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US Concrete Inc (NASDAQ:USCR)
Q1 2019 Earnings Call
May. 9, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the U.S. Concrete Incorporated First Quarter 2019 Financial Results 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 is being recorded.

I would now like to introduce your host Mr. John Kunz, Senior Vice President and Chief Financial Officer.

John E. Kunz -- Senior Vice President and Chief Financial Officer

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

Before I turn the call over to Bill, I would like to cover a few administrative items. A presentation to facilitate today's discussion is available in the Investor Relations section of our website. As detailed on Page 2 of our presentation, today's call will include forward-looking statements as defined by the U.S. Private Securities Litigation Reform Act of 1995. Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially. Except as legally required, we undertake no obligation to update or conform such statements to actual results or changes in our expectations. For a list of these factors, please refer to 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 E-mail Alerts. If you would like to listen to a replay of today's call, it will be available in the Investor Relations section of our website under Events & Presentation.

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

William J. Sandbrook -- Chairman and Chief Executive Officer

Thank you, John. Good morning, ladies and gentlemen, and welcome to our call. Before we discuss our 2019 first quarter results, I would like to formally welcome Ronnie Pruitt, our President and Chief Operating Officer to the call. Ronnie has been part of our leadership team since October of 2015, and many of you have already had the pleasure of working with him. Ronnie is a seasoned operator and a proven leader with great strategic vision, who will be helpful in guiding the company in the coming years. You'll hear from him a little later in the call, but please join me in welcoming Ronnie and congratulating him on his recent promotion.

Moving on to our results. This morning we announced our 33rd consecutive quarter of year-over-year revenue growth, despite continued challenges with what is becoming a recurring negative weather pattern. While the weather has a significant influence on our results, I think there is more that we can do to improve our performance. With our decision to moderate the pace of acquisitions in light of our leverage, it has given us the opportunity to redirect our efforts and focus on process improvements and integration rationalization which will further improve our results. These process improvement initiatives will help us leverage technology to fortify the strength of our market positions and improve our operating margins, allowing us to be more agile in our operating response to short-term pressures, while positioning us to capitalize on the robust demand in all of our regions.

When we reported our year end 2018 results a few months ago, we stated that our outlook and the overall fundamentals of the business were much stronger than some observers would have led you to believe. Although the financial markets, particularly in our space, have improved over the past several months, we continue to believe the current market valuation of our business does not support the fundamental strength of our market position in each of our core markets, nor our current position in the cycle. There remains a solid runway of demand in all of our regions supported by an 8.1 million cubic yard backlog, positive trends in the overall construction market, historically low unemployment, continued low interest rates and strong consumer sentiment. We expect these fundamentals to remain in place throughout the remainder -- remainder of the year and into 2020.

For the quarter, we reported total revenue of $333 million, up 1.6% over prior year with adjusted EBITDA of $34.5 million. During the first quarter of 2019, ready mix volumes of 2.1 million yards were down about 1% over the prior year quarter, while our aggregate volumes of 2.5 million tons were up 17% over the prior year quarter. Despite the increment weather in the first quarter, especially in California, our adjusted gross profit was up 5% over the prior year quarter and adjusted gross profit margins expanded by 60 basis points. A significant driver of the positive momentum in operating profit was the growth in our higher margin Aggregate segment.

On the of the 2.5 million tons of aggregates sold during the quarter, we generated adjusted EBITDA of over $10 million for the segment, more than double the prior year quarter, and a record for aggregates in the first quarter. Polaris led the aggregate segment improvement with year-over-year increases in volume and adjusted EBITDA of 25% and 106% respectively. Our U.S. Virgin Islands operations also showed meaningful improvement, as the islands continue to recover from the 2017 hurricanes. Needless to say, we remain extremely bullish on our continued growth in this segment and remain on track with our plans in Polaris.

