U.S. Concrete Inc. Q2 2009 Earnings Call Transcript

U.S. Concrete Inc. (RMIX)

Q2 2009 Earnings Call

August 07, 2009 10:00 am ET

Executives

Michael Harlan - President & Chief Executive Officer

Robert Hardy - Executive Vice President & Chief Financial Officer

Analysts

Brett Levy - Jefferies & Co.

Todd Vencil - Davenport & Co.

Jason Brown - KeyBanc Capital Markets

Joshua Zaret - Longbow Research

Presentation

Operator

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the U.S. Concrete second quarter 2009 earnings conference call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the conference will be opened for questions. (Operator Instructions)

I would now like to turn the conference over to Robert Hardy. Please go ahead, sir.

Robert Hardy

Thank you, Brandie. Good morning, everyone and thanks for joining us and welcome to our second quarter conference call. Again, I’m Robert Hardy, Executive Vice President and CFO, and with me this morning is Michael Harlan, our President and Chief Executive Officer.

As we normally do before we get started there’s a couple of items, I need to cover with you. Information recorded on this call speaks only as of today, and therefore you’re advised that time sensitive information may no longer be accurate as of the date of any replay. We will discuss certain topics that contain 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, they can provide no assurance that such expectations will prove to have been correct. Such statements are subject to certain risks, 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 information behind us, I’d now like to turn the call over to Michael to get start it.

Michael Harlan

Thank you, Robert. Again, welcome to our conference call. As you know, we provide a very thorough earnings release, and we also expect to file our second quarter 2009 Form 10-Q shortly, which contains a great deal of additional information about our quarterly results. So we’ll go ahead and get started. We’re going to try to keep our formal comments a little brief today, so we have more time for Q-and-A.

Today I’m going to focus most of my discussion on the following really key areas. First, I’ll go over a few key financial metrics for the second quarter. Next, I’ll discuss demand trends, outlook for volume, and our backlog, and then I’ll outline recent steps we’ve taken to adjust our cost structure to be more inline with the current economic environment. After that, I’ll review our pricing, volume, raw material costs, and expectations of these for the remainder of 2009.

Finally, I’ll go over our expectation for volume from the stimulus package. After that Robert is going to takeover and discuss second quarter results in detail. Our capital structure, liquidity, and conclude with some specific remarks about our outlook for the third quarter. So with that let’s get started.

This morning we reported second quarter revenues of $143.7 million and a net loss of $4 million or a loss of $0.11 per share. Key takeaways from this quarter’s results are ready-mixed concrete volume declined 31.2% over last year on a reported basis and was down 35.3% on a same-store sales basis.

While less favorable weather conditions in our North Texas market contributed to this quarter-over-quarter decrease, the primary driver to the decline was the recession, which has hit the construction industry particularly hard. Our average sales price increased slightly from $94.63 per cubic yard last year to $94.84 per cubic yard this year.

On a positive note our raw materials spread, which we define as revenue less raw material costs improved 280 basis points from the second quarter of last year and also improved sequentially from the first quarter of 2009, as a result of price increases realized in certain markets and success in aggressively managing our raw material costs.

As a result of cost control measures that we have implemented, our marginal contribution actually increased in the quarter from 22% in last year’s second quarter to 22.7% this year. Also, operating profit before DD&A, while it declined in absolute dollars as you’d expect with the 30% decline in volume, held up very well from a margin standpoint.

Last year operating profit before DD&A was 17% and this year it was 16% for a 100 basis point contraction. Once again this reflects our ability to manage our cost structure during really unprecedented economic conditions.

Now, let’s look at some demand trends. Last quarter, I indicated that we expected our volume to be down in excess of 15% for the full year. Given what we saw in the second quarter from a volume standpoint, that is no longer a reasonable expectation. Earlier this year most third-party forecasts pointed toward a meaningful improvement in demand trend, really beginning in the second quarter and fully materializing in the third quarter and the last half of 2009. Clearly these forecasts were not accurate.

Our volume declined 30% on a consolidated basis and was off 35% on a same-store sales basis during the second quarter, and our most recent internal forecast for volume has volume declining in excess of 25% for the full year 2009. I realize that this estimate is more pessimistic than say, the Portland Cement Associations most recent forecast or even the most recent estimate from F.W. Dodge. However, we’re not seeing improvements in the fundamentals of our business to support a more aggressive demand outlook for the balance of this year.

