US Concrete's (USCR) CEO Bill Sandbrook on Q2 2016 Results - Earnings Call Transcript

| About: US Concrete (USCR)

US Concrete Inc. (NASDAQ:USCR)

Q2 2016 Earnings Conference Call

August 4, 2016 5:00 PM ET

Executives

Jody Tusa – Senior Vice President and Chief Financial Officer

Bill Sandbrook – President and Chief Executive Officer

Analysts

Trey Grooms – Stephens Incorporated

Craig Bibb – CJS

Stanley Elliott – Stifel

Brent Thielman – D.A. Davidson

Michael Conti – Sidoti

Barry Haimes – Sage Asset Management

Scott Schrier – Citi

Operator

Good day, ladies and gentlemen, and welcome to the US Concrete Incorporated Second Quarter 2016 Earnings Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to turn the conference over to Jody Tusa, Senior Vice President and CFO.

Jody Tusa

Thank you, Amanda. Good morning, and welcome to US Concrete second quarter 2016 earnings conference call. Joining me on the call today is Bill Sandbrook, our President and Chief Executive Officer. Bill and I will make some prepared remarks, after which we will open the call to your questions.

Before I turn the call over to Bill, I would like to cover a few administrative items. US Concrete would like to take advantage of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Certain statements in this conference call may be considered forward-looking statements within the meaning of that act. Such forward-looking statements are subject to risk, uncertainties and other factors, which could cause actual results to differ materially.

For a list of these factors, please refer to the legal disclaimers contained in our filings with the Securities and Exchange Commission. Please note that you can find the reconciliation to non-GAAP financial measures that we will discuss on this call in the Form 8-K filed earlier today and in the Investor Relations section of our website. If you would like to be on an email distribution list to receive future news releases, please sign up in the Investor Relations section of our website under email alerts. If you'd like to listen to a replay of today's call, it will be available in the Investor Relations section of our website under Events and Presentations.

Now I would like to turn the call over to Bill to discuss highlights for the quarter.

Bill Sandbrook

Thank you, Jody, and welcome everyone to our call. Despite significant weather impacts, a pull-through of demand to the first quarter and some project delays, the strength of our market positions drove improved revenue, selling prices and ready-mix raw material spread in the second quarter. However, both gross margin and adjusted EBITDA margins declined on a year-on-year basis as the volume shortfalls above caused diminished efficiencies in our ready-mix truck and plant asset base.

Since May of 2015, we have acquired six ready-mix companies, all of which added trucks and plants to our consolidated footprint. As volumes did not meet expectations due to the very reasons mentioned above, there can be stresses on margins. This is evident in seasonal businesses in the first quarter as volumes declined with the concurrent effect on margins. Likewise, as volumes increased, margins expand significantly. And winter weather impacted businesses, significant activities are undertaken to take cost out of the business until weather improves. Unfortunately, we aren't offered that luxury in the middle of the operating season. We fully expect margins to regain their upward trajectory as delayed projects begin and weather returns to more normal seasonal patterns.

Now moving on, we continue to successfully execute our strategy of building a strong leadership position in the major metropolitan markets in which we operate, along with strengthening our footprint through accretive acquisitions in both the ready-mix concrete and agre segments. On the capital markets front, we completed a very successful offering of $400 million of senior unsecured notes, which Jody will cover in more detail later in this call. This notes offering reduced the rate of our overall cost of capital and provides for a significant financing capacity for our acquisition pipeline.

Our strong track record of profitable growth continued with the second quarter of 2016. We reported adjusted EBITDA of $34.1 million and a solid adjusted EBITDA margin of 12.4%. Our ready-mix concrete average selling price increased to $129 per cubic yard as compared to $123 per cubic yard for the same period last year. We also improved our year-over-year adjusted ready-mix concrete raw material margins on a dollar per cubic yard basis from $62.32 to $63.11. And in aggregates, we maintained a very strong adjusted EBITDA margin of 24.3%.

Despite near historical levels of inclement weather in our North Texas market this quarter, we increased our year-over-year ready-mix volumes by 9%. We had more weather impacted days in our North Texas market in the second quarter of 2015, but the impact on our revenue due to the weather in this market in the second quarter of 2016 was significant. We estimate that the sales volume impact in our North Texas market range from 150,000 cubic yards to 200,000 cubic yards for this quarter as compared to approximately 100,000 cubic yards to 150,000 cubic yards for the same period last year. However, I must emphasize that the effect of the weather in this quarter simply means that our project backlog increases, as these jobs are not lost, but are simply delayed to future quarters.

The North Texas area remains an extremely strong market for us with attractive long-term fundamentals, particularly in the commercial and residential parts of this market. Generally, as weather normalizes in each of our impacted markets, the existing large backlog will combine with the pent-up demand of work push forward from the build of the first half the year delays and enable a very robust project pipeline over the second half of the year.

During the second quarter, consolidated revenue increased 12.7% to approximately $260 million on higher volume and price in both ready-mix concrete and aggregates. In aggregates, we improved our adjusted average selling price by 10%. In ready-mix concrete, we increased our price 4.7% to achieve a 21st straight quarter of year-over-year price increases, supported by our leadership position in our high growth markets. Importantly, we experienced continued year-over-year selling price and raw material dollar per cubic yard increases in all of our major metropolitan markets during the second quarter of 2016. We did experience a slight decline in our selling prices and raw material margins in our West Texas market this quarter, in part due to the completion of a very high margin project in 2015.

