trey, this is Ronnie. Yes. I think as we move into the future of what we're doing for labor, I mean our focus has been really 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 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 the 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 and our customers' ability on the labor side as well. Customers that place and finish also have been struggling with labor as well.

So on a positive side, I think we've got a lot of good programs in place that will be focusing on the turnover piece and the retention piece. But at the end of the day, Trey, I mean what this also should bode to is better pricing in DFW. That's what we have to see is better pricing moving forward in DFW, and that's what we're going to be pushing.

--------------------------------------------------------------------------------

Trey Grooms, Stephens Inc., Research Division - MD [4]

--------------------------------------------------------------------------------

Okay. All right. That makes sense. And then just on the guidance. So low end of the full year top line guide implies a pretty good rebound in your year-over-year top line growth in the 4Q versus what we saw in 3Q. And it's not the easiest comp in the world. So what's -- given the headwinds that you mentioned that kind of constrained you in the 3Q, what's the level of confidence in kind of getting to that low end of the range?

--------------------------------------------------------------------------------

John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [5]

--------------------------------------------------------------------------------

Trey, we feel pretty confident. I mean if you look at the guidance that we gave, if we're guiding to the low end of the range, it's really suggesting the revenue right around that $400 million mark, maybe a little higher, to get to that low end of the range. And your EBITDA number is going to be $56 million-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 feel relatively confident with where we are.

As Bill mentioned, our volumes are ahead of where we were last year at this time. And if we see continued progress, like we have in the first month or a little bit over a month now, we feel pretty confident that we can get there.

--------------------------------------------------------------------------------

Trey Grooms, Stephens Inc., Research Division - MD [6]

--------------------------------------------------------------------------------

Okay. Last one for me is the ship being down, if you could quantify the impact from that in the quarter on your shipments? And are those shipments delayed? Or were they picked up by somebody else, so is it just kind of gone? And then, also, is that issue behind you at this point?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes, the issue is behind us, and it is a delay and it is deferred, and it does -- it's not picked up by anyone else. And really, where it impacted us was in the Southern California going to long -- it was a ship going to Long Beach. And so the delay on -- if you said there's 70-plus thousand tons per ship and we missed about 1.5 ships, I mean that's kind of the context of that. But it's not lost, it's deferred because those projects are specified with Polaris Materials. So we will be continuing to supply those projects. So it was really just a flow of -- and we'll make that up.

--------------------------------------------------------------------------------

John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [8]

--------------------------------------------------------------------------------

And that's baked into the Q4 numbers as well. Our expectation is that, that ship will -- we'll be able to make those shipments up in Q4.

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

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 the focus we have on optimization of our delivery costs, and all the other things that we're focused on will continue to show positive results into the fourth quarter. So I know it is a tough comp but just understand that we're focused on those margin improvements, and that's not going to stop.

--------------------------------------------------------------------------------

Trey Grooms, Stephens Inc., Research Division - MD [10]

--------------------------------------------------------------------------------

Yes. And I did want to say good job on the EBITDA margin. That was a good showing there. And I know that's something you guys have been striving for and working hard at. So hats off to you on the margin.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

And your next question, from the line of Larry Solow with CJ Securities.

--------------------------------------------------------------------------------

Lawrence Scott Solow, CJS Securities, Inc. - MD [12]

--------------------------------------------------------------------------------

Can you maybe just discuss a little bit more on the pricing? I fully get a little bit of a mix shift, obviously, to Dallas area, which is growing faster. But can you maybe just give us a little more color on the individual markets? And then the trends in Dallas, perhaps, maybe I think the price increase late in this year will help next year?

--------------------------------------------------------------------------------

Ronnie A. Pruitt, U.S. Concrete, Inc. - President & COO [13]

--------------------------------------------------------------------------------

Yes, Larry, this is Ronnie. So I can give you some broad trends on what we're seeing in the markets by a regional profile. 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 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 and the things we've seen in this market. So I would say, in what we define as Central, which is DFW, West Texas, Oklahoma and USVI, if you pull DFW out, so DFW is flat to a little down, the rest of the markets in Texas are good. And so we've seen the same mid-level single-digit increases year-over-year. So it's really DFW.