Now, not only is this forecast more pessimistic than most third-party external estimates. It is also more pessimistic than, what you would imply from our internal backlog reports. For the first four months of the year, our backlog was declining roughly 30%, compared to the corresponding month in the prior year for those first four months of the year.

This negative trend improved somewhat over the last few months with the decline, once again in a month-over-month basis in our backlog dropping to below 20% in the months of May and June, so a slight improvement in the decline, if you will. With all of that being said though, we’re continuing to base our outlook for the last half of the year on a more conservative basis than third-party estimates or our own internal backlog reports.

Now, looking at our cost control program, as you know we implemented some very aggressive cost control initiatives during the fourth quarter of 2008, which as I mentioned earlier have had a meaningful positive impact on our results. However, it became clear in the second quarter that those steps were not enough in relation to the decline in demand we were seeing and expecting for the remainder of the year.

Accordingly in the month of June, we took additional steps to further reduce our cost structure. We reduced headcount and associated compensation by another 10.5%, and combined with the reductions in workforce we made in 2008, we have now reduced our salaried headcount by just under 30% in the last 18 months.

In addition to these headcount reductions, we’ve also reduced our ready-mix fleet by about 110 vehicles during the first six months of 2009. When you take into account the 191 mixers that we have parked or idled, our active mixer fleet is down 22% from December 31, 2008.

Finally, we implemented measures that we believe will reduce our fixed operating and SG&A expense by another $4.5 million to $5 million on top of the steps that we took last year. The steps that we’ve taken include idling additional ready-mix plants, reducing overtime, cutting back on outside service providers, reducing communication cost, really just across the board throughout all line items on the P&L.

On an actual basis through the end of June, we reduced our fixed operating and SG&A expense excluding some one-time bad-debt and legal fee adjustments that Robert will discuss, by about $5.5 million. This represents an annual run rate reduction in excess of $11 million, which is slightly lower than what I reported based on the first quarter results.

If you combine what we’ve already achieved to-date with the additional steps taken in the second quarter, I would expect to see an annual kind of run rate reduction in these fixed costs in the 15 plus million dollar range. This represents in excess of 13% of our fixed cost excluding depreciation. Once again, let me stress that we are continuing to monitor demand and our cost structure, and we will take appropriate actions if market conditions warrant it.

Now, let’s take a look at volume and pricing and our material cost. As I mentioned over the last few conference calls, realizing price increases in the current demand environment is going to be challenging at best. During the first quarter, we realized a 2.9% price increase in the face of a 33% same store sales decline. This quarter our average sales price increased slightly in the face of a same store sales decline in excess of 30%.

Once again, similar to the first quarter both of our Texas markets have led the way with price increases in the quarter. However, those were substantially offset this quarter by price declines in our northern New Jersey and northern California markets. Obviously, the trends are becoming more difficult as the year progresses and I am not overly optimistic about further price increases for the last half of 2009.

However, we are continuing to aggressively manage our costs on the raw material input side with the goal of maintaining or improving our raw material spread. This is both from a usage standpoint and a price of that inbound raw material. Just note that we have seen some softness in certain markets in certain raw material pricing over the last 30 to 45 days, which I think is reflective of what we’re seeing in pricing in the ready-mixed concrete market.

The final thing I want to talk about is the stimulus package, and I guess really there really hasn’t been much change in our views since our last conference call. We have secured a few projects, but they’re not really material to 2009, and we don’t expect to see a huge impact from the stimulus package this year. We are, however, continuing to track and bid on numerous projects in both our existing markets as well as in certain markets across the country through our onsite division, but it’s still a bit too early to determine how much volume will be generated in 2010 directly from the stimulus package.

As I mentioned last quarter, infrastructure and public works projects continue to make up a larger percentage of our business, and on a year-to-date basis, infrastructure projects represented about 26% of our volume this year compared to 17% last year. I expect this trend to continue as both market demand and our focus shifts towards more of this segment of the concrete market.

Now, before I turn the call over to Robert, I want to talk about our key focus for the remainder of 2009, and that’s liquidity and access to capital. As we reported this morning, availability under our credit facility was about $48.1 million, and we had $4.4 million in cash on the balance sheet bringing total liquidity at June 30, 2009, to just over $52 million.

