U.S. Concrete, Inc. (USCR) CEO William Sandbrook on Q2 2019 Results - Earnings Call Transcript

Aug. 09, 2019 4:13 PM ETVulcan Materials Company (VMC)
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U.S. Concrete, Inc. (USCR) Q2 2019 Earnings Conference Call August 9, 2019 10:00 AM ET

Company Participants

John Kunz - Senior Vice President and Chief Financial Officer

William Sandbrook - Chairman and Chief Executive Officer

Ronnie Pruitt - President and Chief Operating Officer

Conference Call Participants

Trey Grooms - Stephens Inc.

Lawrence Solow - CJS Securities, Inc.

Brent Thielman - D.A. Davidson & Co.

Stanley Elliott - Stifel, Nicolaus & Company, Inc.

Adam Thalhimer - Thompson Davis & Co.

Rohit Seth - SunTrust Robinson Humphrey, Inc.

Operator

Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the U.S. Concrete, Incorporated Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call maybe recorded.

I would now like to turn the conference over to Mr. John Kunz, Senior Vice President and Chief Financial Officer.

John Kunz

Thank you, Lady. Good morning, and welcome to U.S. Concrete's second quarter 2019 earnings call. Joining me on the call today are Bill Sandbrook, our Chairman and Chief Executive Officer; and Ronnie Pruitt, our President and Chief Operating Officer. We will make some prepared remarks after which we will open the call to questions. Before I turn the call over to Bill, I would like to cover a few administrative items.

A presentation to facilitate today's discussion is available in the Investor Relations section of our website. As detailed on Page 2 of our presentation, today's call will include forward-looking statements as defined by the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors which could cause actual results to differ materially. Except as legally required, we will undertake no obligation to update or conform such statements to actual results or changes in our expectations. For a list of these factors, please refer to the legal disclaimers and risk factors contained in our filings with the SEC.

Please note that you can find the reconciliations and other information regarding the non-GAAP financial measures that we will discuss on this call in the Form 8-K filed earlier today. If you would like to be on an email distribution list to receive future news releases, please sign up in the Investor Relations section of our website under email alerts. If you would like to listen to a replay of today's call, it will be available in the Investor Relations section of our website under Events and Presentations.

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

William Sandbrook

Thanks, John. Good morning, ladies and gentlemen, and welcome to our call. As reported in our press release this morning, our second quarter results were reflective of the short-term realities that rainfall plays in the downstream use of ready-mixed concrete, particularly in horizontal construction projects which dominate our Texas markets. And added complication of Texas precipitation lies in the unfortunate fact that horizontal work such as roads, runways and big-box warehouses rely on the ultimate ability of the access roads and job sites to drain off the standing water and dry out in order to accept concrete.

Thus, multiple days of sales can be lost with single weather event. Specifically in Dallas/Fort Worth, we experienced over 19 inches of rain during the second quarter compared to only four inches in the prior year’s second quarter. More importantly, we experienced 33 consecutive weeks of measurable rainfall in the DFW market with over 60 inches of rain in the past 12 months.

It is thus not surprising that in Dallas/Fort Worth and West Texas, our ready-mixed volume was down 222,000 cubic yards. Additionally, our aggregate volume was down 126,000 tons largely as a result of our inability to run one of our major sand plants on the Red River due to the flooding during the quarter and an eruption in another sand and gravel operation that supplies DFW.

As Texas accounted for 44% of our total company ready-mixed volume is no surprise that the financial impact with the weather events was meaningful with our adjusted EBITDA in Texas for the second quarter down approximately $13 million from the prior year.

On Page 7 of our presentation, we've included a 12-month history that compares rainfall in the DFW market to our concrete volumes in each corresponding month. You can see that when the rain subsides as it did in July and August of last year and February of this year, our volume growth remain solid and it's in fact impressive, which is reflective of the overall strength of the construction market in Texas, although Texas was by far the most impacted by weather during the second quarter. We are also plagued with significant rainfall in our other regions as well.