Our underlying demand trends continued to be robust in the second quarter. Our ready-mix volume increase reflects our balanced exposure to high-growth markets those impacted by the adverse weather in North Texas and New York markets, as I previously mentioned. Likewise, the favorable weather in the first quarter pulled some projects forward which started earlier than anticipated. In addition, some of our customers in Northern California and the Northeast experienced some project delays for a limited number of high-rise commercial and residential construction projects, either due to permitting requirements or short-term timing of assembling construction crews. We believe that these project delays are temporary and are expecting that this increase in our backlog of projects will be initiated during the second half of this year.

Our overall ready-mix volume was up 9% and our overall aggregate products volume was up 13%, reflecting the addition of highly successful acquisitions, which we've completed since the first quarter of 2015. In the second quarter, we acquired a strategic ready-mix concrete business which strengthened our existing operations in New York.

Our acquisition of NYCON Supply Corp. provides us with a very well established ready-mix concrete producer in New York with a strong operating model and extensive customer relationships. NYCON will significantly enhance our exposure to new commercial and residential high-rise projects throughout New York City, particularly Manhattan and Long Island City, and fit seamlessly into our existing operations. This acquisition will improve our plant network to even more efficiently service customers in all five boroughs.

Beyond this transaction, we have a significant pipeline of potential acquisitions, which meet our expansion objectives and we expect to continue to supplement our organic growth with accretive acquisitions from our strategic deal flow. We expect that this acquisition profile will include entering new major metropolitan markets in the U.S., either during the second half of 2016 or in 2017.

Our acquisition approach includes strengthening aggregate position around our ready-mix concrete operations to enhance our vertical integration. Our approach also focuses on continuing to strengthen our ready-mix positions in our high growth markets to more efficiently meet the needs demanded by complex high-intensity projects.

Looking at our markets, demand continues to improve with each of our regional economies exhibiting robust construction environments. Residential land development and home construction remains on an upswing, particularly in our North Texas market where single-family housing units inventory remain at historically low levels. Dodge Data & Analytics noted that on a year-to-date basis, the two leading metropolitan areas for multi-family starts are New York City and San Francisco. In addition, as reported by the Commerce Department, overall housing starts in the U.S. in June of 2016 jumped 4.8% from one month earlier to a seasonally adjusted annualized rate of $1.2 million, reaching the highest level in four months as groundbreaking on single-family homes rebounded.

In Northern California, which represented 28% of our revenue this quarter, we have an extensive plant network to capture rising demand in the West and East markets of Bay Area. We're very pleased to have been recently awarded the Workday, Inc. office campus in Pleasanton, the Transbay Block 8 residential high-rise tower in San Francisco and the 450 Montague Milpitas apartment complex in San Jose. Taken together, these three projects represent nearly 150,000 cubic yards of concrete.

Our private construction end markets are benefiting from robust growth in the technology sector coupled with solid tourism activity driving continued economic growth and construction activity. In the Greater New York metro area, which represented 28% of our revenue in this quarter, we continue to see strong demand for offices, hotels and warehouses, particularly in Manhattan, Long Island City and Northern New Jersey. The New York Building Congress forecast 4 million square feet of new office construction in 2016.

On the residential side, high-rise luxury condominium and apartment projects continue to increase with some of our strongest demand and largest projects being several building structures in the Hudson Yards complex. In the infrastructure area, the New Jersey State Assembly in June approved the $0.23 gas tax increase to improve the state's transportation fund. We believe the Greater New York metro area will continue to generate strong demand in 2016 and over the next several years.

In Washington DC, job growth remains high and unemployment rates are low. An increasing influx of population flow into the DC suburbs is benefiting this market, including the Northern Virginia area, principally along the Dulles Greenway, which directly overlaps with our ready-mix positions in the Greater DC market.

In Dallas-Fort Worth, which represented 27% of our revenue this quarter, this area continues to rank in the top three nationally in investment dollars in new commercial construction. We have many large scale projects in process, or in our backlog in this market and were recently awarded a new JPMorgan office building in Plano, which will represent 60,000 cubic yards of concrete. DFW has one of the strongest population inflows and employment growth rates in the country. As a result, residential end markets continue to improve with significantly increasing housing starts over the last year, while single-family home inventories remain at a very low level.

On the public side, innovative state transportation funding programs are supporting a healthy construction material demand environment. The State of Texas Department of Transportation under propositions 1 and 7 is expected to allocate $9 billion to road projects in 2016, which is up from approximately $7 billion in 2015. There's been no sign of any discernible negative impacts of oil pricing in our end markets in the DFW Metroplex, and our total exposure to energy markets, which is only indirect, remains less than 2%.

Our West Texas region, which comprised 11% of our second quarter revenue, continues to contribute very favorably to our results. As we have discussed on past calls, this market mainly comprises operations west of Fort Worth, in the Wichita Falls, Abilene, Lubbock, Odessa and San Angelo areas. We operate in a diverse range of economies throughout the West Texas region where we enjoy favorable industry dynamics and a higher mix of vertically integrated aggregate positions.

Overall, the economic fundamentals across our markets continue to indicate a positive outlook and we have a healthy project pipeline for 2016. Ready-mix backlog at the end of the second quarter of 2016 was approximately 6.9 million cubic yards, up 27% from the end of the second quarter of 2015 and up 5% over the first quarter of 2016.

Now I'd like to turn the call over to Jody to discuss our second quarter results in more detail.

Jody Tusa

Thanks, Bill. Our results in the second quarter were highlighted by solid revenue growth, improvement in our balance sheet and cost of capital, and further expansion of our footprint through a strategic acquisition. The end result was a 14th consecutive quarter of year-over-year adjusted EBITDA growth, free cash flow generation and stronger balance sheet metrics.