We are actively pursuing steps to maintain or improve our position, and actually expect our liquidity to improve slightly between now and the end of the year. I can assure you that, this focus on liquidity is our main focus and we are managing through this cycle, controlling our cost structure, and doing what we can to maximize cash flow for the balance of the year.

With that, I’m going to turn the call back over to, Robert.

Robert Hardy

Thanks, Michael. Again, looking at our second quarter consolidated results we’ve reported EBITDA of $9.6 million. That’s a margin of 6.7%, which is down from last year’s second quarter EBITDA of $19.2 million. Just as a reminder, second quarter 2009 EBITDA includes a $2.9 million gain related to open market bond repurchases that I’ll talk about in a moment.

Ready-mixed concrete profitability and operating margins continue to be impacted by the steep declines in our sales volumes, which partially offset by the material spread improvement in our Texas markets, and the cost control measures, Michael just went through throughout the operating footprint.

Revenues from our residential end-use markets are down to about 21% of our total revenue, as compared to 29% last year. Public works however, that end-use market improved to 26% of our revenues, as compared to 17% last year driven by our Northern California, our East Coast and Michigan operations.

Looking at our precast operating segment profits, before SG&A costs they were down about $1.1 million, and revenue declines of 8% driven by lower profits in our Northern California and Phoenix, Arizona markets, which have been significantly impacted by the decline in residential construction.

Depreciation expense for the second quarter was up $0.4 million to about $7.4 million, as compared to $7 million in the second quarter of last year, due to additional depreciation related to our new ERP system and additional depreciation for acquired operations primarily in the second half of 2008. For the rest of the year, we expect depreciation to approximate $7.5 million to $8 million per quarter, excluding any additional acquisitions if any or divestitures after the date of this press release.

Turning now to SG&A cost, we reflected year-over-year improvement in almost all categories of fixed and SG&A costs, due largely to cost control measures. While total SG&A expenses were comparable quarter-over-quarter. Compensation expense declined as a result of workforce reductions and reduced incentive compensation.

All other areas of SG&A, except professional fees and bad-debt expense declined in the quarter as a result of these measures. Our bad-debt provision increased as a result of current economic environment, primarily in our Michigan and East Coast operations, and we recorded higher professional fees associated with certain litigation matters in Northern California, as compared to the second quarter of 2008.

We recorded an income tax benefit from continuing operations of only $0.4 million this quarter, as compared to an expense of $2.2 million last year. As we talked about last quarter, at the end of each reporting period were we estimate the effective income tax rate for the full year and we use this rate on a quarterly basis.

We applied a valuation allowance or a reserve against certain of our deferred tax assets including our operating loss carry forwards, which reduced the benefit from an expected statutory rate. The annualized effective tax benefit rate was about 6% for 2009 and was 16% for 2008.

You can expect for the rest of the year, for this low rate continue, as we continue to put this reserve up on full year losses. More importantly from a cash perspective, we expect to receive about $4.5 million in refunds in 2009 and only payout about 450,000 in state taxes primarily in Texas and Michigan. We had a significant loss carry forward on a tax return basis, which should minimize significant cash outlays for income taxes for the next several years.

Turning now to CapEx, for the first six months we spent about $6.5 net, of which the majority was used for plant relocations and improvements, primarily in our East Coast operations, where we relocated and built a new plant in New Jersey and upgraded one of our sand operations with a new dredger. We also spent year-to-date about $2 million to wrap-up from a capital perspective, the ERP system we put in place over last 18 months.

We have not spent, as we talked about in the first quarter significant capital on new mixer trucks, and as Michael mentioned, we are in the continuing to shed excess rolling stock due to slow market conditions. Overall, we reduced our CapEx by about $2.9 million on a net basis, compared to the first half of last year.

Looking forward, based on the slowdown in the construction market, we continue to reduce our CapEx programs and will adjust our spending based on this outlook. Right now, we’re expecting to spend about $5 million on maintenance type capital projects for the rest of the year.

From an operating cash flow perspective during the first half of the year, we used $2 million, compared to net cash provided by operations of about $9.5 million in the first half of last year. This was primarily due to lower operating profits, due to the low demand of our products, partially offset by year-to-date working capital improvements. We continue to aggressively manage our working capital needs in light of these challenging times.