Turning to our ready mix concrete results. It was a challenging quarter for already mixed regions, particularly in Northern California, where the weather related headwinds once again took their toll. However, despite the headwinds, our volumes were relatively flat for the quarter, while our overall average selling price increased 2%, from $136.99 in the prior year quarter to $139.60 in the current quarter. Gross profit margins in the ready mix segment contracted for the quarter largely as a result of the inefficiencies caused by weather and time plant relocation expenses in New York. Overall, our ongoing focus will be on our strategic initiatives, our processes and our utilization of technology to more effectively manage and respond to the ever changing impacts of the weather, labor and raw material inflation may have on our margins. These initiatives have the attention of every manager in our organization and we are optimistic and excited about the potential they will have on increasing our profit and driving transformational change within our organization.

Now I'll turn the call over to Ronnie to discuss our regional operations.

Ronnie Pruitt -- President and Chief Operating Officer

Thank you, Bill. I appreciate the kind introduction earlier, and look forward to continuing to work with you to improve value for our shareholders. In order to more effectively drive our strategic initiatives within the organization. I recently reorganize our operations management team. These changes will allow us to more effectively evaluate, manage and drive our strategic initiatives within each region. Beyond organizational changes, we've been actively developing and implementing our proprietary software, where is my concrete, which will help manage multiple processes within our concrete business, including customer and project level management, truck tracking, billing and overall data analytics.

The successful development and rollout of where is my concrete, will allow customers to gain transparency around their deliveries and projects and will help improve our collective decision making throughout the entire manufacturing and delivery process. As part of where's my concrete, we have developed a proprietary customer relationship management tool that is focused on our needs as a concrete producer as well as those of our customers. It is designed to enhance the customer experience and bring significant value to them by providing them with real-time information, as well as utilizing defined processes and key metrics internally to drive targeted margins on future work being quoted in all markets.

As we slowed the pace of acquisition activity we experienced over the last six years, we are taking the opportunity to evaluate every aspect of our business and develop operational, financial and technical initiatives within each region and segment of our business that will change the way we operate. These initiatives will improve our operating leverage, our customer service, our business processes, and most importantly, improve our ability to operate more efficiently in our seasonal industry. I would now like to take you through our regions and highlight some of the key areas that are driving our results.

Our West region, which consists of Northern California ready mix operations, as well as our Polaris aggregates represented approximately 26% of our revenues this quarter. Demand remained strong in Northern California markets across all sectors. SB1 infrastructure projects continue to enhance the demand of our ready mix concrete and aggregate products as more new projects have begun. We are seeing major construction projects in San Jose, the heart of our local operations. San Jose State recently broke ground on a 160,000 square-foot science building, and the city of San Jose broke ground on 135 units affordable housing project.

Additionally in the Bay Area, our backlog includes, Google Mountain View project, (inaudible) LinkedIn South Bay, SFO Terminal 1 and Adobe North Tower office building. The performance of Polaris continues to exceed expectations and determines the pace at which the business had ramped up. Volume and revenue for the first quarter were up 25% and 24% respectively, and adjusted EBITDA more than doubled from the prior year's first quarter. We we're on track to hit our projections for Polaris supported by the demand coming from Northern California, Southern California and Hawaii, and also continue to entertain inquiries from China, Korea and more recently another Pacific Rim country. We are pursuing increased permitting for our ship terminal and anticipate finalizing in the upcoming quarter. The new permit will allow us to ship over 9 million tons of our current load-out facility on Vancouver Island.

We also continuing to plans to develop the Black Bear quarry, which will further increase our overall production capacity. We remain confident with our projection to ship over 6 million tons of aggregates in the current year and continue to see further upside in this business. Our Central region, which includes all of our Texas, Oklahoma and USVI represented 39% of our revenue this quarter. Dallas, Fort Worth, our largest market in this region continues to see significant population growth with a steady stream of corporate relocations to the area like Toyota, J.P. Morgan Chase and most recently Allstate Insurance.

Recent estimates show that DFW led the nation in new residents from 2017 to 2018 with more than 30,000 homes constructed last year, making DFW the fourth largest metropolitan area in the country and ranked by realtor.com as the place with the most new home construction in the nation. This will certainly affect commercial, residential and infrastructure construction in the Metroplex. With nearly 2,000 DOT projects planned and under way, we continue to remain very confident with demand in this market.