Consolidated revenue of approximately $276 million for the second quarter was up $31 million or approximately 13% on a year-over-year basis. Second quarter ready-mix revenue increased by $29.5 million or 13.5% year-over-year. We realized an increase in our average selling price of approximately 5% to $129 per cubic yard compared to the prior year quarter. Our ready-mix volume increased 9% to 1.9 million cubic yards in the second quarter driven by acquisitions and organic improvements.

During the second quarter of 2016, adjusted aggregate products revenue increased by $2.8 million or 18% year-over-year to $18.5 million, approximately 49% of our aggregate products shipments were supplied internally to our ready-mix concrete operations across our vertically integrated positions during the quarter. Considering that we now have a significant operational overlap in our revenue and cost structure within our major metropolitan markets from the continuing integration efforts of the acquisitions we made in 2015, Ii the first half of this year, we believe the best comparison now and in the future of our financial performance is on a total company basis.

Looking at our profit margins, second quarter consolidated adjusted EBITDA increased by approximately 1% to $34.1 million compared to $33.7 million in the prior year quarter. Adjusted EBITDA as a percentage of revenue was 12.4% for the second quarter of 2016 compared to 13.8% for the prior year quarter. While the raw material margin spread improved during this quarter, our gross profit margin percentage and adjusted EBITDA margin percentage were impacted by our labor cost being spread over lower volumes due to the inclement weather conditions in North Texas.

Our SG&A expense in the second quarter was 8.4% of revenue compared to 9% of revenue in the prior year quarter. Excluding non-cash stock compensation, severance and acquisition related professional fees, we are very pleased to report that SG&A expense as a percentage of revenue was 7.3% compared to 7.7% in the prior year quarter. The improvement year-over-year is primarily related to higher revenues, which more than offset additions to our workforce to sustain our growth going forward. We continue to aggressively manage our SG&A margin, but anticipate that we will continue to incur transactional related expenses as we pursue additional acquisitions.

Our adjusted ready-mix concrete raw material margin spread increased 1.3% to $63.11 per cubic yard compared to the prior year quarter, mainly attributable to our higher average selling price. Our raw material margin spread on a per cubic yard basis increased, year-over-year, in all of our major metropolitan markets. Adjusted net income was $8.7 million or $0.54 per diluted share for the second quarter, representing a 23% decrease in diluted adjusted earnings per share compared to the prior year period.

In addition, several non-core add backs, the adjusted net income for the second quarter 2016 is net of a normalized tax rate of 40%. Our income tax benefit for the second quarter is primarily based on adding back the derivative loss to our loss from continuing operations before income taxes and then applying a 40% income tax rate. This normalized tax rate is consistent with our expectation to be a cash tax payer in 2016.

Moving on to our cash flow and balance sheet. On June 7, 2016, we closed a $400 million senior unsecured notes offering and we're very pleased with the strong reception we received from investors and the terms. This offering was issued on an unsecured basis at par with a coupon of 6.375% in the notes mature in 2024. The proceeds of this offering were used to redeem the 8.5% senior secured notes that were due in 2018 and fully pay down the amounts outstanding under our ABL facility. Issuing these notes on an unsecured basis gives a significant flexibility on allocating or collateral to future secured debt transactions. With the completion of the successful offering, we have improved our overall cost of capital and increased our funding levels for potential acquisitions.

During the second quarter of 2016, we generated $2.5 million of free cash flow as compared to $30.9 million in the prior year quarter. While we maintain a critical focus on working capital management, this change from last year relates to timing of working capital movements mainly related to vendor payments and higher organic CapEx levels. We spent $11.7 million on capital expenditures during the second quarter of 2016, primarily to purchase plant machinery and equipment in support of growing demand in our markets compared to $3.9 million for the same period last year.

As of June 30, 2016, the book value of our long-term debt, including current maturities, was $441.6 million. This included $400 million of senior unsecured notes due 2024; no amount outstanding under our revolving credit facility, and $41.6 million of other debt consisting mainly of equipment financing for new mixer trucks and mobile equipment. As of June 30, 2016, we had total liquidity of $294.2 million including $101.1 million of cash and cash equivalents and $193.1 million of availability under our revolver. Our availability is net of a $15.9 million availability reserve for outstanding letters of credit and sales tax and other reserves. Our availability is also limited by eligible amounts for our accounts receivable, inventory and rolling stock, which was $209 million as of June 30, 2016.

At June 30, 2016, our net debt-to-LTM EBITDA ratio was a conservative 2.4 times, nearly level with the prior quarter and below the level of a year ago. We ended the quarter with a strong capital position to continue investing in our business and deploying capital opportunistically on select growth opportunities.

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

Bill Sandbrook

Thank you, Jody. Despite the volume headwinds, we're pleased to continue to deliver on our growth objectives and created a sustainable platform for continued success. The second quarter was another demonstration of the resiliency of our construction material positions and we continue to believe that the construction cycle has a healthy runway for continued expansion. We have established our Company in attractive geographic markets with leading share positions to deliver consistent profit improvement and generate attractive returns for many years to come.

As we look to the full year 2016 and beyond, we are optimistic on the prospects for growth in our existing markets and our acquisition pipeline remains a viable avenue for additional growth. We expect our markets to continue to outpace the national average construction spending, allowing us to maintain our relentless focus on our two-pronged strategy to first grow organically through operating excellence, superior product delivery and service. And second, expand through acquisitions that bolster our existing market positions and capitalize on potential opportunities in new high growth markets. We continue to expect to produce additional adjusted EBITDA in 2016 through the disciplined execution of our strategic growth plan, which should lead to increased value for our shareholders.