Despite these efforts, no different than what we try to do with our vendors, our DSOs increased two days to 55 days from the first quarter and that’s up about five days from the second quarter of last year. We place significant emphasis and attention on our collection process and property lien procedures in light of these conditions in the negative impact that they may have on our customer base. Our free cash flow decreased $8.5 million from the first half of last year on lower cash provided by operations partially offset by lower capital expenditures.

Our net debt at June 30, was $306.6 million, up from the first quarter primarily related to higher borrowings to fund the acquisition of a Concrete Crushing and Recycling business in New York and make our semi-annual interest payment on our senior sub-notes. Current maturities increased during the quarter to reflect the outstanding revolving credit line in Michigan as a current liability. The Michigan JV credit maturity facility matures in April of 2010, and we currently expect to extend these terms to other facility prior to its maturity.

As we discussed last quarter, we began purchasing our 8.3/8s senior sub-notes in the open market during the first quarter. To-date, we purchased $12.4 million in principal for about $4.8 million of which $5 million in the principal amount were purchased in the second quarter. We’ve recorded a gain of $4.5 million in the first quarter and a $2.9 million gain this quarter. We used our re involving credit facility to fund the open market purchases and expect our cash interest expense to decrease by about $900,000 annually.

We’ll continue to evaluate this program, but in light of liquidity the pricing of the notes we haven’t bought any in the last couple of months. As a cap, we have with our bankers we have an $18 million basket availability under this program. As of June 30, we had $26 million drawn on our line, $48.1 million of available borrowing capacity, and about $4.4 million of cash on the balance sheet.

In the second quarter of ‘09 as I just mentioned, as part of our New York strategy which we’ve discussed with everyone, we acquired substantially all the assets of a Concrete Crushing and Recycling business in Queens, New York we used borrowings under the revolving credit facility to fund the cash purchase price, which was about $4.5 million. We are also completing a Greenfield expansion in New York to complement our current operating footprint to better serve our customer base.

Capital costs for this project are expected to be about $1 million, that is factored into the $5 million of outlook of CapEx I gave you and we should be operational with that plant facility later this year. Now let’s turn to the outlook, as Michael has walked you through regarding the volume shortfall, we expect to reported volumes to continue to be very soft. July volumes were down about 28% from last year and down about 25% from the beginning of the year where we thought we would land with marked declines in the majority of our markets, especially in Dallas, New Jersey and Michigan.

To extent practical, additional cost control measures will be implemented to continue to right size our operations based on this level of outlook. Based on this revised volume shortfall, for the second half of the ‘09, although we expect positive operating cash flow for the second half of the year and for the full year, we now expect full year free cash flow, which is operating cash less capital expenditures in 2009 to be moderately negative. We had an objective to try to maintain a positive free cash flow, but we needed volumes to be stronger than what they are and what we expect them to be for the full year.

This concludes our formal remarks. If you’d like to be on the email distribution list to receive future news releases, you can contact Vonna Newsom, at 713-499-6222. If you’d like to listen to a replay of today’s call, it’s available via webcast by going to the Investor section of our website or via recorded replay until Friday, August 14, 2009.

Please also note that you can find the reconciliation to non-GAAP financial measures that we discussed on this call in the Form 8-K filed earlier today, or in the Investor section on our website.

With that, I’d now like to turn the call over to Brandy, so we can have a question-and-answer call with you.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Brett Levy - Jefferies & Co.

Brett Levy - Jefferies & Co.

Relative to the second quarter, do you guys see EBITDA trending up or down for the third quarter?

Robert Hardy

The third quarter is historically our best volume quarter. We expect EBITDA to be higher in the third quarter versus second quarter.

Brett Levy - Jefferies & Co.

You guys talked about not only increasing liquidity, but also gaining access to capital. What kind of room is there to do some sort of additional senior capital raising or sale leasebacks or what room is there to do some of that capital raising under your bank debt covenants at this point?

Michael Harlan

One thing just let me take a piece of that and then I’ll flip it over to Robert. We are looking at all of our assets as I mentioned. We’ve idle vehicles. We’ve idle land. We’ve idle plants. Some of those we’ve obviously expected to use in the future as volume returns, and some I think one positive aspect to this downturn in the cost control measures.