In New York, we experienced the most rainfall in the last 10 years versus second quarter, and in Northern California, May was the wettest in over 20 years following what you already know is a significantly weather impacted first quarter. While we reported very strong results for Polaris in the first quarter despite these weather delays, the steady shipping pace during the quarter where construction activity was deferred resulted in aggregate inventory buildup by the distribution terminals in the Northern California market during the first quarter. The excess inventory in the market carried over into the second quarter resulting in deferred shipments from Polaris.

Now let's move to some more contextual realities of the heavy materials and construction related industrial markets. Deposits at sand and gravel pits and hard rock quarries do not degrade with time. They are not perishable. In fact, due to the difficulties inherent in grieved building new operations due to ever increasing restrictions on permitting, quarry spend to grow in value over time.

Likewise, construction projects are delayed by weather, not canceled. Thus project completion and the actual usage of our concrete and aggregate are pushed into future periods. Our investments in reserves and assets to mine rock and produce and deliver concrete have a very long time horizon.

There will be periods of weather disruptions in the life of a quarry or ready-mixed concrete plant. However, short-term temporary weather disrupted periods of demand should in no way, be interpreted as the underlying driver of our long-term results.

Quite the contrary, the fundamental economic trends in all of our markets remains robust. Interest rate cuts have once again become a tailwind. Unemployment remains at historic low levels. Consumer confidence is high. There remains untapped pent-up demand in residential markets as long-term demographic trends remain favorable.

State level infrastructure spending is increasing and the outlook for a meaningful increase in federal spending on a bipartisan surface transportation bill is in the realm of possibility. The strength of our local markets is evident in our ability to pass along raw material cost increases in our value chain, year-over-year ready-mix and aggregate average selling prices increased 4% and 6.5% respectively for the second quarter. These increases simply do not occur in a weak long-term demand environment.

On the contrary, a return to a more normalized weather pattern in July has resulted in a return to our historical volumes. Finally, I must emphasize that we are not simply waiting for better weather and robust pricing to improve our results.

We are undertaking multiple aggressive actions at both the strategic portfolio and operating unit levels. On the strategic front, our aggregate business now represents 20% of our adjusted gross profit. This is significant increased over the past five years and the value of our aggregates business remains undervalued compared to our peer group.

We are undertaking vigorous actions to leverage technology and streamlined all processes within our Company in order to increase delivery and production efficiencies, streamline back office functions and cut significant non-drying costs at all levels of the organization at the operating level.

Now, I will turn the call over to Ronnie to discuss these initiatives in greater detail.

Ronnie Pruitt

Thanks, Bill. As mentioned during our first quarter call, I reorganized our management team to more effectively evaluate, manage, and drive our strategic initiatives within each region. I've been pleased with the direction our new leadership team has taken, but it will take some time before our actions and initiatives are fully reflected in our results.

I am seeing progress on each of our regional initiatives, which should support margin growth in the coming quarters. Our regional teams are becoming leaner as we standardized processes and eliminate redundant functions.

Our mixed design processes becoming more streamlined and organized, providing opportunity for substantial savings and our raw material cost. This can be seen in our material spread, which on $1 per cubic yard basis was $65.96 in the second quarter, a 4% improvement over the prior year quarter.

We have various regional teams designated to focus on initiatives related to the management of our professional delivery workforce, efficiency of our concrete delivery process, all customer touch points and the cost of waste concrete disposal just to name a few.

Our professional sales teams are focused on new business opportunities and regional market penetration to drive additional volume and pricing with more vision and transparency into market, customer and project level profitability. These initiatives will improve our operating leverage, customer service, business processes and more importantly improve our ability to operate more efficiently.

Additionally, we are making great progress on the development and implementation of our proprietary software, WheresMyConcrete. We recently had representatives from each of our regions in our Dallas office to discuss the customization of our CRM and general customer facing portions of the software. It was an extremely productive meeting and we came away with a good plan for enhance development, rollout and implementation of the functionality within the software.

We are still in the early stages of development of all the capabilities we believe this platform will deliver and anticipate a steady rollout over the next 12 months to 18 months. The successful rollout of WheresMyConcrete will provide substantial benefits to our regional teams and our customers through enhanced transparency and improved data analytics leading to better decision making.

I would now like to take you through each of our regions and highlight some of the key areas that are driving our results. Our West region, which includes Northern California ready-mix operations as well as our Polaris aggregates, represented approximately 32% of our revenues this quarter.