Thank you for your interest in US Concrete. We look forward to updating you on our future successes. We would now like to turn the call back over to the operator for the question-and-answer session.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] Our first question comes from the line of Trey Grooms from Stephens Incorporated. Your line is open. Please go ahead.

Bill Sandbrook

Good morning, Trey.

Jody Tusa

Hi, Trey.

Trey Grooms

Quick question, really, I guess it's going to go back to the margins here. The gross margin decline in the quarter was a little bit surprising to us. You mentioned labor cost in North Texas on the lower volume, but just trying to get a sense if there's anything else, any other drivers in the quarter, I mean, I don't remember it having such a negative impact last year with bad weather in Texas. Just wondering if there's any timing issues, any mix issues or anything else that could help explain the margin decline there?

Bill Sandbrook

Yes, because we didn't call out margins by specific regions, Trey, there are some minor mix shifts going on, for instance, our lowest priced markets and we've been very transparent about this throughout the last couple of years, is that Dallas-Fort Worth market, as well as the Washington D.C. market because they're both non-union markets, so they're lower-priced markets, and there are lower margin markets as well.

Our shift because of the weather impacts and other underlying dynamics, the percentage of our business, actually even with the impact of rain, because we're so busy in Dallas-Fort Worth when it's not raining, the shift in our regional split of business was on revenue South Central, which should be DFW and Washington D.C. in 2015 were 28% of total revenue and that shifted up to 32% of total revenue in 2016.

So there was a minor shift there to our lower margin businesses as well as we did highlight the weather in Texas because that's the weather that was most prevalent throughout the national footprint, but we were significantly impacted in New York and New Jersey as well, and in Washington D.C. we had between four days and seven more days or full 1.5 week of additional weather impacted days in the second quarter of 2016 as we did in the second quarter of 2015. So we didn't highlight that on the call on our prepared remarks, but there was significant weather impacts in the Northeast as well.

Jody Tusa

And Trey, this is Jody, I'll address the cost structure. As you probably know, the North Texas market is extremely active and in these periods where we're impacted by weather, we don't release drivers. So they're paid throughout the week, they're used in other capacities than driving, but that part of our cost structure in a very active demand timeframe like the second quarter does not decrease. And as you probably know, we've added labor to the North Texas market this year versus last.

So as you look at the impact of the 850,000 yards to 200,000 yards that were delayed because of weather, you have to consider that that lost profitability is at the raw material margins spread. So we continue to pay that labor, it's in our cost structure, the only other savings that we'll really see is modest savings from fuel because we don't have trucks driving on the road during the inclement weather. But that should help gauge what normalized margins would have looked like in the event that we didn't have such significant weather this quarter.

Trey Grooms

And then Jody, I think you mentioned that you fully expect to see margins on a rebound, I guess as demand returns, and we get into a more seasonal pattern, so is that happening now, so should we expect a rebound in the margins in the second half or how should we be modeling margins for the balance of the year? I know you guys don't give specific guidance, but even just directionally?

Jody Tusa

Yes. We expect, again because of the strength of the demand in each market that we operate in, Trey, just like we did for 21 consecutive quarters, we have an opportunity to improve our average selling price. And of course, as we move that up, we retain a portion of that. We've seen the raw material price increases that we believe that we've seen this year in the April time frame. And so we think we have opportunities to expand margins as we have done consecutively and we always are gauging that by dollars per cubic yard. So with the volume increases and applying that incremental revenue over the labor cost, we have – we think that we've got opportunity to continue to improve our margins as we look forward over the back half of the year.

Trey Grooms

Can you – how do we think about or can you comment on how the margins can differ between different types of projects? I would assume that more specialized higher profile type projects might have a different margin than say, something residential. I mean, just could you give us any color, something I guess less sophisticated on the – like a residential project or something like that? Could you give us any kind of color at all on how to – be thinking about the margins that are inherent in different types of projects?

Bill Sandbrook

Sure, I'll take that, Trey. So obviously the more sophisticated mix that is required and the higher the service level, i.e., the number of trucks needed to service a project determines what the ultimate margin can be, as well as the number of competing concrete producers that can actually provide that quality and service needed to service that project. So there are great variations from project to project, segment to segment, and even region to region, depending on the competitive dynamics. So it's – when we report as an average of our entire country's operations across commercial, industrial, residential and transportation infrastructure, so that mix can vary as well depending on what projects we're on at any given time.

Trey Grooms

And have you seen any material change in that mix as you look at your backlog?

Bill Sandbrook

No. And second quarter of 2015 to second quarter of 2016, we've actually increased our percentage of commercial industrial construction from 52% to 59%. We've decreased minorly residential construction 32% down to 26% and infrastructure, street and highway, has remained fairly consistent between at 16% in 2015 and second quarter 2016 at 15%. What's interesting, as we have talked historically that our infrastructure portion of our business is about 14% to 15% in our backlog right now because of some of these State Highway funding initiatives. Our backlog has actually increased infrastructure to a 19%, commercial 51%, residential 30% and that's our forward order book six months plus out. So we are seeing some effects of the different highway funding flowing into our businesses, specifically in North Texas.

Trey Grooms

All right, well, it sounds like the margins in the backlog is pretty good there. I will jump – I’ve got others, but I will jump back in queue, I don’t want to monopolize the call too much. Thanks a lot guys and good luck.

Jody Tusa

Okay, thanks, Trey.