And I think the impact of DFW, if you really go back to the second quarter when all the weather that we talked about in the second quarter, when material price increases and ready-mixed price increases are normally happening in that second quarter, there were so many headwinds there with weather, that coming out of that, we just saw the flatness. And I do believe you'll see the continued improvement in our pricing in the DFW market going into this year, into next year, and that's our focus.

--------------------------------------------------------------------------------

Lawrence Scott Solow, CJS Securities, Inc. - MD [14]

--------------------------------------------------------------------------------

Okay. And on the volume, I know you called out a couple of things, which have been reoccurring certainly on the labor constraints. Obviously, 2%, a little disappointing coming off of a pretty wet Q3 of last year. But the biggest driver, it's just sort of that the lower numbers were less than, I think, even you guys expect a little bit. Was it -- is it Northern California? I'm just trying to bucket that in areas that could maybe improve. Is it -- or is it just a good mixture of residential in California, the labor issues in Dallas and, sort of the -- or is it just the mixture?

--------------------------------------------------------------------------------

Ronnie A. Pruitt, U.S. Concrete, Inc. - President & COO [15]

--------------------------------------------------------------------------------

Yes. I mean I think we called out mix. And I would tell you that most of that is driven by the Northern California footprint that we have. And if you look at -- I mean it's -- expectation-wise, I know what people felt like we should have recovered in the third quarter in the DFW market. But overall, that was our second-largest quarter volume-wise for our DFW ready-mixed assets.

So it wasn'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, that labor is the biggest force. But the market is extremely strong on the public work 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 focus on labor inefficiencies.

--------------------------------------------------------------------------------

Lawrence Scott Solow, CJS Securities, Inc. - MD [16]

--------------------------------------------------------------------------------

I got it. And yes, just to clarify, it definitely wasn't bad. It's just maybe some thought it could be a little better, but that's fine. And just lastly, any update on -- just switching gears to Polaris. Any update on recent or pending contracts, whether it be Asia or what have you, and then plans for the Black Bear quarry in 2020?

--------------------------------------------------------------------------------

Ronnie A. Pruitt, U.S. Concrete, Inc. - President & COO [17]

--------------------------------------------------------------------------------

So as far as Black Bear 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, in next year's calendar year. So I think we're right on plan and right on schedule for what we think is going to be happening at Black Bear.

As far as Polaris, we still have the opportunities. We're not baking in anything for Asia. The projects -- these were project-specific opportunities. The projects that we believed the product would be used on in the Asian markets are some very large infrastructure projects. Those projects have still not started, but we're not baking that into anything. If that opportunity comes, we're in a very good position 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.

--------------------------------------------------------------------------------

Operator [18]

--------------------------------------------------------------------------------

Your next question comes from the line of Paul Roger with Exane BNP Paribas.

--------------------------------------------------------------------------------

Robert Whitworth, Exane BNP Paribas, Research Division - Research Analyst [19]

--------------------------------------------------------------------------------

This is actually Robert Whitworth on for Paul. I've got a couple of questions. I wanted to start with some metrics. How concerned are you about leading indicators like the Dodge index, the ABI index, which suggest nonresi markets could actually fall next year?

--------------------------------------------------------------------------------

William J. Sandbrook, U.S. Concrete, Inc. - Chairman & CEO [20]

--------------------------------------------------------------------------------

Yes. This is Bill, Robert. We participate in all end markets: infrastructure, which is anticipated to be fairly healthy, especially with state self-help projects; residential, in most of our markets, as we described earlier on the call, we are bullish going forward on Northern California.

Actually, the New York housing numbers in September, for total building permits, that is for units to be constructed was up 68.3% over September 2018. The U.S. Chamber of Commerce Commercial Construction Index has 83% of contractors reporting stable or increased project backlog, backlog meaning projects still to be built. And that's up 5% from quarter 2.

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 supply chain and on our customers' side.

Every economic forecast that we look at, from PCA, Portland Cement Association; the McKenzie report, all looks toward a stable to slightly growing construction environment in 2020. So I'm more concerned about making sure we have the human capital resources to accomplish opportunities that we face. And the offset of that in a constrained labor environment, it's going to be very bullish for pricing, as Ronnie has already said previously in the call.