Demand remains strong in Northern California markets supported by the solid backlog. Due to the weather, we have seen a deferral of sales many of the projects have been pushed back further extending this region's construction cycle. Over the coming weekends we have scheduled many large concrete foundations that will kick off a heavy cycle of concrete deliveries to fulfill the needs of such projects as the Adobe North Tower in San Jose, the Google Amphitheater and Oyster Point in San Francisco.

Additionally, the recent earthquakes in Southern California remind us the being in a seismic zone brings concrete specifications to the forefront. And there's no better provider than U.S. Concrete, which can fully utilize Polaris aggregates for those complex specifications.

Northern California is also a leader in the use of environmental concrete mixes and value added products aimed at reducing the amount of CO2 released into the atmosphere. These types of products come into premiums that are standard concrete while reducing our carbon footprint. That coupled with the help of our national research laboratory located in San Fran will continue to support the success of our business.

Although weather improved in Northern California market in June, overall construction and project delays from the significant rainfall in the first quarter and through May continued to impact results the first half of the second quarter.

With regards to Polaris our efforts to increase production capacity and export limits from our work at quarry are well underway and improved operational efficiencies will continue to make Polaris a major contributor our company while transforming the aggregates side of our business. The business development efforts of our Polaris team on the customer seeing expanded agreements in new opportunities in North America and Asia.

The East region, which includes New York, New Jersey, Philadelphia, D.C., Virginia represented 33% of our revenue in this quarter. Demand is holding steady across all sectors. This market is also reliant on exacting specifications for high profile developments that require high performance concrete. In New York, we are delighted with the news of another superstructure being built.

JP Morgan Chase recently announced the plans were approved to demolish a building on the site of their future skyscraper. In addition, we continue providing concrete to LaGuardia Airport expansion as well as existing jobs in Manhattan, like 425 Park Avenue and the Hudson Yards. We are confident that we will see many of these new developments announced.

We forecast growth across all sectors in the five boroughs in Greater New York, New Jersey metropolitan areas. In Washington D.C. and Northern Virginia demand remained strong with commercial residential in the infrastructure projects all actively represented. Amazon HQ2 continues to dominate the development moves in the market through their own plans and through indirect economic impact.

The building of their 22 storey tire will have a far reaching economic impact, nearby housing units selling quickly and one apartment complex is proposing to add 1000 units in anticipation of the favorable impact the tire will have on the area. Our Central region, which includes Texas, Oklahoma, and USVI operations, represented 35% of our revenue this quarter.

Dallas Fort Worth continues to see significant economic and population growth. The rain has not kept companies from moving jobs to this area, which again supports our expectations that production will pick up and construction cycle will continue even longer than expected. We're seeing strong building activity across the entire area of this market. One example of this can be seen in recently announced construction project in Downtown Dallas, which will bring a new mixed use development with more than 5 million square feet of space to the heart of the city.

We are currently active on the Charles Swab Campus in Westlake, Texas, as well as the Fine Arts Center for Plano School District. The swift nature by which Texas Department of Transportation puts infrastructure projects into action and all of the sectors that continually planned new projects makes us very confident that this market will remain a significant contributor to our bottom line in 2020 and beyond.

Our West Texas Redi-Mix operations continue seeing volume improvements as weather's improved. Backlogging and bidding activity remains healthy led by commercial, residential, and public works projects. Our Key West Texas markets are driven by educational spends such as West Texas expansion in Amarillo, medical spend with significant projects in Abilene and Lubbock as well as continued demand from energy sector.

Texas is also a leading of leader in wind power producing more than any other state. We are currently pursuing this lucrative work and we have seen new major wind farm projects announced throughout the year. As mentioned on our first quarter call, we have begun modernization and expansion of our aggregate plant in Amarillo that support our downstream concrete operations.

In addition, we have begun commissioning of our Greenfield sand and gravel operation MW Ranch, located south of the DFW Metroplex, which should be fully online in the third quarter. Both of these investments support our continued strategic focus on aggregate revenue growth. Each of our markets presents their own positive outlook for continued building and growth, reaffirming our bullish outlook for our construction markets.

Now I would like to turn the call over to John to discuss our financial results.

