U.S. Concrete, Inc. Q1 2009 Earnings Call Transcript

U.S. Concrete, Inc. (RMIX)

Q1 2009 Earnings Call Transcript

May 7, 2009 10:00 am ET

Executives

Robert Hardy – EVP and CFO

Michael Harlan – President and CEO

Analysts

Jason Brown – KeyBanc Capital Markets

Todd Vencil – Davenport

Brett Levy – Jefferies & Company

John Kasprzak – BB&T Capital Markets

Garik Shmois – Longbow Research

Garland Buchanan – Babson Capital

Brian Taddeo – Rock Point Capital

Presentation

Operator

Welcome to the US Concrete First Quarter 2009 Earnings Conference Call on the 7^th of May 2009. Throughout today's recorded presentation, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. (Operator instructions). I will now hand the conference over to Mr. Robert Hardy. Please go ahead, sir.

Robert Hardy

Thanks, Louise, very much, and good morning everyone. I'm Robert Hardy, Executive Vice President and Chief Financial Officer of US Concrete, and with me this morning is Michael Harlan, our President and Chief Executive Officer.

Before I get started, there are a few items I need to cover with you. Information recorded on this call speaks only as of today and therefore, you are advised that time sensitive information may no longer be accurate as of the date of any replay. We will discuss certain topics that are forward-looking information. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995.

Forward-looking statements include but are not limited to statements related to projected revenues, volumes and pricing and other financial and operating results, capital expenditures, strategies, expectations, intentions, plans, future events, performance, underlying assumptions, and other statements that do not relate to historical or current facts. Although the company believes that the expectations reflected in such forward-looking statements are reasonable, it can provide no assurance that such expectations will prove to have been correct.

Such statements are subject to certain risk, uncertainties and assumptions that are discussed in the company's filings with the Securities and Exchange Commission, including the company's annual report on Form 10-K for the year ended December 31, 2008, and subsequent quarterly reports on Form 10-Q.

With that over with, I would now like to turn the call over to Michael.

Michael Harlan

Okay. Thank you Robert, and again welcome to our conference call.

As you know, we provided a very thorough earnings release and we also expect to file our first quarter 2009 Form 10-Q shortly which contains a great deal of additional information about our quarterly results. So today I will focus my discussion on the following key areas. First I'll briefly review our first quarter results, next I will go over the effectiveness of our recent cost control program. After that I will review our revenue mix by end use markets and trends that we're seeing. After that I'm going to drill down don't into our view on pricing, volume and raw material costs and expectations for the remainder of 2009. And finally I will give you my thoughts on the stimulus package and how we see it impacting our business this year and into 2009. After I finish, Robert will take over and he will review our first quarter results in detail, go over our capital structure, liquidity, business development activity and then conclude with some specifics about our outlook for the second quarter. So with that, let's get started.

All right. This morning we reported first quarter revenues of $117.3 million and a net loss of $9.5 million or a loss of $0.26 per share. Key drivers in this quarter's results were, first, our ready mix concrete volume declined 28.9% over last year and was down 33.5% on a same-store sales basis. Volumes were off in each of our markets driven primarily by lower residential construction and commercial activity. Our precast division also saw revenue drop by about 18% from last year once again due to the continued downturn in residential construction in our Northern California and Phoenix Arizona markets, which was partially offset by a recent expansion in Southern California, which is focused primarily on infrastructure type projects. We have also begun to seem a bit of a slowdown in commercial construction in our architectural precast business on the East Coast.

On a positive note, our ready mix average sales price improved by 2.6% on a year-over-year basis and was up 4% on a sequential quarter basis here in the first quarter. And our Dallas-Fort Worth and our West Texas markets were the two markets that showed the strongest gains in average sales price. Our continued focus on raw material spread which we define as revenue less raw material costs once again is showing positive results. In the first quarter, our raw material spread improved 100 basis points over last year's first quarter and EBITDA this quarter was $4.1 million down from last year primarily due to the decline in volume. Included in this year's first-quarter EBITDA was a $4.5 million gain on our bond repurchase initiative that Robert is going to go over in detail with you later on in the call.

And finally and frankly most importantly we generated free cash flow for the quarter of $5.7 million, which is an increase of $6.8 million over last year's first quarter free cash flow. The key items contributing to the improvement in cash flow were improved working capital management and control over our capital expenditure program in the quarter.

Now on last quarter's conference call, I outlined the details of a cost control initiative program that we put in place at the end of 2008 to address the economic conditions that we were facing and our expected volume demand for 2009. The plan was very broad and far-reaching throughout the entire organization. At that time, we estimated that we had reduced our annual salary and benefit cost, primarily SG&A expense by about $6.5 million, and we estimated that we have taken another $5.5 million in other fixed selling and G&A expense out of our cost structure. Those items were on top of the reductions that we had taken in our variable cost for drivers salary, fuel, maintenance and other variables operating expenses. It appears these cost control measures are holding pretty firmly. Through the end of the first quarter, our fixed operating and SG&A expense are down over $3.5 million for an annual rate cost reduction of in excess of $14 million.