Bill Sandbrook

Thanks, Trey.

Operator

Our next question comes from Craig Bibb from CJS. Your line is open.

Craig Bibb

Hi, Bill and Judy.

Jody Tusa

Hi, Craig.

Bill Sandbrook

Hi, Craig.

Craig Bibb

Could you give us a quick summary of the delayed projects, and if you could ballpark the number of yards that were pushed?

Bill Sandbrook

Yes, in the Northeast we have the American Dream project in New Jersey. We have a Columbus Avenue project in New Jersey. We have the Workday Corp project in California, and multiple minor other jobs. I would probably estimate that that would be in the 40,000 yard to 60,000 yard range for the quarter.

Craig Bibb

Okay. But relatively smaller versus weather.

Bill Sandbrook

Yes, definitely.

Craig Bibb

And what kind of advance notice do you get when there's delays like this?

Bill Sandbrook

It depends on the cause of the delay. But the problem is, when there is any delay, whether you have a week's notice or a day's notice or a three-week's notice that capacity is already allocated to that job. Our plans in the middle of our metropolitan markets are very well utilized, and a gap just can't be filled in the short term because projects aren't bid like that. So a project gap like that has a significant impact on us, and we don't have the short term flexibility of just laying off drivers and shutting plants to take cost out, that we do have in the winter.

That's one of the reasons that we're having this margin situation that we did in this quarter exasperated, not only by project delays, but by pure weather delays where you have two days, three days, four days of bad weather, you have those drivers and plant operators on the clock. Compound that with the number of acquisitions we had and with their drivers and their overheads because it takes us 18 months to 24 months to fully synergize that and we're in the early stages of the synergies, that's what's happened in the second quarter.

Craig Bibb

And then the project decided are those happening in the third quarter or when do we…

Bill Sandbrook

Some are going – some of those projects will continue to push; however, as opposed to how I described this short term implications of a gap in your schedule, as that starts to extend, we will go get other work to fill those up.

Craig Bibb

And then you may have said this in the presentation and I missed it, what was organic volume growth in the quarter?

Jody Tusa

Yes, Craig. We are going to stay focused on the total Company volumes. The acquisitions and the distinction between organic and acquired are very difficult to make now as we are – as with the companies that we've acquired, they are shipping across to customers of other companies that were previously acquired. So those comparisons are quite difficult to make. And the other thing that's at work is if you look at the Ferrara and Right Away transactions last year, which were significant, they moved into the organic category. So the impact on our growth rates from acquired revenue and EBITDA for this quarter were relatively small.

Craig Bibb

And so when you – as you're integrating your different acquisitions, you might get an order at something recently acquired to fill that up, something you've going for a while, and so it doesn't make sense to break it out any more? How we should at that?

Jody Tusa

Yes, you're looking at it the right way. The continued integration, especially in a market like New York, where we now have acquired companies that are servicing and counter-servicing various parts of Manhattan that, those comparisons get quite difficult to make after they begin to get integrated into our operations.

Craig Bibb

And then, your absolute material spread was up in dollars, but the percentage was down, why was that?

Bill Sandbrook

Well, that's related to the – it's a function of math really which is why we've been focused on the dollars per cubic yard. We have priced above our raw material price increases, but as you look at the continued increase and the magnitude of the increase of our average selling price, the percentage spread does decline, and so we don't capture every single dollar that we pass along in our average selling price. And so again, just by the function of the math, that percentage will decline; however, if you look at dollars per cubic yard, which we think is the appropriate measure, we continue to improve.

Craig Bibb

And this is a – maybe an example, in Texas, the April cement price increase got delayed to July. I would think you would – that would be margin beneficial to you or how does that impact?

Bill Sandbrook

It was marginally beneficial to us, however, as you know, there were significant aggregate increases in April and as we've talked in many, many quarters, there is a lag between the time that we take those discrete price increases, which were significant on the aggregate side this year, until they're fully priced into our forward order book. The increases were more than we had anticipated when we were booking those jobs, 6 months to 12 months to 18 months ago, and now it's – we're in the normal mode of catching up with sequentially increased pricing to our next bid.

Jody Tusa

Craig, as we look forward, this market in North Texas across commercial and residential is at extremely high demand levels. And so the opportunity, we think based on demand to continue improving our profitability in this market, is quite good.

Craig Bibb

And then last question. It looks like the – at least price at the top of the New York City and San Francisco residential markets has rolled over presumably a concessional filed at later in the year, what are your offsets to that with non-res and public construction in those markets?

Bill Sandbrook

We picked up in an awful lot of, I would say, mid-level to upper-level, still multi-family res as I talked about in the last time, now, there's not many buildings and not many people that can afford $100 million penthouse condominium units, but there is a huge pent-up demand in San Francisco and the New York City for affordable housing, and not in a normal sense of the word, but housing that's $1 million a unit.

And that concrete cost exactly the same and our pipeline of projects in that space far exceeds the amount of concrete we ever poured onto the so-called luxury or uber luxury end of the market. The Hudson Yards project, we have an awful lot of work there that we're very proud to have and it's not in that $100 million per unit category. So it's been backfilled significantly by these other need to know two cities.

Jody Tusa

Yes, I might just add, Craig we've spoken to this on the last call, but the magnitude and length of infrastructure projects like the LaGuardia rebuild, this tax increase in New Jersey which should lead to additional transportation requirements, that will also be part of the market going forward.

Craig Bibb

LaGuardia starts this quarter or next quarter?

Jody Tusa

Yes, they have started some – we've started some pier work there, but probably gets into more full swing here in Q3.