John Kunz

Thanks, Ronnie. We generated total revenue of $368 million for the second quarter of 2019, with adjusted EBITDA of $42 million. Both revenue and adjusted EBITDA declined for the quarter due primarily to weather related headwinds are EBITDA adjustments for the quarter relate primarily to stock compensation, acquisition related costs, officer transition expenses proceeds received from insurance recoveries on our U.S. Virgin Island 2017 Hurricane losses and eminent domain proceeds received from the relocation of our plant in Washington D.C.

SG&A was 10.7% of revenue for the second quarter of 2019 compared to 7.9% in the prior year quarter. Adjusted SG&A excluding stock compensation acquisition related costs and officer transition expenses was 7.8% of revenue in the second quarter of 2019 compared to 6.9% in a prior year quarter, primarily reflecting the impact of lower volumes and revenue.

Stock compensation expense was higher as our annual awards were made at the beginning of March, but the valuation for accounting purposes did not take place until shareholder approval at our annual meeting in May. There was a meaningful increase in the share price between those two dates leading to an increase in expense. Had those dates been in sync as they were in prior years and as they as we expect going forward, our stock compensation expense would be more in line with prior years.

In 2019, we expect our adjusted effective tax rate to be approximately 27% for the full-year and our interest expense is expected to be in the $45 million to $47 million range. Our adjusted effective tax rate of 27% is based on the expectation that language unfavorable to manufacturers related to the interest deduction limitation currently included in the proposed regulations as remove by the treasury in the final version.

As of June 30, our total debt including current maturities with $716 million, this included $607.6 million of senior unsecured notes to 2024, $20.5 million outstanding on our revolving credit facility and approximately $96.7 million of other debt consisting mainly of equipment financing for new mixer trucks and mobile equipment, net of $8.1 million in debt issuance costs.

In addition, we reported $75 million in operating lease liabilities as of June 30. As of June 30, we had total liquidity of $224.4 million including $24.8 million of cash and cash equivalents and $199.6 million of availability under our revolver. At June 30, our net debt to adjusted EBITDA was 3.9x. As weather improves and volume ramps up in the second half of the year, we would expect to see a reduction in this ratio. We continue to have a solid liquidity position and no near-term maturities associated with our senior notes or ABL facility.

Moving to our cash flow and balance sheet. During the second quarter of 2019 we generated $18.7 million of cash provided by our operating activities as compared to $22.2 million in the prior year quarter, including the benefit of proceeds from insurance recoveries and eminent domain activity following the relocation of our Washington D.C. plan, we generated $14.1 million of adjusted free cash flow compared to $10.9 million in the prior year quarter. We continue to focus on managing working capital and capital expenditures in the coming quarters to generate increased cash flow.

Through the first six months, we made contingent consideration and deferred payments associated with our past acquisitions of approximately $16 million. In July, we made a $22 million payment for additional aggregate reserves at one of our sand and gravel quarries upon completion of the permit approval process. And the remaining five months of the year, we expect to make approximately $2 million more of payments.

During the second quarter of 2019, we spend approximately $10.9 million on capital expenditures, primarily related to plants and machinery equipment to support the continued demand in our markets compared to approximately $12.4 million for the same period last year.

For the full-year 2019 given the weather impacted first half results, we anticipate managing our capital expenditures lower than originally planned. We expect our capital expenditures to equal $30 million to $35 million in our equipment acquired through capital leases to equal $20 million to $25 million excluding capital for the development of the Texas aggregates quarry.

Our cash flow for operating activities expected to be in the range of 50% to 60% of adjusted EBITDA. We continue to see a robust demand environment as we look to rebound from weather impacted first half of the year. We anticipate continued solid cash flow generation along with sufficient liquidity to support our ongoing operational needs.

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

William Sandbrook

Thank you, John. We remain confident in the strong fundamentals, solid backlog and overall demand environment in our regions. However, based on the significant impact from the delays in the first half of the year, we are updating our guidance to reflect the uncertainty that there is enough time left in the year given contracted capacity constraints and driver shortages in some of our markets to make up the shortfalls in our original annual guidance.