We had a few one-off items hit the first quarter this quarter, so I'm actually expecting to see slightly better performance in the cost control area during the second quarter. In addition, we are seeing the benefits of our variable cost reductions that we put in place at the end of last year. As I mentioned, our revenue was down and even though volume was down 29% in the first quarter, we were able to hold our variable plant and variable delivery costs in check and our contribution margin as a percentage of revenue was roughly flat year-over-year. I really do have to congratulate our local operating management team for doing an outstanding job in what is clearly the worst economic operating environment of any of their careers. We're continuing to monitor demand and our cost structure and we will take additional actions if the market conditions warrant it.

Now moving on and looking at the end use markets, on a consolidated basis, our mix of business continues to shift away from residential with increases in both commercial and public works as a percentage of our revenue. Residential construction dropped from 35% off our revenue in the first quarter of 2008, down to 20% of revenue in the first quarter of 2009. From a revenue mix standpoint, we expect the strength in residential construction to continue throughout the year. And while the percentage of commercial construction increased going from 49% last year to 54% of revenue this year, we remain somewhat concerned about volumes in commercial construction going forward. Even though there appear to be some signs that the US recession is at least slowing, we do not expect that this is going to have a meaningful positive impact on commercial construction activity for quite some time.

As we have reported over the past few quarters, public works construction is continuing to grow as a percentage of our revenue. Our marketing and sales initiatives on public works projects such as streets, highways and bridges and schools over the past year is really starting to pay dividend. As a result, our percentage of revenue in the public works arena increased from 16% of revenue in the first quarter of 2008 to over 26% of revenue in this year first quarter.

Now let us take a look at some pricing volume and material costs trends. As I mentioned on our last conference call, it is going to be very challenging to realize meaningful price increases in 2009. Historically in the ready mix concrete industry, as demand softened, certain competitors focused more on volume and market share than they do on bottom-line profitability and that obviously tends to put some pressure on pricing. On the volume front, as we mentioned, we experienced a 33.5% decline in volume on a same-store sales basis in the first quarter of 2009. Given that volume environment, I am very pleased that we were able to realize an overall 2.6% increase in our average sales price in the first quarter compared to last year's first quarter. And this was led primarily by our two key markets in Texas and was offset somewhat by modest pricing pressure in our other key markets.

Now even more encouraging is the improvement that we saw in our raw materials spread which is a positive sign under these types of demand conditions. And I think this is a demonstration of the excellent performance by our local management teams in pushing prices as hard as can be expected while controlling our raw material costs. And looking specifically at raw material costs, we were able to hold our raw material costs on a per cubic yard basis flat year-over-year here in the first quarter. And this was accomplished through a combination of better purchasing and an improvement in our material usage. In other words, we are having success in being able to provide the specified products ordered by our customers using more optimized mix designs, which reduces our overall cost to produce a yard of concrete.

Now obviously a key area of interest for all investors is the stimulus package and so I'm going to spend a few minutes talking about that. I'm sure everyone is somewhat familiar with the details of the package, including the breakdown on the allocation of the funds. We reviewed that with you last quarter. And the question is will we benefit from the service package and if so when and by how much? And so I guess given the nature of the products – the projects that are being funded by the stimulus package, it is unrealistic to assume that we're going to see a meaningful impact on our 2009 volume directly related to the stimulus package. We are tracking numerous projects in each of our markets that represent potentially millions of yards of concrete. However many of what are termed shovel ready projects that will actually get started over the next few months will be dominated by preservation type projects that are not particularly concrete intensive.

There are however many very large projects that will consume virtually millions of yards of concrete that are in the planning stages under the stimulus program. And we're obviously tracking those in each of our markets as well as many others that can be serviced by our mobile on-site division. For example there is the 11th Street Bridge in Washington DC that is over 55,000 cubic yards. There is repaving of a runway at JFK Airport, that could be 260,000 yards alone, and a convention center hotel in Dallas that has 55,000 cubic yards. In addition to that, we are tracking more than 10 highway paving projects in and around the Dallas Fort Worth Metroplex that represents close to 2,000,000 yards of concrete. So you can see the opportunity is great but the timing for these larger concrete intensive projects will be 2010 and 2011.

Now in addition to projects that are directly tied to the stimulus package, there are numerous other infrastructure projects that we're bidding and several that we have secured and are actually providing concrete on. We're in the middle of providing concrete to a state-of-the-art ultraviolet light water treatment facility in Connecticut that serves the New York market and we have secured the new parking garage at the San Jose International Airport as well as CalTrans Toll Plaza in Oakland California. In addition, we have recently been successful in securing several street rehabilitation projects in Dallas as well as the Flight Safety School project in this market. All totaled, just these few projects represents several hundred thousand yards of infrastructure or public work type projects. So clearly public work spending is the strongest segment of our revenue stream as we see it today.

Now before I turn the call back over to Robert, I want to talk a little bit about our expectation for the remainder of 2009. Obviously, volume and revenue have been significantly below our original expectations. And last week, the Portland Cement Association released its spring forecast and reduced its forecast for cement demand in 2009 from a decline of 11.6% to a decline of 17% on an annual basis. They are also projecting a steeper decline in the first half of 2009, somewhere in the range of 25% to 30% which is pretty well in line with what we are currently experiencing in our own volumes. In the face of this though, our earnings and cash flow are significantly ahead of our original expectations through the end of March. However I am some growing somewhat concerned about our ability to obtain this positive earnings momentum just given the sluggish volume environment that we're facing right now. But I can assure you we are focused on managing through the cycle and controlling our cost structure and maximizing cash flow throughout this year.