I think we have permanently improved our operating cost structure through measure that is we’ve taken, and may actually have some excess plant and lands that we can dispose of. So we’re evaluating some of those things to raise additional capital and liquidity for the balance of the year. We do have some flexibility under our credit facility. Robert, do you want to comment on what flexibility we have?

Robert Hardy

What we disclosed, whether would be under our indenture or under our current ADL facility we have. We’ve some capacity or some assets that aren’t ring fenced around the revolving credit facility. So on the outside when you look at the indenture, we’ve got in them. Potentially, in the mid 20s millions if you will of borrowing potential.

I assume that we can find the right lender to assist us in these tough times. So we are looking at potentially trying to lever those assets as we go along. We do have some room albeit not an open checkbook, but we’ve at least $25 million of potential borrowing capacity you under our current restrictions.

Operator

Your next question comes from Todd Vencil - Davenport & Co.

Todd Vencil - Davenport & Co.

Michael, you noted in your prepared remarks that your outlook for more than 25% down in volumes is not only more pessimistic than the PCA and F.W. Dodge, but also then your own backlog would indicate and that last comment they have caught my ear. Why are you feeling more pessimistic than your own backlog would indicate at this point?

Michael Harlan

I say, a key driver to that’s our results for July. I think you maybe heard Robert. Our volume was down. It was around 28% in the month of July. Our backlog at the end of June, on the year-over-year basis was down about 16%, and so there’s a little bit of disconnect. I think you’re continuing to see maybe some projects getting pushed off and some delay in project that is maybe sitting in our backlog and frankly just to be a bit conservative.

The other thing that we’re trying to do, as I mentioned, as Robert mentioned, right now it’s about liquidity, capital, making it through this cycle, and we’re pressure testing ourselves to make sure that in a pretty dire scenario, we have access to capital.

As I mentioned, even with this greater than 25% decline in volume for the full year. Right now our forecast would indicate an increase in liquidity between June 30 and December 31. So it gives us some comfort that, we got the capital to make it through some really just unprecedented declines in volume and compressions on margins.

Todd Vencil - Davenport & Co.

So just on the comment, the sort of more pessimistic than our backlog would indicate, observation is due partly to other things you’re seeing that your backlog is come through more slowly and partly just to be conservative. Is that a good summary of that?

Michael Harlan

It is part of that, but as I said, July started off down 28%, so two months left in the quarter.

Robert Hardy

One other thing, Todd, when you look at our backlog and how we define it, a lot of that is contractual work, which is on the commercial and public works side. The bundle of work that is non-contractual which you look at historical numbers is always been a 7% of volume or actual volume achieved, has been difficult to measure for operating units.

So that level of work has not materialized almost across our footprint even if in the backlog and reporting related to that other jobs that would normally come in on a day-to-day basis are more difficult to forecast and haven’t really materialized like they have historically, so I think that’s why the conservative sits with Michael as he estimates the forward look.

Todd Vencil - Davenport & Co.

You mentioned also some softness in the last 30 days to 45 days in raw material pricing. Can you sort of elaborate on that a little bit, talk about what products and where?

Michael Harlan

Yes, there has been some movement on cement pricing in certain parts of the Texas market, and I think that is a direct reflection on some softness in concrete prices in that market. We have been successful through maybe not necessarily that the market price coming down, but shifting our volume purchasing on some aggregates in a few of our markets to gain slightly better pricing on aggregates, and these are not huge decreases.

I mean, in Texas it is a couple of percent, but it, every dollar or two on that raw material side when raw material represents over 50% of for every dollar of revenue, it is meaningful on our material spread.

So like I said, it some softness we’re not seeing anything greater as far as pricing, and the key for us is to try to maintain that raw material spread and/or improve it. We have been very successful really over about the throughout 2008 and 2009 and expanding that raw material spread and we’re going to continue to focus on that.

Todd Vencil - Davenport & Co.

Final question is sort of related to that and you just touched on it, but you talked about significant weakness in pricing I guess in some places. Can you talk about where you might be, obviously you mentioned that the prices have began up in Texas and they would down in the other two markets, but what are you seeing in sort of looking out and are you seeing more price competition anyone place than another at this point?