Craig Bibb

Okay, all right, thanks a lot guys.

Jody Tusa

Yes, Craig. Thank you.

Operator

Our next question is from Stanley Elliott from Stifel. Your line is open.

Stanley Elliott

Hi, guys. Thank you for taking the question. Bill, I apologize, can you guys talk about trends, maybe a little granular in July, and I apologize if you mentioned it, I had to hop on the call a couple minutes late.

Bill Sandbrook

I don't want to talk too much about July, but we are back into a more normal weather pattern, and the underpinnings of our very significant backlog is benefiting from our ability to accomplish work in a normalized weather environment.

Stanley Elliott

Is there a way to talk about maybe how the quarter had progressed on a month-to-month basis, if you will, just to kind of give us a flavor for how the business exited in June?

Jody Tusa

Yes, Stanley, we typically don't comment on specific trends per month. But what we can tell you is in North Texas, the weather in April, we had some level of inclement weather. In the month of May in North Texas, it was the fifth wettest in a 122-year history. And so we had significant disruption in May. The weather impact continued into the first week in June and then the last few weeks of June improved, although some of these job sites have to dry out after the – after you get significant rainfall. So what I would tell you is that at least for that particular market, May would have been the most difficult month during the quarter and that work got back on the books and accelerated in the June time frame.

Bill Sandbrook

And I want to just highlight one point, the weather impacts our DFW operations a little bit more than either some of our competitors or our other regions of the United States, because we do an awful lot of flat work in the metropolitan area, by flat work, I mean, very large block slabs for warehouses, and that means that that job site has to dry out to provide access to the ready mix trucks, which takes longer than just it's not raining the next day, let's go pour concrete on our high-rise job, which is typically what happens. A high-rise job will be affected for one day when it's raining and will be back in full swing the next state. It can take a week for some of these sites to dry out to allow us back on to some of our biggest pours. So when you see weather impacted days, that's the days it rained, that's not necessarily weather impacts on our ability to pour concrete in our largest market.

Stanley Elliott

And with – having completed the debt deal, plenty of capital available to you, and my guess is if you do go into a new market, it's going to be more expensive than some of the deals you've done in the past. How do you think about leverage kind of at the – that upper end or what's the comfort range assuming you could take all that money and move into a leading position in one of your desired markets?

Jody Tusa

Yes, Stanley, I think your assessment there is quite accurate. So if we go into a new market, which we intend to do, or new markets, the platform acquisition there, you have your platform, you don't get the kind of synergies that you would expect after your second, third or fourth deal in a particular market. But each of these acquisitions are being acquired by us at attractive multiples, we're being very disciplined and not just acquiring for the sake of acquiring cash flow. So we would see, for the right M&A profile, to take leverage up from, call it 2 times to 3 times, and that's our comfort zone.

And then after the acquired companies, we would look from organic growth and synergies. So to move that leverage marker down from 3 times to 2 times. But what you won't see us doing is, again just going out and acquiring for the sake of acquiring cash flow and running leverage up 4 times or 5 times, that's not our profile and so we think the selective acquisitions that we make, again which each bring their own level of EBITDA, we can continue to run the business with an active M&A program at 2 times to 3 times leverage.

Stanley Elliott

And the last from me, talking or looking at the infrastructure business, but I've always thought ready-mix is very much relationship driven, do you have the relationships with the contractor base, because my assumption is that we're going to see infrastructure business really throughout Texas and other parts, really start to pick up in the out years. Do you all have those relationships with the infrastructure contractors so that assuming non-residential, word start slowing at some point that you would be able to effectively and easily shift that mix to a different end market?

Bill Sandbrook

Sure, Stanley, this is Bill. Of course, we have those relationships and we have those relationships in all of our markets. Currently in Metroplex, we have projects that were on I-35 East, I-35 West, Highway 360, Highway 183, with multiple contractors. And we have those same relationships in our other regions as well. So it's not a question of us not having relationships in that market, because we absolutely do, as strong as we do in the commercial industrial, light industrial side as well.

Stanley Elliott

Perfect guys, thanks and best of luck.

Bill Sandbrook

Thank you, Stanley.

Jody Tusa

Thanks, Stanley.

Operator

Our next question is from Brent Thielman from D.A. Davidson. Your line is open.

Brent Thielman

Thanks. Good morning.

Bill Sandbrook

Hi, Brent.

Jody Tusa

Good morning, Brent.

Brent Thielman

Would you see pockets of big delays that you saw this quarter, does it lend any shorter-term opportunities on the pricing side and ready-mix's market sort of abnormally tightens up, as crews get back to work?

Bill Sandbrook

No, not in the short term, because we price forward. We're not spot pricing to take advantage of potential bottlenecks in the system because pent-up demand needing to be left out in the markets on a very short-term basis. These are long-term customers, long-term contracts. We do have list prices for people that drive in, but those are pretty much tied into increasing when we get increases in material prices, which would be more along the lines of the first half of the year. What we do though is we bid up the next successive project bids because we work off of backlog, but that's why there is a lag between our cost increases until we fully get that through our entire customer base and book of business. But short term, the business doesn't lend itself to raising prices 5% because everybody is busy.

Brent Thielman

And then in any of your markets, are you seeing some residual effects on competition for the larger jobs you guys like to go after, just due to a pick-up in other areas of construction, or is the bid environment or the players still looking pretty similar today?