So with that, I'm going to turn the call back over to Robert. Robert?

Robert Hardy

Thanks Michael.

Looking at our first quarter consolidated results, as Michael mentioned, we reported a EBITDA of $4.1 million, which is down compared to last year's first quarter EBITDA of $5.4 million. Excluding the gain on bond repurchases, our EBITDA would have been a loss of about $400,000 which was much better than our expectations. Although we had sharper than expected volume declines, we improved our materials spread which is a key operating metric for us. Lower ready mix sales volumes hurt our profitability by about $7 million. Offsetting this was a modest product price improvement aiding EBITDA by about $2.5 million. Diesel fuel cost were about $3 million lower than the first quarter of 2008 due to lower pricing which was about 33% down or $0.95 per yard and fewer gallons consumed due to lower volumes.

Our precast operating segment operating profits before SG&A costs were down about $1.7 million on revenue declines of 18%. As Michael mentioned, the effectiveness of cost control measures in the fixed and SG&A area also improved our EBITDA performance compared to last year which I will detail in a moment. Depreciation expense for the first quarter 2009 was up $0.6 million to $7.5 million as compared to $6.9 million in the first quarter of 2008 primary due to additional depreciation related to the start of service of our ERP system that we put in place beginning in the middle of 2008. We expect our 2009 depreciation to approximate $7.5 million to $8 million per quarter excluding the potential impact of any additional acquisitions or divestitures after the date of this press release.

Turning now to SG&A cost, we reflected year-over-year improvements in our fixed and

SG&A cost due largely to cost control measures. In percentage terms, fixed costs were down about 8% and SG&A costs were down about 11%, despite an up tick in legal fees for certain litigation proceedings. We expect this trend to continue in the second quarter barring any unusual costs items. In dollar terms that is about $3.5 million reduction in cash costs in the expense categories. Additional cost control measures primarily delivery i.e. drivers and vehicles and plant cost reductions also yielded year-over-year improvements.

Our provision for income taxes in the first quarter of 2009 varied from our normally expected tax rate primarily due to income tax benefits related to the way certain state taxes are calculated on the basis different than pretax losses, primarily in Michigan and Texas where we have operations. Even if you are in a actual loss position, you still have to pay state income taxes based on the method of calculation. The effects of these state taxes are more profound given that the small annual loss benefits that we expect to receive are much smaller on an annual basis than they are on this quarterly loss for the first quarter. We expect our 2009 income tax rate to approximate 5% to 10%. This could change materially depending on how our results for the rest of the year shake out compared to our current forecast. More importantly, from a cash perspective, we expect to receive about $4.5 million in federal tax refunds in 2009 and pay out about $450,000 in state taxes.

Turning now to capital expenditures, we spent about $4.4 million net under our capital expenditure program in the first three months of 2009 of which $4 million was used for plant maintenance, relocations and plant improvements, primarily in our east coast operations, in which we relocated and built a new plant in New Jersey and upgraded one of our sand operations with a state-of-the-art dredger to access additional reserves. And approximately $2 million was spent on IT related hardware and software to substantially complete the rollout of our ERP system. We did not spend significant capital on new mixer trucks and in fact over the last two years as we have stated previously, we have been shedding excess rolling stock due to market conditions. Overall we reduced our CapEx by about $1.2 million as compared to the first quarter of 2008. And looking forward, based on the continued slowdown in construction in most of our markets, we continue to reduce our capital expenditure program and adjust our spending to reflect the current outlook and work for future production requirements. We expect to spend about $5 million to $10 million primarily on maintenance type capital expenditures for the rest of the year.

Looking at our operating cash flow, the company generated $10.1 million compared to $4.5 million in the first quarter of 2008 with lower working capital requirements. We continue to aggressively manage our working capital needs in light of these challenging conditions. Our DSOs increased one day to 53 days from the fourth quarter and were up about two days from the first quarter of 2008 and we have paid significant attention and emphasis on our collection process and property lien procedures in light of these conditions and especially with the potential negative impact on our customer base.

Our free cash flow improved $6.8 million from the first quarter of last year on higher cash provided by operations and lower CapEx. We believe our balance sheet and liquidity remained solid, given us financial facility during these times. During the quarter, we decreased our net debt by $9.5 million from December 31st 2008 levels. Based on this flexibility we began purchasing in the open market our 8.375% senior notes. To date we have purchased about $12.4 million of principal amount of these notes for about $4.8 million of which $7.4 million principal amount of the notes were purchased in the first quarter of 2009. We recorded a gain of $4.5 million in the first quarter and have a $2.9 million gain so far in the second quarter. We used our revolving credit facility to fund the open market purchases and expect our cash interest expense to decrease by approximately $900,000 annually.

We will continue to evaluate open market purchases based on the notes' pricing, our short-term and long-term liquidity leads, restrictions under our credit facility, and overall economic conditions. As a cap, we have an $18 million basket available to us under the revolving credit facility to purchase the bonds or common stock. As of March 31, 2009, we had $30 million drawn on the credit facility, $62.8 million of available borrowing capacity, and approximately $10 million of cash on our balance sheet. We did not complete any acquisitions during the first quarter of 2009. We expect to spend between $5 million and $10 million for the remainder of 2009 with about $5 million expected to be spent in the second quarter depending on the timing of certain permits to round out our New York operating platform which we believe has great long-term value for our company.