The West Texas ready mix markets also continue to be a significant contributor to our results, supported by strong demand performance across all sectors. Commercial and residential construction is showing increased demand and adding to a healthy backlog. Infrastructure is also very active with major projects planned for the rest of the year. The Abilene School District anticipates spending $250 million on infrastructure through their fiscal year. The Permian Basin rig count remains at elevated levels and our portable division has multiple project pipeline throughout the remainder of the year. With further enhanced vertical integration from our recent acquisitions in the region, we are growing stronger operationally and look forward to seeing this market thrive.

On the aggregate front in Texas, we successfully broke ground on our Greenfield Sand and Gravel operation operation, MW Ranch located south of Metroplex. We anticipate being fully on line with the state-of-the-art production facility in mid to late summer of 2019. We also will be enhancing our recently acquired Sand and Gravel operation operations in Amarillo, Texas, which will add needed capacity as well as lowering production costs.

In the East region, which includes New York, New Jersey, Philadelphia and DC, Virginia represented 35% of our revenue this quarter. New York Governor Andrew Cuomo continued his support of local infrastructure spending by signing the $175 billion state budget that adds funds to the Metropolitan Transportation Authority. This represents another effort by the States to address their infrastructure investment needs. Another major win for infrastructure funding in the region came from American Airlines and British Airways, who committed $344 million to expand the John F. Kennedy Airport as part of a planned $13 billion redevelopment at JFK. This relieves the Port Authority of New York and New Jersey from having to fund the expansion and allows them to address other infrastructure needs in the region. The Real Deal, a publication focused on real estate news ran an article on the 10 largest towers under way in New York City. And of the 10 listed, U.S. Concrete participated in eight of the 10, depicting a very strong franchise for the high profile private sector work.

In Washington D.C. and Northern Virginia, demand remained strong across all sectors with commercial, residential and infrastructure projects all actively represented. Amazon HQ2 is advancing as expected with the recent signing of the initial agreement by two major development sites with over 4 million square feet in the Crystal City area. As you can imagine, this incredible addition to Metro DC creates the need for appropriate infrastructure to support the 25,000 jobs that will be coming with HQ2. Earlier this year, Virginia approved $195 in funding for infrastructure projects with specific improvements plan to support the needs of HQ2. In Northern Virginia, Loudoun County, labeled the world's data center hub, residents and the construction are equally benefiting from the data center boom which is driving economic growth, the reduction in real estate tax rates and raises for County employees. Each of our markets present their own positive outlook for continued building and growth, reaffirming our bullish outlook for our construction markets.

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

John E. Kunz -- Senior Vice President and Chief Financial Officer

Thanks, Ronnie. As Bill mentioned, we generated year-over-year quarterly revenue growth for the 33rd consecutive quarter with total revenue of $333 million for the first quarter of 2019. Adjusted EBITDA of $34.5 million was down slightly from the first quarter of 2018, due primarily to weather related headwinds. In our Northern California market, where the weather was most impactful during the quarter, our adjusted EBITDA was down $5.7 million from the prior year quarter. In addition, we incurred $850,000 of onetime costs associated with the relocation of two ready mix plants in Brooklyn, a new location that will be more cost effective and operationally efficient.

Our adjustments for the quarter relate primarily to stock compensation, acquisition related costs and the loss of trucks damaged in the fire. For our ready mix business, our material spread margin was 48.6% for the quarter, and our material spread on dollar per cubic yard basis was $66.94. SG&A was 9.6% of revenue for the first quarter of 2019, compared to 9.8% in the prior year quarter. Adjusted EBITDA, excluding stock compensation and acquisition related costs was 9.1% of revenue in the first quarter of 2019, compared to 8.4% in the prior year quarter, primarily reflecting the impact of increased marketing expenses, severance and certain personnel related costs.