Bill Sandbrook

Well, it's interesting. It's job by job because by and large ourselves and competitors work out of fixed plant locations. Depending on the amount of work you have booked at one of those sites, you can end up in a situation where a competitor is over-committed and you know he's over-committed, so those dynamics get taken into account in the bid process, but it's – I wouldn't say that there is any more or less opportunities on the macro basis, it's a much more granular market by market, plant by plant, set of opportunities and constraints.

Brent Thielman

And then just thinking about the acquisition agenda, obviously, no specifics, but how important are aggregates to the equation for you guys, particularly when you're starting to see some acceleration in pricing across the board?

Bill Sandbrook

I think it's all – it's an opportunity for us and we have a very sound business model with our consolidated positions in our ready-mix space. There is no question that once we have the channel to the customer, i.e., if we're selling a yard of concrete, it's very accretive to me to be able to put aggregate through that yard of concrete and to be able to capture that margin for ourselves. And as you know, aggregate margins are very attractive. So the more that we can get vertically integrated in aggregates, defined as sand and gravel and coarse aggregates, the more beneficial is our, I would say, our EBITDA base and our margin profile.

And we are – we attempt to acquire aggregates wherever we can. Unfortunately, if they're very, very large deposits with significant reserves in the ground that attract strategic investor interest, the multiples that are being paid for those assets are somewhat prohibitive to us and at that point, we will choose to redeploy that potential capital into accretive market consolidating ready-mix positions as opposed to using our somewhat scarce resources as it compared to our strategic competitors for 100 years of reserves in the ground in one big quarry operation.

Brent Thielman

Okay, thanks for the color. Best of luck.

Bill Sandbrook

Okay, thanks, Brent.

Jody Tusa

Thanks, Brent.

Operator

Our next question is from Michael Conti from Sidoti. Your line is open. Please go ahead. Michael Conti, your line is open, please go ahead.

Michael Conti

Hi, good morning.

Bill Sandbrook

Hi, Michael.

Jody Tusa

Hi, Michael.

Michael Conti

Yes, so just to clarify first, the 150,000 cubic yard to 200,000 cubic yard delay, was that solely whether or was that whether and the smaller project delays?

Bill Sandbrook

That was the weather related impact, Michael.

Michael Conti

And then is the expectations to that will be made up during the second half of this year or is just customer capacity is so tight right now that you may see this in 2017?

Bill Sandbrook

It's a combination of capacity and it's not plant capacity, it's driver capacity, specifically in North Texas. On the other hand, on the available construction days between now and the end of the year, it's really dependent on weather and it looks like we're back into more normalized seasonal patterns, I think El Nino is behind it, so it's really going to come down to, and I've been in years like this for many, many years of my career, that is going to come down to how the weather is in North Texas and the Northeast between Thanksgiving and Christmas, and how wet it is in California in the middle of December.

So the other constraining factor in this is how efficient our customers are at being able to accept deliveries. At times the bottleneck is not us; the bottleneck is the customers' ability to put enough crews on the job or enough headcount on the job to effectively take the amount of concrete that he would be able to take under normal operating conditions. So there is a number of things that need to go right and they all very well might. But at this point, there's too many uncertainties to make any predictions.

Michael Conti

And then, if you do realize the volume in the later quarters, how does that impact pricing for that particular project? Does the pricing stay the same even if there is an increase in raw materials?

Bill Sandbrook

Yes. Well, it depends how the project would bid. In general, yes. In a calendar year, long lead time projects that we are forced to bid for multiple periods out, we will put an escalator in that. The escalator though would be fixed at the time that we bid the project, which means if we under-bid the escalation, we will actually lose some margin when our price increase – when our cost increases hit us. If we are very successful in limiting our expectations on raw material cost increases, it goes in our favor, but it is fixed at the time of the bid. It is not variable and does not float with whatever the underlying cost increases are.

Michael Conti

So then – because I've noticed that the raw material increase is – has gone up higher than the selling price in the second quarter, and then just given the price increase of cement in Texas. So can we just assume that – and then just given your backlog about 50% of it is – you guys assuming over the next six months, so was that more or less a headwind then for the raw material spread expansion?

Bill Sandbrook

Not necessarily. Because, remember this is – what we report on a consolidated basis is a combination of all of our regions and in some regions, we've been very, very, very successful in limiting our raw material increases. So it balances out.

Jody Tusa

Yes, Michael, this is Jody. I'll just add the – we, again, in looking at the percentage relationships, we think the dollar trends are more applicable. So this kind of mid-single digit trend that we've been on for both quarters this year, we think is a good trend line.

Michael Conti

And then you mentioned with M&A realized synergies in 18 months to 24 months, I'm just curious how you weigh entering a new region and then try to realize those synergies against where we are in the current construction cycle?

Bill Sandbrook

Yes. The difficulty in entering a new region is there aren't many synergies available because you're not consolidating a market position, you still don't have scale in raw material purchasing power. There isn't really the ability to take much headcount out at that point, because you need to run a standalone business. The synergies from entering new markets really come with subsequent acquisitions, there might be some national savings on an aggregate deal or some cement pricing, but usually that's not the case, because cement and aggregates are procured locally and priced locally. So the synergies really need to follow on with other acquisitions.

The synergies we're talking about are end markets synergies, back office headcount reductions and full realization of your opportunities on raw material pricing once you change out sources of cement and aggregates, which takes some time; it's not day one because there are mixed designs and ongoing projects, when you take over new business that you can't just replace the cement or the aggregates with the materials that we're purchasing probably for cheaper than the original acquired company ones, but it takes some time to harvest that.

Jody Tusa

And Michael, you need to consider as well the pre-synergy multiples that we're buying this business against are enterprise value multiple, these are quite accretive out of the gate and then just further improved with the synergies that we do recognize.