Turning now to our outlook, we expect the second quarter volumes to continue to be very soft. April volumes were down about 30%, so very similar to the first quarter of 2009 and were down about 19% from our expectations with marked declines in the majority of our markets, especially in Dallas and Northern California. Despite the shortfall, we currently expect pricing and materials spread to be relatively stable overall. As Michael mentioned, if volume trend continues to drop to these levels, additional cost control measures will be implemented to right size our operations. We continue to have an objective to generate positive free cash flow in 2009 and we will work toward the goal by controlling our costs and prudently reducing our capital expenditure program paying close attention to safety and reliable equipment for operations.

This concludes my formal remarks. If you would like to be on an email distribution list to receive future news releases, please contact Vonna Newsom at 713-499-6222. If you would like to listen to a replay of today's call, it is available via web cast by going to the investor section of the company's website or via a recorded replay until Thursday, May 14, 2009. Please also note that you can find a reconciliation to non-GAAP financial measures that we discussed on this call and a Form 8-K filed with the company earlier today in the investor section of the company's website.

With that, I would like to turn the call back over to Louise for a question-and-answer session.

Question-and-Answer Session

Operator

Thank you. (Operator instructions). The first question comes from Chris Manuel. Please state your company name followed by your question.

Jason Brown – KeyBanc Capital Markets

Good morning. It is Jason Brown in for Chris at KeyBanc Capital Markets.

Michael Harlan

Hi, Jason.

Jason Brown – KeyBanc Capital Markets

Hi. A question for you on free cash flow, was obviously a very strong quarter, better than we were anticipating. And I was just wondering if it exceeded your expectations and if you could give us an update for your full-year outlook?

Robert Hardy

Free cash flow, it was better than our expectations, and a lot of it depends on kind of – it is very much working capital and one thing that we are paying a key emphasis is, the company, it's working capital is shrinking. We have lower receivables, we have lower inventories, and so as the company builds, hopefully once 2010 gets underway and we start having better comparables, then we will use cash to build our receivables and inventory. Those are the major moving parts as far as a snapshot of where 331 [ph] came out. So we will try to manage our working capital kind of through the quarters to generate as much positive cash from that equation as we can. We are still hoping and trying to with an objective of maintaining positive free cash flow for the full year, granted very small amounts, but I will caution that if we continue to have a run rate at this, let's say at this level of volume declines, we may change that forecast as we go throughout the year.

Jason Brown – KeyBanc Capital Markets

Okay. And I think you had mentioned on the fourth quarter call that you were anticipating a possible $5 million payment for litigation, is that still your expectation?

Robert Hardy

Yes. We have that factored into to try to get that case out of this year.

Jason Brown – KeyBanc Capital Markets

Okay. And then switching gears, just one question on pricing, I think you said your expectation for the second quarter were to be similar and I guess do you think that this – on an absolute level, do think that this level is similar for – or should be sustained for the year or was there any kind of mix, favorable mix impacting the first quarter? Thanks.

Michael Harlan

It is tough to say. I mean we do expect to see some of the trends from the first quarter continue on into the second quarter. Right now we are not seeing any dramatic movements on pricing or some of the underlying cost, raw material costs here, through the first week or so in May. But as we shift away from residential, that is typically a lower price work, so you do get some benefit from the mix side. But we do – we are seeing some good absolute price increases, and in our Texas market, surprisingly, we had some pretty decent price increases in Michigan market during the first quarter and so that is obviously a positive sign for that business.

Jason Brown – KeyBanc Capital Markets

Okay, thank you.

Michael Harlan

Okay.

Operator

Thank you. The next question comes from Todd Vencil. Please state your company name followed by your question.

Todd Vencil – Davenport

Hi guys. Todd Vencil of Davenport. Good morning.

Michael Harlan

Good morning, Todd.

Todd Vencil – Davenport

I just wanted to follow up on that a little bit, you have seen price increases in Michigan that – I am almost speechless, I guess. Are you guys, you know going out with price increase letters or how is that working in that market?

Michael Harlan

Don't get too excited about the price increase there. It is still a market that is not generating positive cash flow for us. But we came out with a price increase letter and one thing that helped us during the first quarter is we were one of the few ready mix companies that had any plant locations open during the first quarter. A lot of the smaller independents closed out during the winter session and so what is going to – the unanswered question is how many of those businesses were reopened this year? And right now we don't know. I mean we are seeing some open, we are seeing some that normally open that haven't opened, and so we will need another month or two to see what is really happening on the competition up there, because that is a market that – I mean I was looking at some volume trends for the entire state of Michigan, I mean you probably have to go back to be 1980s to see volume in Michigan at the current levels where we are today or where we where in 2008. So it is still going to be a very difficult market and not contribute to cash flow earnings for quite a while.

Todd Vencil – Davenport

If you think about your market, I mean you said that Texas markets were good and you got some in Michigan and then you had some modest pressure I think you said in other markets. What is kind of your high low on your sort of sequential price changes in the quarter or however you want to think about what kind of pricing you're getting up and down?

Robert Hardy

Okay. We can you know without getting too specific on our markets as we reported, we are about 2.5% up compared to the first quarter of 2008. We are down in a couple of markets around 4% and we are up to 7% in other markets.

Todd Vencil – Davenport

That is year-over-year?