Adjusted gross profit margin increased 60 basis points in the first quarter of 2019, compared to the prior year quarter, as our high margin aggregates business continues to become a larger part of our consolidated results. In 2019, we expect our adjusted 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. As of March 31st, our total debt, including current maturities was $709 million. This included $608 million of senior unsecured notes due 2024, $70 million outstanding on a revolving credit facility and approximately $93 million of other debt consisting mainly of equipment financing for new mixer trucks and mobile equipment net of $9 million in debt issuance cost.

In addition, due to the implementation of a new lease accounting standard effective January 1st, 2019, we reported $76.3 million in operating lease liabilities as of March 31st, which are now on our balance sheet in accordance with the new terms of the accounting standard. The implementation of the new standard had no impact on our first quarter cash flows. As of March 31st, we had total liquidity of $225 million, including $24 million of cash and cash equivalents, and $201 million of availability under our revolving credit facility. At March 31st, 2019, our net debt to adjusted EBITDA was 3.6 times. We remain focused on reducing our leverage in the coming quarters as we focus on managing our costs and using our excess cash to pay down debt. We continue to have solid liquidity position and no near-term maturities associated with our senior notes or ABL facility.

Moving onto our cash flow and balance sheet. During the first quarter of 2019, we generated $21.9 million of cash provided by our operating activities as compared to the $25.9 million in the prior year quarter. We generated $15.1 million of adjusted free cash flow compared to $19.5 million in the prior year quarter. We will continue to focus on managing working capital and capital expenditures in the coming quarters to generate increased cash flow. However, I would like to remind you that in 2019 we expect to make approximately $17 million in contingent consideration payments associated with past acquisitions, and an additional $23 million will be used for the expansion of reserve at one of our sand and gravel operation that is contingent on various permit approvals.

During the first quarter of 2019, we spent approximately $7.2 million on capital expenditures, primarily related to our plants and machinery equipment to support the continued demands in our markets, compared to approximately $8.4 million for the same period last year. For the full year of 2019, we anticipate our capital expenditures to be in the range of $60 million to $70 million, including equipment acquired through capital leases, but excluding capital for the development of the Texas aggregates quarry. Additionally, we are still on track to receive reimbursement from the government in the second quarter for eminent domain costs associated with the relocation of our Washington D.C. operations.

Our cash flow from operating activity is expected to be in the range of 50% to 60% of adjusted EBITDA. We continue to see a robust demand environment as we head into the peak season of 2019 and 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 J. Sandbrook -- Chairman and Chief Executive Officer

Thank you, John. Turning to our outlook for 2019. Although our first quarter fell short of our expectations due to abnormally wet weather in California and some unforeseen onetime costs, we are confident in the strong fundamentals, solid backlog and overall demand environment in all of our regions. As such, we reaffirm our guidance for 2019 with total revenue of approximately $1.6 billion and adjusted EBITDA in the range of $205 million to $225 million with a midpoint of $215 million.

We remain bullish on 2019 and are optimistic about the benefits we expect to see from our operational initiatives in a vibrant economy. We believe our extremely talented employees equipped with high quality assets, operating in well-structured markets, possessing close customer relationships all align to drive significant positive improvement in our operating model and performance metrics will result in increased shareholder value. Thank you for your U.S. -- 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.

Questions and Answers:

Operator

(Operator Instructions) Your first response is from Trey Grooms of Stephens.

Trey Grooms -- Stephens Inc. -- Analyst

Hey, good morning everybody. It's Trey Grooms.

William J. Sandbrook -- Chairman and Chief Executive Officer

Hey, Trey. Good morning.

Ronnie Pruitt -- President and Chief Operating Officer

Hey, Trey.

Trey Grooms -- Stephens Inc. -- Analyst

So Just kind of taking a step back on and looking at the margins here, clearly kind of a tough quarter with -- from a weather standpoint and I understand that impacted, but you had some other things going on. But as we kind of look at input cost inflation and then also kind of the ready-mix price outlook that you guys have in any other factor that are kind of moving around, how should we be thinking about the material spread and margins on the ready-mix business as we look through the rest of the year?