--------------------------------------------------------------------------------

Robert Whitworth, Exane BNP Paribas, Research Division - Research Analyst [21]

--------------------------------------------------------------------------------

Very clear. And just my other follow-up question. You briefly touched on it earlier on, but in terms of concrete margins, they usually fall sequentially between Q3 and Q4. Do you expect this to happen sort of this year? Or could you hold sort of the Q3 levels that you've seen?

--------------------------------------------------------------------------------

John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [22]

--------------------------------------------------------------------------------

Well, good. 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 versus Q4 of last year. When you look at Q3, we expect -- we don't expect to achieve 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 gave, if we're at the low end of the range for our guidance, that would suggest right around a 13% full year margin. 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.

--------------------------------------------------------------------------------

Robert Whitworth, Exane BNP Paribas, Research Division - Research Analyst [23]

--------------------------------------------------------------------------------

It's pretty much what we had. Thanks for confirming.

--------------------------------------------------------------------------------

Operator [24]

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [25]

--------------------------------------------------------------------------------

So the -- to get to $400 million of revenue for Q4, I think that implies a pretty small sequential, I guess, decrease from Q3 to Q4. I mean do you think that the ready-mixed volumes, the agg volumes for Q4 can be close to Q3?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Well, I think as Bill talked about earlier, as of October, we were right on line with where we think we need to be. So the remainder of the year is going to become -- I mean we base this on normal weather. So that's the best we can do right now is say what we believe normal weather is in our markets, that we can get there. And if it's abnormal weather, and we've seen both sides of it. We've seen dryer weather in some places. We've seen wetter weather in other places. So we believe, right now, based on normal weather that we can. The demand is there.

--------------------------------------------------------------------------------

Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [27]

--------------------------------------------------------------------------------

Okay. And did you see any impact from the fires in California?

--------------------------------------------------------------------------------

Ronnie A. Pruitt, U.S. Concrete, Inc. - President & COO [28]

--------------------------------------------------------------------------------

We haven't seen any structural impact. We have had some power outages at some of our facilities, but we have not had any structural damages at all.

--------------------------------------------------------------------------------

Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [29]

--------------------------------------------------------------------------------

Okay. And then, Bill, I mean you sound good on New York. It's just this issue of the union versus nonunion. Is that correct?

--------------------------------------------------------------------------------

William J. Sandbrook, U.S. Concrete, Inc. - Chairman & CEO [30]

--------------------------------------------------------------------------------

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 into the B wage rate, the lower level of our labor agreement. And that is just about completely sorted out now. The trick is delivering nonunion or B-level work with B 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 B projects.

--------------------------------------------------------------------------------

Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [31]

--------------------------------------------------------------------------------

Okay. And just lastly, the Dallas pricing. I think there was a price increase in October. Did we talk about that at all?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

We did talk about an announced price increase in October, yes.

--------------------------------------------------------------------------------

Adam Robert Thalhimer, Thompson, Davis & Company, Inc., Research Division - Director of Research [33]

--------------------------------------------------------------------------------

And so do we have a sense of how that flowed through at this point?

--------------------------------------------------------------------------------

Ronnie A. Pruitt, U.S. Concrete, Inc. - President & COO [34]

--------------------------------------------------------------------------------

I think, as we've explained in the past, with announced price increases in ready-mixed concrete, we get a chance to negotiate those jobs one by one. We get a chance every day, literally, when we quote work to move that price. We have very good confidence that pricing is going to continue to improve and that labor is going to drive a lot of that. Where, in the past, it's 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 is a very good force to move pricing in this market.

--------------------------------------------------------------------------------

Operator [35]

--------------------------------------------------------------------------------

Your next question, from the line of Julio Romero with Sidoti & Company.