Robert Hardy

Year-over-year. And then sequentially we are up about 4%, but one thing to bear in mind on the sequential from the fourth quarter of 2008 to the first quarter of 2009 is that there are winterizing agents that add to the revenue it that comparative and they come off as the place warms up in the second quarter. But that range goes from basically breakeven up to 9%, 10% in Michigan which has a lot of winter agents to actually pour concrete in those conditions.

Todd Vencil – Davenport

Makes sense. Switch over to raw material side, I think Michael you said that you're looking for the general stability but can you give us a little color, maybe regionally on what you're seeing anything interesting out there that either or down price wise that you are seeing out of aggregate and cement guys in your various markets?

Michael Harlan

I think there was a lot of kind of jockeying around at the beginning of the year as some cement companies were trying to push through price increases as well and there was some success in a few limited areas and lack of success in other areas. I would say we have not seen a lot of moment over the last several weeks in cement price. I don't see cement price dropping in any particular market. Conversely I don't see our ready mix price dropping in any market to any meaningful degree. And so as Robert said I think right now as we sit here today, we think we are going to be able to hold these margin trends that we saw, and that is the key, that raw material spread. And so I think we're going to be able to hold them with what we're seeing on the price size side and the raw material side and – I think the industry – the cement and the concrete industry both realizing we were joined at the hip. And just because if concrete price goes down doesn't necessarily mean we're going to sell a lot of concrete. It is all – it is tied to demand and so I think the cement suppliers have been very willing to recognize what is happening in the market and make adjustments if needed. But right now as I said I just haven't seen any major movements on the cement side for a few weeks.

Todd Vencil – Davenport

Got it. And Robert, you said 5 to $10 million, I think you said 5 to 10 million more of CapEx through the last three quarters of the year, is that what you said, or is that…

Robert Hardy

That is right. The biggest – hopefully the biggest push for us was in the first quarter to get these two operating facilities up and running in New Jersey which we have completed and reasonably on budget. And the IT project, the final rollout occurred in the first quarter, so if you look at kind of CapEx spend, we are expecting to strive to $10 million to be spent through the rest of the year barring anything unusual happening and the biggest quarter I think is hopefully behind us.

Todd Vencil – Davenport

Okay. Thanks a lot guys.

Michael Harlan

Thanks a lot.

Operator

Thank you. The next question comes from Mr. Brett Levy. Please state your company name followed by your question.

Brett Levy – Jefferies & Company

Jefferies & Co. You guys have said that you guys have an $18 million basket to repurchase bonds, is that already somewhat addressed by the 12.4 million you bought back or is that post the 12.4 million?

Michael Harlan

That is post. That is what is remaining, and there is a – it is not too complicated, but we have that basket available, but one of the covenants if you will that is tied to that basket relates the company has to have $50 million of available credit under the line post purchase of the bonds. So it is kind of a – it is a test ride after you buy them in, you have to have 50 million of availability.

Brett Levy – Jefferies & Company

And then from a working capital standpoint, what do you guys think the working capital dynamic is going to be in the second quarter? And by the end of the second quarter, do you think working capital as a source or a use?

Michael Harlan

If business picks up, I expect it to be use of cash.

Brett Levy – Jefferies & Company

And is there something in May that suggests to you that things might be getting a little bit better?

Michael Harlan

It is pretty early in May. I think the numbers we are seeing are in line with April right now but we're going to be down in this double-digit range compared to our expectations. It is too early in May to tell, but we will see how the business kicks off.

Brett Levy – Jefferies & Company

Okay. But if things seems continue kind of as they were in April, it is possible working capital will be a source then right?

Michael Harlan

It is possible. I mean I certainly hope that the end of business through May and June are not – that we are a better performer in May and June then we were in April from a volume perspective. If you look at the history of the company, May and June are good months for the company.

Michael Harlan

Even if May and June are down year over year, they're going to be up sequentially just because of the nature of the volume. So as Robert said, I find it hard to believe that it would be a source of working capital in those months, more likely than not it is going to be a use.

Robert Hardy

Keep in mind that in April we make our semiannual interest payment, so we spent $11.5 million April 1 paying on the notes.

Brett Levy – Jefferies & Company

Got it. So it sounds like that the dividend basket is getting more constrained by the revolver availability test than the $18 million basket is kind of what you're saying?

Robert Hardy

That is right. In the pricing of the bonds, we have very specific targets. You can do the math no different than we can. We are not just out there buying it because we have a basket. We are very cognizant of what we feel the appropriate pricing is, we're only going to be out if it is within that range for us. It is a pricing perspective and it is also what's happening with the basket.

Brett Levy – Jefferies & Company

Right. Now if you got them for 4.8 million, that is a pretty good price. As you look at the whole – I don't know, is there anything you would acquire at this point or it is just too tight on liquidity just out of the M&A game completely?

Michael Harlan

Robert mentioned we have one transaction that was part of an overall strategy for our New York market that will most likely close very shortly. It finishes off, it is an operation that integrates in with our business in New York that we expanded into last year. I mean are we looking at things? Yes, we are, but I think we are being very disciplined. I mean we're managing the balance sheet, managing the liquidity and making sure that we have got enough capital to get through this cycle. And so are we out of the M&A game, I wouldn't say we are out of the M&A game, but we are certainly not aggressive in it. I mean it has to be just a really tremendous opportunity for us to do anything in that area right now.