Michael Harlan

You’re seeing a bit of some pretty aggressive pricing in our Northern New Jersey market. I think there are some independent producers in that market that are fighting for survival, and they are doing some things that just don’t make a lot of sense to us from a just a costly raw material standpoint and being able to deliver the product in their pricing in New Jersey. What’s interesting is New Jersey is not too far from New York as you’re well aware.

Pricing in our New York market is actually holding up. It is down a bit, but you’re not getting any crazy pricing in our New York volumes, and I think New York is just a much better structured market and maybe a little more intelligent competition. California, it is another one that’s a bit troubling, that’s a very well structured market, both on the raw material side and on the ready-mixed concrete side and yet we continue to see downward pressure on our ready-mixed pricing in that market.

You kind of scratch your ahead over that one just given the competitive landscape and the structure of that market. Texas which every quarter since the fourth quarter of last year we’ve got some really nice increases there, and we remain focused on that. Let’s break out Texas in West Texas and Dallas Fort Worth market.

In Dallas Fort Worth what you’re seeing is some pricing pressure on anything you would call a larger project, any meaningful amounts of volume. You’re getting some price pressure. I think on the day-to-day work and the COD type work and just your smaller day-to-day customers, pricing is still holding up.

So, we expect to see a little bit of decline in that DFW market. Right now, West Texas is holding up fairly well. Our West Texas market is a pretty big market it starts just West of Fort Worth and goes out to the [Lavec] Midland Odessa area. We’re seeing some pricing pressure. As you get closer to the Fort Worth market, you’re seeing pricing pressure, but as you continue to move west, prices are continuing to hold up fairly well.

Operator

Your next question comes from Jason Brown - KeyBanc Capital Markets.

Jason Brown - KeyBanc Capital Markets

We’ve seen a lot of the residential indicators bottom here and even have a small up-tick in some areas. Are there any signs of an upturn in any of your markets or are they just kind of bouncing along the bottom there or are they still declining?

Michael Harlan

I would have to say, it seems like, maybe we are bouncing along the bottom. We do read everything you read. We see all the reports and about some improvements on the residential side and really I think that’s on the sales price and the movement of some inventory and those are all great leading indicators.

As far as construction goes, we’re not seeing an increase in construction of new homes right now on the residential side. I was speaking with one of our directors, who’s getting developments, and he was pretty excited, because they sold four lots I think in the last month. That’s the type of things you’re seeing is some really nominal changes on a year-over-year basis.

Overtime, residential will eventually get back to a normalized demand level, and is that 1.5 million homes, that seems to be what history would indicate if you go back over the last 20 or 30 years. So, there will be some very nice growth in the residential market. I don’t think we’re going to snap back to 1.5 million homes in 2010. I think it’s going to take us several years to get there, and that’s not a bad thing.

Just good steady increase year-over-year basis is good for this business. It helps you to plan and operate your business and provides for a very stable environment. So, do I expect to see residential improve, absolutely. Do I expect to see a dramatic increase last half of the this year or next year, no we’d really don’t see that.

Jason Brown - KeyBanc Capital Markets

Then on the commercial side, we have seen pretty sharp fall-off here already in 2009, and just given part of that is due to the market, part of that is due to some funding problems. Do you think you have experienced the brunt of it here or are you going to experience the brunt of it here in 2009? Maybe declines shouldn’t be as bad in 2010. Do you have any sense for what kind of decline we could see next year in that market?

Michael Harlan

It’s a little difficult to call. Because I think, particularly looking at some of our markets and where vacancy rates are and industrial utilizations things like that, the biggest impediment to commercial construction activity really appears to be financing, number one, is probably the number one impediment.

Then number two is just the, uncertainty in with the ultimate users of these facilities. People are, they are going to wait and see. We see a lot of press about the recession is over. I’m glad to hear it’s reported. Now, I’m waiting to see it. You’re seeing, people waiting for more indications, more positive indications before they will move into a new office building or commit floor space.

One thing you are seeing on the financing side is there is very little in the way or almost nonexistent speculative financing out there. I think developers can’t get financing for a committed facility, whether that be an office building or an industrial facility. So, I’d hesitate to say that it’s in any way over.