As such, for the full-year 2019, we now expect total revenue in the range of $1.5 billion to $1.575 billion with the midpoint of $1.54 billion and adjusted EBITDA in the range of $195 million to $210 million with the midpoint of $202.5 million. While the first half of the year was disappointing, we remain very optimistic for the remainder of the year with strong fundamental economic indicators in each of our regional markets.

As the weather improves, we anticipate our solid backlog of work and ongoing pace to bidding activity to drive meaningful increase in the volume. That combined with our ongoing initiatives should generate positive momentum to finish out the year. We remain relentlessly focused on leveraging the strength of our team, our assets, and our market positions to drive increased profitability and cash flow resulting in improved shareholder value. Thank you for your interest in U.S. Concrete.

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. We will now open the line to questions. [Operator Instructions] Your first question comes from Trey Grooms of [U.S. Concrete]. Your line is now open.

Trey Grooms

Hey. Good morning, gentlemen.

William Sandbrook

Hey Trey.

Trey Grooms

First is on Polaris. Can you give us a little bit more detail on what was going on with the Polaris assets in the last quarter? I mean, you mentioned what – I guess is kind of like inventory build in the channel or a distribution point in the first quarter, and if I understood it right, it impacted the second quarter shipments. Just anymore color you can give us on that. And is that typical and it is that behind you at this point as we kind of go into 3Q?

Ronnie Pruitt

Hey, Trey. This is Ronnie. Yes, I mean, if you think about Polaris on a year-over-year basis, volumes were down about 3%. And in DFW, as Bill talked about, volumes and aggregates were down over 44%. So we talked about the first quarter weather impact, so Polaris continued to ship into California even though the demand wasn't there because of our downstream aggregate inventories.

And so that weather impact and the continued weather in the May that we talked about obviously affects the ability for us to continue to take Polaris materials in the Northern California. So it's just a lag. And as all the volumes pick back up in July and August, the distribution channel will even out. So as you say, it's normal. And when we see these hiccups in demand and we'll continue to see the ebbs and flows of the inventory.

Trey Grooms

And are you still thinking something in the kind of 6 million ton kind of run rate range as we kind of go into the back half here?

Ronnie Pruitt

That's still a good range. I don't think we see anything that's going to affect that range.

Trey Grooms

Okay, great. Perfect. And then next would be just on the guidance. The guidance for the second half implies a pretty good margin lift versus what we've been seeing the last few quarters here and understanding whether there's been an issue for you guys as well as everybody else. But as we look at the back half, what are you seeing that's really driving the expectation for the margin lift here – that's embedded in the guidance there. And then your thoughts around materials spread in the back half as well?

William Sandbrook

Sure. When you look at the back half of the year, Trey, we're obviously anticipating improved – in volumes really and the support in the DFW market specifically. That's really what penalizes during the current quarter is that we have 40 hour guarantees in place and it was basically walked out where the same quarter as a whole.

If you go back and look historically, at your volume – or your margin expectations, the margin expectations are no different than what they were really called back in the 2015, 2016, 2017 timeframe. So it's not unreasonable that that the margins are going to improve. I don't even think they hit the levels that we were back in the 2015, 2016 timeframe as a whole.

With respect to material margin, as Ronnie stated, our material margin is basically flat. But what we have said to everyone as well is, pricing in DFW has compressed a little bit. So if you take that out, if you take our DFW, just that that region out, we're actually up.

Ronnie Pruitt

Yes. Trey, I would add to that, and if you think about timing and we talk about this in the first quarter, timing of our raw material increases between the cement and aggregates usually taking place on April. And we always talk about the lag of ready-mix pricing.

I'm very encouraged from the standpoint of our second quarter results, our material margin did. I mean we were able to take on those increases even in weather affected markets and continue to maintain and grow that material margin.

And so I think from there it's all upside because I think all those prices that we've put in place are now catching up and so this additional volume will only play into a better material margin going forward.

Trey Grooms

Well, that sounds great. Thank you for the color and thanks for taking my questions. I'll pass it on.

William Sandbrook

Thank you.

Operator

Thank you. Your next question comes from Larry Solow of CJS Securities. Your line is now open.

Lawrence Solow

Good morning. Thank you. Just looking at that guidance for a moment from a high level, it sounds like obviously weather impacted both aggregates and the ready-mix. So fair to say that the adjustment is sort of, I realize aggregate is a small PC business, but both of those sort of were adjusted downward? Will you make up some of that aggregates maybe easier than, due to the inventory build easier than the ready mix piece?