Ronnie Pruitt -- President and Chief Operating Officer

Hey, Trey, this is Ronnie. Thanks for the question. I would say first let's start off with comparing to the Producer Price Index for ready-mix concrete across the entire country. The Producer Price Index was down 1% year-over-year. Our ready-mix pricing was up 2% and so I think we're being able to pass along material cost. I think where you're seeing and what we're noticing is why we have our operational initiatives are our ability to control the variable side and it is difficult with the weather that we did experience. It is difficult with the driver situation that we face across the entire country with the guarantee pays that we have for our drivers and all those things that we talked about in the past.

But with these initiatives we are putting in place, I mean, we are going to really focus on three key areas. So the first area will be labor, one of our biggest input cost is labor. And labor just doesn't impact these drivers. It's labor cost for drivers, mechanics, back office employees and overall process side of it. The other one is raw materials. Our ability to not only negotiate and maintain the spread that we get with our buying power which we continue to have, but it's also the use of those raw materials and mix optimization and making sure that we are following the prescribed mixes.

And then the last one is on the commercial side is really pricing improvement. And some of that just leadership in our markets and what we need to be doing blocking and tackling with the commercial side, and the other is the improvement with our customers relationships management tool that we are currently in development of and that tool will give us a lot more insight into not only the things we are doing internally from an operational standpoint, but also our customer behavior and trying to capture more value around how customers not only treat our equipment but the ordering behaviors, their placement behaviors and all the things that influence our pricing. So I think overall we're trying to get more control and appreciate your question.

Trey Grooms -- Stephens Inc. -- Analyst

All right, thanks for that Ronnie and that kind of leads into my next one on the development and rollout of where is my concrete that you guys have been working on, I guess last several months. What's the timing as you kind of looking at the rollout there and what's the opportunity that you see with that?

Ronnie Pruitt -- President and Chief Operating Officer

So timing wise, we are fully online with where is my concrete as the dispatching system for the Atlantic region. Then next one will be California and we will do that over the next three to five months California will be rolled out and then Texas would be after California. The CRM, it's separate but it's together but we are going to roll out the CRM on a different schedule. We rolled it out in D.C. and it's kind of a test, it was a smaller market for us to do and then now we are rolling it fully into the Atlantic region and then California would be next and timing wise California would -- it will probably go a little bit ahead of the dispatching system and then Texas would be behind that.

As far as opportunity goes, I mean, when I talk about initiatives, the initiatives are not around system but the systems are the tools to give us the analytics to measure the impact of our ability to successfully drive these initiatives. So it is a tool for us to be better, be smarter, be more predictive and I really use the words in the ready-mixed industry not just U.S. Concrete. The overall, ready-mixed industry were very reactive. We react a lot, we show up everywhere we react. What we need to be is more predictive, we need to be able to understand forward-looking orders, forward-looking weather, forward-looking impacts of labor. And that's what the tools going to give us, is more predictive analytics around pricing decisions, around labor, around labor savings, around how we schedule. I mean, all those things that we show up and do on a daily basis today, we're just being more reactive and we need to be more predictive. So, I think that's the greatest opportunity. It's going to be more controllable and allow us to capture more margin through those controls.

Trey Grooms -- Stephens Inc. -- Analyst

All right, thanks. It sounds pretty exciting. And then, I guess the last one from me is just the mentioned $23 million potentially being spent pending I think approval, expanding some reserves at one of your Texas sand and gravel quarries. Any more data, is that a new quarry or expanding existing any other detail you can give us on that, maybe the timing of when you'd expect something on the approval.

John E. Kunz -- Senior Vice President and Chief Financial Officer

So Trey, the $23 million is in relation to our quarry in New Jersey and it's an existing one that -- it's new reserves that will be added through that one. The MW Ranch that I referred to in Texas is a Greenfield operation and we're under construction right now set to be in operation mid of late summer 2019. So those are two separate things, the $23 million was only referring to pit reserves at Quinton our sand and gravel operation in New Jersey.