I think particularly on the lighter commercial the residential that or the commercial that follow the residential, I think there’s a long way to go before we see much upside in those strip shopping malls and retail centers, but I don’t think it’s quite as bad in the office space area and maybe some of the industrial areas.

Jason Brown - KeyBanc Capital Markets

The last question I had was on the competitive landscape given that volumes are trending for the whole industry well below where we would have put them at the beginning of the year. Are you seeing any acceleration of competitors exiting the business, or is it more like you mentioned earlier, still fighting for survival on some of those markets?

Michael Harlan

I cannot say that I’ve seen mass exodus from the industry. I’d like to see that, we all would. We have seen more companies close, more companies go bankrupt this year than in any year since I’ve been in the industry, which has been about 10 years, so it is accelerated, but it’s not a tremendous number at this point. If this continues on, which we are expecting it throughout ‘09 and into ‘10, I think you will see more, but we do not see just mass closures in any of our markets right now.

Operator

Your next question comes from Joshua Zaret - Longbow Research.

Joshua Zaret - Longbow Research

A few questions, have you noticed any differences in the level of aggressiveness that you’re seeing with some of the states in terms of stimulus money being let there? I know it’s more of a 2010 story, but what have you seen up to-date so far?

Michael Harlan

We haven’t seen aggressiveness in releasing funds right now, but you are starting to hear about some states trying to come up with their own stimulus and infrastructure packages and trying to find ways to do what you’re hearing about on the federal level to try to do that and to try to drive that. Interestingly, one of our better markets from a stimulus infrastructure spending standpoint is California.

You hear a lot about the California budget situation and it is pretty dire even though they have passed a budget for this year, but if you recall a couple of years ago, they had with an excess of a $20 billion bond issuance to fund these projects, these types of projects. They’ve been able to maintain the integrity of that bond issuance in those funds.

So, our guys have picked up a lot of really nice projects and are continuing to bid on interchanges and road developments and just different infrastructure spending projects in the state of California, but we haven’t, to just be very direct, have we seen any particular state come out with something and actually get money into the system right now? The answer is, no. Are we hearing about states trying to do that? The answer is, yes. I would expect as probably others do that we will see some of that as 2010 opens up.

Joshua Zaret - Longbow Research

Just a further question on the stimulus, can you comment a little bit on the pricing behavior on some of the stimulus projects up forbid? A lot of people have been hearing about, in those broadly speaking bids coming in below engineer’s estimates. We heard something aggregate companies say that, actually aggregates were coming in with price increases as opposed to other components like steel being down. What are you seeing on the concrete side?

Michael Harlan

I don’t think it’s down anywhere near maybe steel and some of the other component costs are down. We are hearing exactly what you’re hearing that, some of these projects, the bids are coming in below the original estimates.

The ones that we’ve been pricing on, we’re pricing those at very good margins. We priced a very large one. We didn’t get it. We were the successful concrete bidder, but the contractor decided to self perform, but they are going to use us as really a technical service consultant, and kind of keep our foot in the door maybe if their own internal self performance group doesn’t meet their expectations we’ll get the project back.

The overall bid there did come in a bit less than engineering estimates, but if you look at our concrete price from what we would have thought would have been outstanding prices to where we stopped negotiating where they decide, okay, this is the lowest and we’re going to do it ourselves. It was only about 7% or 8%, and we expect that we would have made north of 10% margins on that project.

Operator

Your final question comes from Brian Taddeo - Rock Point Capital.

Brian Taddeo - Rock Point Capital

I just have a couple of clarifications. You’ve already touched on a lot of things. On the liquidity front your comment on ending the year with higher liquidity. Is that based upon doing another transaction, raising an additional facility of the $25 million? Is that outside of any sort of external cash coming in?

Robert Hardy

That’s outside of external cash coming in. If you look at the seasonality of the business, the first half is typically a burn of cash force, and the collection of receivables from volume level of business that we secure in the second and third quarters tends to fall in the second half primarily in the fourth quarter of the year.

So looking at the forecast that we have put out there, it will be a tough second half. We’re expecting to have positive operating cash flow in the second half to offset the CapEx spend and have an improvement in liquidity of the company.

Brian Taddeo - Rock Point Capital

In terms of any asset sales, I mean are these items that you’re thinking in total is going to be sort of single digit millions? Could it be as high as double digit millions? Can you just kind of put a framework on how much actually you can raise?