Brett Levy – Jefferies & Company

All right. Thanks very much guys.

Michael Harlan

Thanks Brett.

Operator

Thank you. The next question comes from Jack Kasprzak. Please state your company name followed by your question.

John Kasprzak – BB&T Capital Markets

BB&T. Good morning guys.

Michael Harlan

Good morning Jack.

John Kasprzak – BB&T Capital Markets

Hi. You guys were talking about what is going on in terms of the Michigan market, but I wanted to ask more broadly in your markets, with volumes still weak and obviously the commercial side looking a little bleak for 2009 at least, any signs of shakeout or market exists by any competitors anywhere else? I mean it seems like it is just generally excess capacity obviously with volumes down so much across the industry, so just wondering what else you are seeing.

Michael Harlan

You know for the first time in ten years, I have seen a couple of companies go bankrupt in different areas around the country, which like I said, it happened last year and that was the first time I had seen anything. I expect we will see some more. I can't tell you that we are seeing mass exodus from the market, either people just closing the doors or filing bankruptcy. You're seeing all of the major players, anybody like ourselves or a TXI or Lafarge, any of the major players that are in this business are cutting back on capacity. They are mothballing plants until the volume returns, they are parking trucks, they're selling trucks, they're doing everything they can. The issue you've got Jack with some of the smaller players, they may only have one, two, three plants, you know. If you're a one plant operator, and you close that plant, you're out of business, and so it is – what they will try to do is just hang on with a smaller complement of trucks and drivers, just to generate some cash flow to cover their fixed costs and live to fight another day. But it is still somewhat early. Like I mentioned in Michigan, I think a lot of people are open to making it through, and maybe helping to see some indications that 2009 was going to be somewhat better than what they had seen in 2008. I mean always everybody always tries to have a positive outlook for it and now they are starting to see that it is actually going to be a bit worse in 2009 than it was in 2008. And so we could see some of that but we are not seeing mass exodus of the business from the independent players. We are just seeing some pretty got rational behavior by the larger players in mothballing plants.

John Kasprzak – BB&T Capital Markets

Okay. If you have already mentioned this, I apologize, I have been bouncing back and forth, but have you said or what is your expectation for commercial, your commercial business this year in terms of percent change?

Michael Harlan

We haven't come out with a specific you know on percent change commercial versus residential, but I think it is definitely going to be down. I mean all indications are you know a continued softening in commercial business. It is not doing anything like we saw on the residential side obviously because it is just – it never really grew that much. It did increase as a percentage of our revenue that was just when revenue down 28%, you take that combination into effect. That is not – that is somewhat positive but it is not overly positive with the backdrop of a 28%, 29% of volume decline .

John Kasprzak – BB&T Capital Markets

I mean some forecast for commercial construction that I have seen have it down 25% or 30% in 2009, would that surprise you guys?

Robert Hardy

No. If you look at our first quarter, we reported down 33% on a same-store sales basis and commercial is reasonably close to tracking that. The aid came from infrastructure as far as year-over-year comparisons.

John Kasprzak – BB&T Capital Markets

Right. And housing in your markets in 2009, I mean obviously down quite a bit from the peak. It is probably not going to be flat just because starts last year are now about 900,000, we are kind of annualizing close to 550 now in terms of total starts, so you know that is just the math down 35 or so percent in terms of housing activity, another steep decline. Is that kind of a smaller percentage of your business obviously, but that is still what we are facing I guess, would that be accurate?

Michael Harlan

Yes. We have suffered some pretty big declines in a lot of our other markets and we're probably seeing a larger decline in Texas than we had over the last couple of years whereas in California and some of other markets really took the hit in 2006, 2007 and 2008. But Texas which was a pretty decent residential recent market until late last year, now we are starting to feel it more here in Texas.

John Kasprzak – BB&T Capital Markets

And last question the after tax – I mean the tax, can you quantify the tax effect on that gain you had in the quarter if were trying to strip that out on a per-share basis? You know the $4 million gain, was that pretax I assume?

Michael Harlan

Yes, that's pretax. I mean the way – there are several ways to slice this one up. I mean our normal run rate for income and loss items is around 40% run rate. So if you're trying to pull something out, the reason that we were putting a lower rate on this loss right now relates clearly to the kind of you calculate it on an annual basis and we are projecting at least right now a smaller number than what we reported in the first quarter and then when you add the permanent items to it, you come up with a very small benefit. But I think when you pull out a gain like that, it should be put at a normal rate, because if you follow the tax rules, we've got kind of a five year window. We are going to put up deferred taxes at a normal rate on that and then adjust from there.

John Kasprzak – BB&T Capital Markets

Okay. Thanks very much.

Operator

Thank you. The next question comes from Garik Shmois. Please state your company name followed by a question.

Garik Shmois – Longbow Research

Thank you. Longbow Research. First question, you guys mentioned, sorry if I missed it, your cement input costs, but I was wondering if you could talk about what you're saying on aggregate side, what the input cost trends were in the first quarter and your outlook for the remainder of 2009?