--------------------------------------------------------------------------------

Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [36]

--------------------------------------------------------------------------------

You have mentioned your focus on Texas is really about driver retention initiatives. I wanted to ask how that works alongside the operational initiatives you're doing at the same time, to optimize some driver efficiency. Just thinking about those 2 areas of focus, from my point of view, it looks like they might conflict going forward. So can you just talk about how you're planning to maybe balance both retention efforts and, at the same time, optimize efficiency?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. So when we talk about retention efforts, I mean the -- and we have a lot of studies. We've done a lot of work with both some of our national associations as well as some other independent groups. And the majority of people leaving jobs is not due to pay. So everyone just automatically says, "Well, you must have to pay them more." It's not it. It's scheduling. It's inconsistent in communications. There's -- pay is like #5 on the list.

And so we're investing in technology to say we're going to give our drivers more visibility into controlling their workday and their -- and the times they want to spend time with their families. I mean it's -- there's a lot of things going into this that will not -- I believe it will be the opposite. 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 buy-in into what's happening and more accountability into their performance. So it's not just, "We're just going to pay them more money, and we think that solves the problem." That's not it.

--------------------------------------------------------------------------------

Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [38]

--------------------------------------------------------------------------------

Understood. And maybe if you can give us a sense of, maybe within this quarter, what was the primary factor that maybe pressured some of your driver retention? Was it other ready-mixed companies or other industries, as you mentioned, that also need drivers as well? But looking at it least for the 3Q, given the better -- the better weather backdrop, which one was maybe the biggest factor in the quarter?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. I mean if you look at it quarter-over-quarter on a year-over-year basis, Dallas was still up. 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're looking up and saying, "Wow, 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 as easy as saying, "Well, it's just Dallas." It's 20-plus plants scattered over a 150-mile radius that we consider DFW Metroplex. So it's a big area, where we're trying to attract in the Northern suburbs, the Northwest, Fort Worth, at Southeast, in the Midlothian area, out to Forney. I mean all these areas have so much growth going on, but it's really our ability to reach outside of Dallas and find drivers in a lot of these remote areas. And so that's our focus. But I just don't want to lose the fact that Dallas was up, and we're continuing to see great opportunities, which, as Bill said and as I want to reinforce, gives us extreme confidence in our pricing in this market.

--------------------------------------------------------------------------------

Julio Alberto Romero, Sidoti & Company, LLC - Equity Analyst [40]

--------------------------------------------------------------------------------

Helpful. If I could just squeeze one last one here is do you still feel on track to drive those 150 basis points of margin expansion underlying over the next 12 to 18 months?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

Yes. I think we're very much on line, and we have those programs in place, and we're tracking everything. And at the end of the day, as 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.

--------------------------------------------------------------------------------

Operator [42]

--------------------------------------------------------------------------------

(Operator Instructions) Your next question, from the line of Stanley Elliott with Stifel.

--------------------------------------------------------------------------------

Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [43]

--------------------------------------------------------------------------------

I apologize if you guys mentioned this. Did you all say anything about backlog at the end of the quarter, and I missed it?

--------------------------------------------------------------------------------

John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [44]

--------------------------------------------------------------------------------

No. Yes, we didn't. And one of the things I mentioned, I think I mentioned with you and after your conference as well, our backlog is 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 were right around the 8 million-yard mark last year. In Q3, our backlog is the same. But going forward, we don't anticipate continuing to provide that, just because we do provide revenue guidance and it's noncontractual.

--------------------------------------------------------------------------------

Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [45]

--------------------------------------------------------------------------------

That's fair. And you all talked about some of the improvements that your customers are seeing and that you all seeing from some of the analytics that you're putting out in the marketplace. I guess, one, is it going to require additional capital spend into next year for that? And then, two, is there any sort of way to quantify some of the savings that you all are seeing or maybe they're seeing and making you more of a preferred vendor?

--------------------------------------------------------------------------------

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

--------------------------------------------------------------------------------

It is going to require additional capital spend. So we're in the middle of both the rollout and the development, and we'll continue to develop. On WheresMyConcrete and our CRM, the benefits that provides us is that we're 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 rolled out not only the dispatching system in New York and Washington, D.C., New Jersey. Now we're starting in Texas. But we're also rolling out the customer app. So it gives our customers more visibility into their orders, into their timing of trucks, into their billing, electronic billing, paperless. I mean all these things we're doing as an industry, which may sound very slow to the normal person that says, "We've been doing this in our real lives for 10 years and the ready-mixed industry is just catching up," which is true. But just think about the efficiencies we believe we can gain, just the efficiencies you've gained in your life off of your technology. And that's what we're pushing is to catch up to where real life is, and we've got some -- a lot of steps to take.