Robert Hardy

I would say right now just to be a little on the conservative side single digit millions. There are some things we can think about that might get into the double digits, but those would involve more of a shift in a particular strategy on a particular market or something like that. We’re evaluating that. Right now, let’s just put it in the single digit million range.

Brian Taddeo - Rock Point Capital

Then on the M&A side, it obviously looks like you continued to expand around New York. Is that process completed now or are you holding on to additional liquidity? Is there actually a lot of additional opportunities out there that you feel you can’t pass up at this point?

Michael Harlan

To answer you, we have completed our strategy that we outlined for New York, which involved acquiring a few plants, the crushing operation, and then a Greenfield site, which is under construction as we speak, and that will build out our New York model. I’m extremely glad that we did that, because that is helping offset some fairly meaningful volume and declines in pricing pressures in our New Jersey market, that’s part of the same region if you will, kind of run separately, but part of the same region.

So very pleased that we did that, and so far it’s going fairly well. A little bit of delay in opening the Greenfield site due to permitting issues, but that construction starred last month. So moving forward, there are a few other opportunities in that market, but I will tell you that they have not risen to the level of just so good that we will take some of our liquidity to pursue them.

I’m not saying that won’t change overtime, because this is a market where we did see one or two bankruptcies. Right now, we are holding onto our liquidity, and if we do something from an expansion standpoint, we are going to try to do that at some extremely attractive pricing, and so hopefully that answers the question.

Brian Taddeo - Rock Point Capital

Will that be the only region that you’d actually look to expand or is there anything in any of the other market that’s looks enticing?

Michael Harlan

There’s a couple of other markets. Our West Texas market, which is performing very well, they’ve had a same-store sales decline, but it’s been moderate relative to our consolidated decline, and the market seems to be holding up fairly well. That’s a market like some of the more rural markets that didn’t have the explosive growth that you saw in obviously Arizona or Florida or Southern California.

So they don’t have a lot of peaks and valleys. That’s a bit more of a steady market from a demand standpoint. We’ve got a very good vertically integrated position out there that serves us very well and serves our customers very well. So there’s some things in West Texas that we would do, but once again they’re going to have to be priced very attractively for us to take that risk and invest the capital and take it out of our liquidity.

Brian Taddeo - Rock Point Capital

Jus two things, I want to make sure. On the cost cutting side did you say you have right now about an additional $10 million with the new initiatives on annualized basis that could be taken out, 15 total and 5 already realized. Is that right?

Michael Harlan

The steps we took in the fourth quarter year-to-date if you annualize the year-to-date savings, that’s about $11 million. We took another $4.5 million to $5 million out in the month of June, so bringing the annual run rate in sort of fixed cost savings to the $15 million range.

On top of that are some headcount reductions. We cut as I said in June our salary workforce by about 10% was the number, 10.5% both in the cost and the number of head counts, that’s just north of $4 million in base paid benefits, medical insurance, things like that.

Brian Taddeo - Rock Point Capital

So that’s incremental, so $20 million total?

Michael Harlan

Incremental, exactly, on an annual run rate basis.

Brian Taddeo - Rock Point Capital

I missed the number on the cash tax refunds, the inflows you stated.

Robert Hardy

We expect to collect about $4.5 million by the end of the year in federal refunds and pay about between 450 and 500 for state taxes in Texas and Michigan.

Brian Taddeo - Rock Point Capital

Have you received any of that yet, the 4.5?

Robert Hardy

No, we have not.

Operator

Thank you. At this time there are no further questions. I would like to turn the call back over to management for any closing remarks.

Michael Harlan

Okay. Well, we appreciate everyone dialing in and listening to our call. It was clearly a challenging quarter, and it is going to be a challenging year, but we’re up to the challenge as are the Management teams of each of our respective business units, and I just want to close with saying that we are focused on liquidity, managing through this economic cycle, controlling our costs and doing what we can to position the company for the future, and we appreciate your interest and your support. With that we’ll sign off.

Operator

Ladies and gentlemen, this concludes the US Concrete second quarter 2009 earnings conference call. If you would like to listen to a replay of today’s conference, please dial 303-590-3030 or 1-800-406-7325 followed bypass code of 4126588. ACT would like to thank you for your participation. You may now disconnect.

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