Michael Harlan

We did absorb a few cement increases earlier in the years in January – I'm sorry a few aggregate price increases earlier in the year. They were much more moderate than they had been in previous years and actually have seen some of those increases roll back a bit. I'm just talking broadly across the country and I would say right now aggregate is very similar to cement. It's just kind of stabilized, it has fallen into a level and I think we will just have to see how demand goes for the balance of the year. If it continues at this pace, I suspect you will see some downward pressure on both cement and aggregate pricing. If it does what the Portland Cement Association is indicating that we're going to be down 30% in the first half of the year, but only down 17% for the year, then I would expect both cement and aggregate to remain fairly stable.

Garik Shmois – Longbow Research

Okay.

Robert Hardy

I think one thing to bear in mind on both aggregates and cement is that if you look at the 2008 year almost irrespective of the quarter, from a freighting perspective, most of the freighters were adding on fuel surcharges based on the price of diesel fuel, and no different than what we are selling to our products to our customers. That has been pulled away. So we are not – when you look at our all in cost, irrespective of the exact cost of the raw material prior to shipment, we will get a benefit for that on a comparative basis.

Garik Shmois – Longbow Research

And do you include the freight when you look at your raw material spread?

Robert Hardy

Yes.

Garik Shmois – Longbow Research

Okay. And secondly, just switching gears to the stimulus plan, I appreciate that most of your opportunities looks like it is more of a 2010, 2011 story, but can you just talk about just broadly speaking geographically where you seeing maybe a little bit more higher number of projects coming up for bids sooner than later and where you can see some opportunities there?

Michael Harlan

I mean we are obviously tracking this by market and I think there are a fairly significant number of projects in our Bay Area market, in California, not just in Bay Area, but down in our southern California precast business. We're also seeing a lot in Texas. I mentioned that there were – I think we are looking at ten kind of highway type projects, interchanges and refurbishing different pieces, sections, redoing sections of different highways in the DFW market area. And of about ten projects, those are several million yards of concrete. So I was just really shocked at that. Now a lot of those projects are going to be self performed by some of the larger contractors, but I think we do have an opportunity to participate in some of those, and we are out actively going after them. So California, Texas and New York would be the three – kind of the three strongest areas for infrastructure type spending that we're seeing right now.

Garik Shmois – Longbow Research

Okay. Is it too early in the game to comment on pricing behavior on these projects up for bid and just hearing just broadly speaking trying to get commentary from other public utility names on this, just bids coming in below engineers estimates, is that something that you're seeing on the concrete side?

Michael Harlan

We're seeing that. I'm aware of one particular project that bid in California and the pricing got fairly competitive for lack of any better way to describe it. But not seeing anything dramatic on other projects. Anything of any size is getting a great deal of attention from really from concrete as well as cement and aggregate produces because if it is 200,000 yards of concrete, that is 40,000 tons of 50,000 tons of cement, and that would be a large project in any market for any cement company today. So even though you might be seeing some downward pressure on the concrete price, we are also seeing some downward pressure on raw material input costs for some of these larger projects, and so we're able to – we are still able to get decent raw material spreads.

Garik Shmois – Longbow Research

Okay. Thank you very much.

Michael Harlan

Okay, thanks.

Operator

Thank you. The next question comes from Garland Buchanan. Please state your company name followed by your question.

Garland Buchanan – Babson Capital

Hi, good morning. Babson Capital. Could you discuss the performance to date for the on-site group and how they contribute to your public work segment?

Michael Harlan

You know it has been pretty positive. They have done a very good job last year with several projects. One was a project at the Savannah River nuclear facility where we were the on-site performer providing concrete to a facility that will convert weapons grade nuclear material into fuel, rolled off of the project. We have a wind farm project right now. We secured two office buildings, government office buildings in the DC area. We have secured a wind farm in I believe it is Indiana or Ohio, I think it is in Indiana, and we are bidding on a lot of projects. And we are a little different than your typical maybe on-site type producer. We are not going after 20,000 yards, get it done in a month type project. We are really trying to focus on anything that's got some complexity, either on the complicated mix designs or technical mix designs or high-strength or complicated delivery systems, not just traditional pour into a dump truck and go pave some roads with that. We're really trying to be more of a value added provider and so last year the margins in our on-site division were higher than our consolidated margins and right now we have secured some more for this year. We still have to secure some more for us to call it a successful year, but we are bidding on a lot of projects around the country. We have developed some good relationships with some r contractors that like our service and quality and technical expertise, and so it has been pretty beneficial to us.

Garland Buchanan – Babson Capital

Can you provide color on what percentage of sales that group…

Michael Harlan

It is…

Robert Hardy

I'd say in the first quarter as Michael mentioned, there is only two projects that hit our first quarter 2009 and those were the two DC projects that were ongoing. The rest of the work that they are trying to accomplish, we have not (inaudible) it is not a big percentage in the first quarter revenue line.

Garland Buchanan – Babson Capital

Okay. And would you see them well positioned for any of the stimulus package spending or just given the focus on value add and complex projects, would they not really be able to play as much in that?

Michael Harlan

No, they will. I mean for instance I mentioned a runway project at JFK and our on-site division is actively pursuing that, so it is just going to depend on the nature of the project, but they're certainly looking at as many of these stimulus projects as they can because obviously those have funding.

Garland Buchanan – Babson Capital

Okay. And you mentioned weather impacts in the press release, just given the overall decline, is that a de minimus impact, or is that something that you would see if weather were to improve, there will be some kind of significant improvement with that not present?