William Sandbrook

Yes. The pull through is really what impacted our aggregates. And we would expect the somewhat a rebound, not a complete rebound in the aggregate, on the aggregate side of the business. So, that's a really what the adjustments were there. The adjustments on the ready-mix side are all weather related, right. It's mostly DFW, some Atlantic just because of the weather related headwinds there.

Lawrence Solow

Right. And just do your guidance going forward. Obviously, you mentioned you had enough – so far in July, whether it was good. July into August weather's been a lot better. Does guidance sort of assume, obviously some normalized down days and I realize that you can't make a lot of things. Opportunities just get shifted to the right. But if you have, I guess superb stretch of weather or you're able to actually, maybe not double down, but get additional opportunities to start going through the Q as well as delayed opportunities?

Ronnie Pruitt

Larry, this is Ronnie. So what we assume is normal. So we went back to normal, which was a 20 year normal weather pattern. And we take that all the way down to shipping days. So as you look at our ability to make up, and then I talked about even Northern California, the amount of slabs, a big mass pores we're doing on weekends. So Saturdays gives us some ability to make up.

Lawrence Solow

Right.

Ronnie Pruitt

But the markets still have their labor challenges. Not just our labor challenges for drivers. It's our customer's labor challenges we're actually placing and finishing as well. So we did bake in a normal weather pattern is what we assume as normal. And we also baked in catching up some, but as we've told you in the past, some of that deferred volume, it just prolongs and we're busier all through some of the weekends, but we can't make it all up at once.

Lawrence Solow

Yes. Understood. How about just in terms of the – you mentioned that still has some difficulty I guess in hiring, retaining, truck drivers. Is that improved at all or is that been basically sort of status quo year-over-year?

William Sandbrook

Yes, I would say in the Northeast, Northern California markets our driver pool is more stable, in the South in Dallas and even in some of the West Texas markets. Those markets are going to continue to be a challenge. I think that's something that you'll hear us repeat from now on.

And we've got all kinds of programs. We've got recruiting programs, we've got retention programs, we've got all kinds of things we're doing. We're not just sitting back and waiting on the drivers to come in our door, but it's always going to be a challenge and it's something we're taking head on.

Lawrence Solow

Okay. And on the price increases, on the ready-mix piece you mentioned, I think it was up 4% on average. Did a mix shift at all help that, perhaps obviously the Texas area was down significantly? Did that maybe skewed out a little bit and have you seen price improvement specifically in Texas or is that sort of a Q3 expectation?

William Sandbrook

Yes, I'll address the first half then I'll turn it back over to Ronnie for the outlook. There really wasn't a mixed impact or a marginal mixed impact. I realized DFWs lower price and we were down in volume there. But remember price is actually decreased in the DFW market on a year-over-year basis. So if you take DFW out of the equation, our prices would have actually increased more. So it really isn't a mixed thing. Absolute prices and all the other reasons are up except for DFW for the back half of the year. I'll let Ronnie address that.

Ronnie Pruitt

Yes. I would think in the back half of the year we'll see continued momentum on pricing in the DFW market. I'm expecting from our team in the sales efforts that we have that we're going to actually start seeing some improvement in the momentum of pricing in Texas.

Lawrence Solow

Okay. Great. Thank you very much. I appreciate it.

Operator

Thank you. Your next question comes from Brent Thielman of D.A. Davidson. Your line is now open.

Brent Thielman

Hey, thanks. Good morning.

William Sandbrook

Good morning.

Brent Thielman

Hey, Bill or Ronnie, can you talk maybe more specifically about some of the internal initiatives you're taking that they might be able to kind of weather some of these shorter term disruptions you've seen in the business. Obviously, you can't control volumes, but how that might help to at least provide a little protection to margins when you see these shorter term gyrations?

William Sandbrook

Yes. So from an initiative standpoint, we have both corporate and regional initiatives and those initiatives are really focused on raw materials, labor and commercial. And so as you start breaking that down into what we're talking about with mix optimization and really honing in on every single mix and not having any waste of raw material cost or anything else that goes into the mix of concrete.