So we're going to continue to invest in -- and it's both development cost and headcount and people, and then as we roll out training and more development of our own internal users of it.

--------------------------------------------------------------------------------

John E. Kunz, U.S. Concrete, Inc. - Senior VP & CFO [47]

--------------------------------------------------------------------------------

Yes. So Stan, let me clarify, too, 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 costs from an operating expense perspective for this as we head into 2020.

--------------------------------------------------------------------------------

Stanley Stoker Elliott, Stifel, Nicolaus & Company, Incorporated, Research Division - VP & Analyst [48]

--------------------------------------------------------------------------------

Okay. And then, lastly, is there a way to kind of quantify the savings you all are going to see on a kind of run rate go-forward basis by kind of differentiating the A labor rates from the B labor rates in New York or maybe how much you could save? And then I guess, lastly, the confidence around having all of that kind of matched up here on a go-forward basis.

--------------------------------------------------------------------------------

Ronnie A. Pruitt, U.S. Concrete, Inc. - President & COO [49]

--------------------------------------------------------------------------------

Yes. 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 in the seats and the right footprint that we have, that difference 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 right source that. And so where we're located at, being able to -- so it didn't affect 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.

--------------------------------------------------------------------------------

Operator [50]

--------------------------------------------------------------------------------

And your next question, from the line Bill Newby with D.A. Davidson.

--------------------------------------------------------------------------------

William James Newby, D.A. Davidson & Co., Research Division - Senior Research Associate [51]

--------------------------------------------------------------------------------

Bill on for Brent today. Bill, you mentioned the strong permit you did in New York. I guess do you see any potential for a more significant volume shift, I guess back into the Manhattan area from the boroughs over the next year, just given what you see in front of you?

--------------------------------------------------------------------------------

William J. Sandbrook, U.S. Concrete, Inc. - Chairman & CEO [52]

--------------------------------------------------------------------------------

Well, I would say, perhaps marginal because we are in a little bit of a lull on high-rise construction in Manhattan. But we're looking at equivalent margins on A and B work. So I wouldn't look at the mix of A -- of high-rise versus mid-rise, low-rise construction in Manhattan versus the other 4 boroughs as a real determinant of our profitability or overall EBITDA opportunities in New York.

I think what's much more important is our ability to deliver B-rate work with B-rate drivers to drive that margin effectively. So I'd say some marginally -- some margin -- marginally improved high-rise construction, but that's not the driver of it. I am bullish on overall New York opportunities.

--------------------------------------------------------------------------------

William James Newby, D.A. Davidson & Co., Research Division - Senior Research Associate [53]

--------------------------------------------------------------------------------

Got it. Got it. That's helpful. And then, I guess on the aggregate side, it seems kind of industry commentary for next year seems to be for price to be kind of in that mid-single-digit range. I understand you guys don't want to get too far ahead and guide for next year, but is that kind of consistent with what you're seeing and a reasonable starting point as we think about 2020?

--------------------------------------------------------------------------------

Ronnie A. Pruitt, U.S. Concrete, Inc. - President & COO [54]

--------------------------------------------------------------------------------

Yes. That's consistent.

--------------------------------------------------------------------------------

Operator [55]

--------------------------------------------------------------------------------

And I will pass -- turn it back over to Bill Sandbrook, Chairman and Chief Executive Officer, for closing remarks.

--------------------------------------------------------------------------------

William J. Sandbrook, U.S. Concrete, Inc. - Chairman & CEO [56]

--------------------------------------------------------------------------------

Okay. Thank you, Reshay, and thank you, everyone, for participating in the call this morning and for your continued support of U.S. Concrete. This concludes our call, and we look forward to discussing our fourth quarter and full year earnings with you in February. Thank you.

--------------------------------------------------------------------------------

Operator [57]

--------------------------------------------------------------------------------

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