Robert Hardy

So when we talk about weather, the main focus on the weather in the press release was related to the favorable weather conditions we incurred in the first quarter of 2008. So when we do our comparative especially in Dallas, the weather was much better in the first quarter of 2008 than the first quarter of 2009. And I would say 2009 weather was probably more normal throughout the footprint where the first quarter of 2008 was probably a more favorable pattern which created part of the difference. I mean it does not mask by any means the shortfall in volumes from the economic conditions, but when we look at kind of weather patterns, there is a lot more days of favorable weather in the first quarter of 2008 than there were in the first quarter of 2009.

Garland Buchanan – Babson Capital

Okay, thank you very much.

Michael Harlan

Yes. I would be – I will bet 33% same-store sales decline. You might throw 5%, 6% of that at unusual weather. I mean we had some ice and snow in Dallas in the first two weeks in March which is pretty darn unusual and you had that snowstorm that hit the East Coast a little late in the year, which is a little unusual, but it is the economy. It is not the weather, I wish we could point to the weather a little more, but we can't.

Garland Buchanan – Babson Capital

Understandable. Thank you very much.

Robert Hardy

All right, thank you.

Operator

The next question comes from Brian Taddeo. Please state your company name followed by your question.

Brian Taddeo – Rock Point Capital

Good morning. Rock Point Capital. Couple of things. First you mentioned the remaining buckets for bond repurchases, you also mentioned – you can do that for share repurchases, if I recollect, at the end of the last quarter because of the impairments, that wasn't available actually for share repurchases, has that been changed now?

Robert Hardy

No, that's correct. So in other words the basket on the revolving credit facility allows us to do either that we are limited on share repurchases under the indenture currently based on its basket calculation.

Brian Taddeo – Rock Point Capital

Got you. Okay. Then with regard to the remaining CapEx estimated at $5 million to $10 million, does that include the expectations for M&A, closing the New York M&A, or is that on top of the 5 to 10 million?

Robert Hardy

That is on top of that. When we talk about the capital expenditures that is outside of any acquired companies.

Brian Taddeo – Rock Point Capital

The definition of M&A, is it just a couple of million for the New York property at this point?

Robert Hardy

No. The numbers I put was that we should be in the range of $5 million to 10 million throughout the rest of the year for our New York acquisition program with about $5 million occurring in the second quarter.

Brian Taddeo – Rock Point Capital

Okay. The 5 to 10 million was on top of that, okay. Then with regards to the cash taxes, have you received the $4.5 million from the federal yet or is that still yet to come?

Robert Hardy

Still yet to come. We have to file the returns, do the carry backs, and so that will take us a few months to get that through the system.

Brian Taddeo – Rock Point Capital

Two more things. One you mentioned earlier briefly about some significant items in the first quarter, were there additional litigation reserves taken or any other items in the first quarter?

Robert Hardy

No. What we incurred in the first quarter, we did not add to the reserve for litigation. What we did do was spend quite a bit of cash on defense costs, so in the neighborhood of $600,000.

Brian Taddeo – Rock Point Capital

Okay. And then finally, with regards to free cash flow about being breakeven this year, do you have based upon your cost structure now, do you have an estimate of how far volumes will have to decline before you kind of wind into a free cash flow negative position? I mean is it down 20%, 25%, to review now based on where your cost structure stands?

Robert Hardy

Well, kind of where we're at and as you can tell when you're close to breakeven, it is not going to take too much to move the dial and a lot will happen on kind of what happens in the fourth quarter working capital. But bottom line, to make free cash flow breakeven to slightly positive, we were projecting down anywhere in the sub 15% level as far as volumes down year-over-year. My gut is that if we exceed that, i.e. we are down 20% or north, I think it is going to be very difficult for the company to hold a positive free cash flow, even if I think the company does a good job of managing its costs and trying to reduce its input costs, whether it be labor or raw materials.

Michael Harlan

One thing though, in the first quarter, we had this 33% decline and we were I don't know, 10%, 11% below our expectations for the first quarter. We are – we exceeded our expectations from an earnings and cash flow standpoint due to a little better raw materials spread than we had budgeted, as well as you know the trends in working capital. So it is going to be a little tough. Sometimes you can't look purely at the volume number, you have got to look at really look at the raw material spread and so we see significant down drafts in this volume and anything on price we are obviously going to be looking to our raw material suppliers to participate in some of that.

Brian Taddeo – Rock Point Capital

Right. I appreciate the comments. One last thing, a comment on the working capital potentially in the first quarter, is your expectation now that working capital is going to be a flat number for the full year or you actually expect that it's going to contribute some cash this year, any expectations?

Robert Hardy

Well, I'm hoping for a reasonably solid fourth quarter. If we have a reasonably solid fourth quarter then source and use of working capital should not be a significant number for us in either direction. If we have a burn, then we will have a burn.

Brian Taddeo – Rock Point Capital

Thank you very much.

Michael Harlan

Thanks.

Operator

Thank you. (Operator instructions). There appears to be no further questions. Are there any further points you wish to raise?

Robert Hardy

Well, this is again a very tough environment for us to operate under as well as other players in the construction sector. So thank you very much for your interest in US Concrete.

Operator

Thank you ladies and gentlemen. This concludes the US Concrete first quarter 2009 earnings conference call. Thank you for participating.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: [e-mail]. Thank you!