On the labor side, it's labor from driver efficiencies from the way our customers pour concrete from the way they treat our trucks in their ordering methods from their cancellations. It's the full gamut, literally from cradle to grave on every single thing in our processes of our customer touch points, our driver touch points, and our back office consolidation.

And then on the commercial side, we've talked about the CRM in the meetings we had in Dallas with our regional VP, GMs and our sales folks, it's the way we sell concrete. It's the way we price concrete. It's the way we look at every job. It's our leads.

So I can tell you, Brent, I mean in every single aspect of our business, we're trying to streamline and figure out not only the best way to do it today, it's how are we going to change the way concrete business is looked at in the future, and that's our real goal, this is a very mature business and you've been around it a long time too. We've got to change the way the business is done.

Brent Thielman

Okay. I appreciate that color. And on aggregates, are you starting to have discussions kind of on the next round if price increases – given the strength of some of the markets are in, I mean, do you think you could see something in excess of what you've experienced today?

William Sandbrook

I do. I think again, from an aggregate standpoint, I think there's a potential especially in our Polaris markets that we serve there as well as some of the DFW markets that have potential for a second round of increases at the tail end of the year.

Brent Thielman

Okay. That's great. And I'm sorry if you said this. Was the EBITDA contribution from Polaris still up year-on-year such as the flat segment EBITDA versus last year was kind of dragged down from the challenges in the other markets?

William Sandbrook

Yes, we were flattish compared to last year with respect to EBITDA.

Brent Thielman

Okay. And last one just on, the ready-mix price. Are you sort of beyond this year-on-year headwind of this mix shift out to the boroughs in the New York market? Is that kind of, we compare it to last year – beyond that?

William Sandbrook

Yes. I think so. I think that's a fair assessment.

Brent Thielman

Okay, great. Thank you.

Operator

Thank you so much. Your next question comes from Stanley Elliott of Stifel. Your line is now open.

Stanley Elliott

Good morning, guys. Thank you for taking the question. I apologize if I missed it. Did you talk about kind of what the volume came had been in the recovery in July or would you care to?

John Kunz

Yes. I mean if you just look at July, we're up in our volumes on a year-over-year basis. Remember Q3 last year, really what impacted us was late August, September. September was complete washout in a most of our regions. So that's really where we were impacted. July wasn't impacted much at all. And we're up in volumes year-over-year.

Stanley Elliott

And when we think about kind of a contractor, the constraints that we're seeing with driver shortages, et cetera, I mean is it possible – in difficult comparisons or relative on July and August, is double-digit ready-mix volumes achievable, especially when we think about kind of the opportunities you all have in the month of September?

John Kunz

Double-digits percentage increase?

Stanley Elliott

Yes.

John Kunz

Quarter-over-quarter – third quarter.

William Sandbrook

Yes. I would think – yes. So I would say we can achieve that.

Stanley Elliott

Great. And the last for me, Ronnie, you talked about, the cost saves you guys have. Is there any way to ballpark what sort of margin opportunities you all have? Because I mean clearly you guys are industry leaders in terms of margins and just try to get a framework of what sort of upside there might be from already very strong margins?

Ronnie Pruitt

In our anticipation and our goals would be north of 16% on a run rate in the next year. That would obviously be world-class. And I think from the all the background that we've done, I mean we've gone through every single number and setting goals on all kinds of aspects that we believe that's achievable.

William Sandbrook

And Stanley, this is Bill. If you're a member, we've had a three year – the entire industries had a three year run of abnormal weather. If you would look at 2016, 2017, 2018 compared to, let's say 2013, 2014 and 2015, it's not even comparable on a weather basis.

And when we were hitting those margins up in the 2015s, we had this discussion with the whole market of how high we could go. And aspirationally we are always targeted 2017. Now it seems like a long time in the rear view mirror, and it's only because of the weather impacts that we've had over the three years.

If you look at our portfolio, now compared to three years ago, the last time we really had a good, yearly run rate of weather. Our portfolio is now more heavily aggregate weighted, which is going to help that margin profile. So if we can get into a stretch of weather like we had in 2013, 2014 and 2015, it is not unrealistic to maintain and exceed those prior expectations that we had.