Michael Conti

And then last one from me, just I guess using a baseball analogy, what innings, would you say, some of your end markets are in, and I guess if you were to rank them, which one would have the longest runway? Thanks.

Bill Sandbrook

Yes, I'll take that. North Texas continues to surprise people on the length of this runway with low interest rates and the continued ability to create jobs, I mean, North Texas can still be in the early innings of a residential and light commercial boom. I think San Francisco itself might be in the later stages but Oakland could still be in the early stages. New York City, when we look at our project backlog and what's on the planning board, you know that could still be early innings as well as Northern New Jersey.

So I'm asked that every quarter and I'm usually around late early cycle, early middle, I haven't changed that, I'm actually more optimistic on the length of our runway because of the transportation bill and because of what I'm seeing in the housing markets, than I was maybe a quarter or two quarters ago. I mean in our markets, San Francisco, 75,000 jobs in Q1 year-on-year; DFW, 113,000 jobs year-on-year; Washington D.C., 72,000 jobs year-on-year; New York, New Jersey, 168,000 jobs year-on-year. Those are all people moving in our areas, which led me to have some confidence that we have a long runway here in our regions of continued economic growth and continued increases in construction spend.

Michael Conti

Great, very helpful. Thanks guys.

Bill Sandbrook

Thanks, Michael.

Jody Tusa

Thanks, Michael.

Operator

Our next question is from Barry Haimes from Sage Asset Management. Your line is open.

Barry Haimes

Thanks so much, a lot of great color. Just one follow-up on the make up of missed volume from weather, is there any that can be made up by kind of pumping out a little bit more volume between now and toward the end of the season versus – in that you would have to make – by just that construction season going a little bit longer. So is it one-third, two-third or it's all depended on the weather at the back end of the year, just a little bit of a feel for that from the make up? Thank you.

Jody Tusa

Sure, Barry. The first constraint is how much can our customers use, how much can they place. When they get backed up on jobs, and they have – now they have two jobs in backlog, they can't necessarily go out and perform two projects simultaneously because they don't have the hands-on crew, the hands-on labor to lay and finish the concrete, nor do they have the on-site management to be able to manage to jobs at one time.

So unfortunately, the first constraint is how much volume can our customers take. The second constraint then being weather and third constrain being if we're full out, our ability to have enough drivers to service all of the needs that are available to us. There is multiple constraints in there, starting with our customers.

Barry Haimes

Great, thank you. I appreciate it.

Bill Sandbrook

Thanks, Barry.

Jody Tusa

Thanks, Barry.

Operator

Our next question is from Scott Schrier from Citi. Your line is open.

Scott Schrier

[Indiscernible] last quarter it was driven down a little bit by regional mix with less volumes coming from Texas, now it looks like you might have the opposite occurs. So if you could parse out how much of the ready-mix pricing increase in the quarter was like-for-like versus maybe some of that mix shift and then thinking about going forward, even though you might have strong pricing, the actual sequential numbers might not look quite as good?

Jody Tusa

Scott, we picked you up, I think after you began your commentary, but the – again, we're staying quite focused on the total Company results as these like-for-like comparisons get quite difficult, but I would tell you that the lion's share is coming from the organic business on the price increase and again the level of acquired revenue as you look at Q2 is not as significant because these – the two transactions that I mentioned earlier, Ferrara Brothers and Right Away being a year away from those acquired companies have rolled into organic growth. So we are looking at the business in terms of total Company performance, but that's where we saw the primary driver of the price increase.

Scott Schrier

No, I was trying to ask more about how the overall pricing number was impacted by regional mix? So for instance, in the first quarter, you had more coming from Dallas, so that had the headline pricing number a little lower than in the second quarter now, you have less from Dallas, so it would maybe artificially put that number a little bit higher.

Jody Tusa

Yes, as Bill mentioned, year-over-year, we did have some mix shift, but the overall mix, as you look at volumes year-over-year, is relatively consistent Q2 2015 to Q2 2016.

Scott Schrier

And I wanted to ask, a European cement manufacturer recently had comments talking about the lack of discipline in cement in the import markets in the New York area and judging by the comments you made, how there's a longer lead time when you bid on projects, it seems like that could be a tremendous opportunity in the New York area for additional material spread. I just wanted to see what you're seeing there in that market from that perspective?

Bill Sandbrook

Yes. Scott, this is Bill. There are import impacts in the New York market. And we anticipate increased impacts once the Greenfield cement plant in Quebec is online, probably next year. As the largest procurer of cement in the New York regional market, we will obviously use that to our advantage. But in general, increasing cement prices are good for downstream ready-mix businesses.

It's a fairly efficient market to pass along increase, it's very visible, it allows a reason for us to go to our customers with – to cover our increased cost and traditionally we've been able to expand our margins in that environment as opposed to a contracting environment. So it's a two-edged sword, and we will attempt to benefit from either side of that sword as we see opportunities.

Scott Schrier

Great, thank you.

Bill Sandbrook

Great, thanks, Scott.

Operator

Thank you. [Operator Instructions] At this time, I'm showing no further questions. I would now return the call back over to Bill Sandbrook for any closing remarks.

Bill Sandbrook

Okay. Thank you, Amanda. Thank you, everyone for participating in the call this morning and for your continued support of US Concrete. This concludes our call and we look forward to discussing our third quarter results with you in the coming months. Thank you.

Operator

Ladies and gentlemen, thank you again for participating in today's conference. This does conclude today's program and you may now disconnect. Everyone, have a great day.

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