Stanley Elliott

Great guys. Really appreciate it. Thank you.

Operator

Thank you. And your next question comes from Adam Thalhimer of Thompson Davis. Your line is now open.

Adam Thalhimer

Hey, good morning, guys.

William Sandbrook

Good morning.

Adam Thalhimer

The ready-mix backlog 8.5 million cubic yards, I believe that's a record for you guys. Can you give us a little bit of help on how much of that was projects that were delayed because of weather and how much of that is just a strong pipeline, and funnel, and roads?

John Kunz

Yes. We talked about the deferred volumes in the DFW market. And so some of that has rolled into our backlog, but as well we're still very, very active in all of our markets on bidding and placing new yards on our backlog. So I would say there is a mix there. Definitely we see some deferred, but we also are continuing even into this month selling as much or more than where – then we're pouring.

Adam Thalhimer

And Bill, like you kind of just answered this question. You have had flat EBITDA for a couple of years and a lot of that is weather, but just what else can you say about the potential for a snapback in 2020?

William Sandbrook

Well, I wouldn't defer to the corporate initiatives that Ronnie is heading up, both of the tactical and back office level and as well as increased volumes from Polaris and our Greenfield operations in Texas. That whole combination of tactical and strategic portfolio realignment leads to significantly improved margins.

Adam Thalhimer

All right. And then just last one for me. For John, can you get us some help on them? Trying parse, to your free cash flow comments and then also a couple of payments you still have left in the back half of the year. How much cash do you think you might actually generate that could be used to paydown debt?

John Kunz

We just made a $22 million payment we're expecting a pretty solid cash flow in Q3, really in Q4 from our results. It's not going to be that significant in light of that payment, but there's certainly be some excess cash flow we use the generate and paydown debt from going forward. Once we got the $22 million payment out, there's not much as far as the contingent in different payments left. So there's only about 2 million left. So that was the biggest one.

Adam Thalhimer

But it should be at least $20 million, right?

John Kunz

Yes, I would think that's well, that's your number, but yes, that's certainly within reason. That's right.

Adam Thalhimer

Great. Okay. Thanks guys.

Operator

Thank you. And our next question comes from Rohit Seth of SunTrust. Your line is now open.

Rohit Seth

Hey, thanks for taking my question. Just curious if you can update us on the permitting with the Polaris. You talked about potentially expanding that permit there?

William Sandbrook

We're talking about two phases of that ones the permitting of the ship loader itself, which is – within what we described well on pays meeting our expectations. It's just like the governmental things that we have to go through. And then the second one was the Black Bear expansion and in that project as well is within the guidelines we've talked about before from a permitting and engineering standpoint. So we're full steam ahead on both of those.

Rohit Seth

Do you have any sort of timeframe on the first phase?

William Sandbrook

So the first phase on the ship loaders, it's not critical. It's really more tied to the bringing on a Black Bear. And we have plenty of capacity there to meet the expectations that we've set for Polaris shipments into this year and next. So that's not a critical path force that's more critical tied to the permitting of Black Bear.

Rohit Seth

Okay. I thought that permit would have allowed you to ramp up without having to expand the quarry?

William Sandbrook

We already had the capacity there with the ship loader to do what I do. So that's not as critical as it is tying it all together because the same ship loader will be used with both quarries. So if you think about Black Bear being a different quarry, but it will all come through the same funnel of the ship loader. So that's those two projects are tied significantly together. So that's why it's all working in lock step together.

Rohit Seth

Okay. So where we would Polaris in terms of how much can you shift on those existing permits that you have before any expansion?

William Sandbrook

So we've made it clear that our expectations was six and we can get up to eight and we can do that now.

Rohit Seth

Okay. All right. That's all I had. Thank you.

William Sandbrook

Okay, thanks Seth.

Operator

[Operator Instructions] I am showing no further questions at this time. I would now like to turn the call back to Mr. Bill Sandbrook for closing remarks.

William Sandbrook

Thanks Lady. And thank you everyone for participating in the call this morning and for your continued support of U.S. Concrete. This concludes our call and we look forward to discussing our third quarter with you in November.

Operator

Thank you so much for participating today. You may now disconnect. Have a wonderful day.

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