Trey Grooms -- Stephens Inc. -- Analyst

Okay, thanks for clearing that up, sorry I misunderstood. Well, thanks for taking my questions, I'll pass it on. Thanks and good luck.

John E. Kunz -- Senior Vice President and Chief Financial Officer

Thank you.

Operator

Thank you. Your next response is from Scott Schrier, Citi. Please go ahead.

Scott Evan Schrier -- Citigroup Inc -- Analyst

Hi, good morning. I wanted to ask a little more broadly speaking on all of these internal initiatives to improve your cost structure. Can you talk about what we're thinking in terms of cost to implement, I know you talked about some of the timing but overall maybe some of the magnitude of the benefits you anticipate and perhaps how that incorporated into your guidance.

William J. Sandbrook -- Chairman and Chief Executive Officer

So as far as cost to implement the initiatives, it's all internal, it's all internal staff, we're not bringing in outside consultants to do this. We've got teams put in place in every region, we've got corporate representatives from corporate that are working directly with those teams. So it's all internal, as far as this systems goes, we're developing that all internally our own internal IT group is responsible for that. So they're working hand-in-hand which is really what gives us the greatest level of confidence in what we're doing because we're developing this as a ready-mixed company.

This is not something that we're just going and buying some off the wall, off the shelf program and trying to make it fit ready-mixed is what we've done In the past and we're in. So we're -- our ability to control that but the implementation cost is really just our internal efforts and it's our day in and day out people, it's not -- we're not hiring new people to do that.

Scott Evan Schrier -- Citigroup Inc -- Analyst

Got it, thanks. And then, as we think about the -- your previous answer to the material spread margin and the improvement. Can you speak to the cadence through the year we might see the improvement in the material spread and just walk us through mechanically is there a lag between the price increases by the aggregate producers and then your ability to put your prices through. Are those more tying with the cement price increases? So if you could just walk me through well, how maybe some of those lags might also have impacted the material spread margin and the timing in which we should see it improve?

John E. Kunz -- Senior Vice President and Chief Financial Officer

And so Scott, with respect to Q1, we're seeing about a $0.60 improvement in our material spread on a $1 for cubic yard basis improvement. I would expect to see that continue as we go throughout the year. When you're looking on a margin basis, we were down 20 basis points in Q1, I would expect that to be slightly flattish maybe down. But as Ronnie mentioned with respect to our initiatives, we're going to offset a lot of that material margin and to shift some of that material margin is mix as well. So those two should certainly offset it.

And as you look at our guidance for the remainder of the year versus where we were last year, you're going to see improvement in each of the coming quarters over prior year results. So you're going to see an overall improvement in our bottom line EBITDA margin numbers.

William J. Sandbrook -- Chairman and Chief Executive Officer

And Scott, one other things that I'd like to add to that is the fairly flattish material margin spread in first quarter was actually a good outcome when you think of the shift of the mix shift of volume from our highest material spread area California to one of our lower ones or lowest in Texas. So that mix shift for us to overcome that and stay relatively flat was a good outcome just because of the math.

Trey Grooms -- Stephens Inc. -- Analyst

Thanks for that, Bill, that's helpful. And one more from me, on the comments on slowing the acquisition strategy which you've obviously done over the past several quarters with leverage where it's at. Are you thinking about is there a level of leverage that you've got to and then you start to maybe look for more acquisitions? Or are we sort of slowing down for this cycle and going to focus this free cash flow that you generate on perhaps some of these internal initiative that you spoke about, quarry expansions and more organic opportunities instead of going back out into the acquisition market. Thank you.

John E. Kunz -- Senior Vice President and Chief Financial Officer

Sure Scott, and that's a good question. Obviously, we are focusing internally now as Ronnie had mentioned. These are fairly low cost, there is very limited incremental costs associated with that, with those self-help programs. As far as slowing down the acquisition pace in our target leverage, we've always wanted to be in the mid two's, we're working our way slowly down that way. I think we came down from a 3.9% to 3.6% on our leverage this quarter. We do look at the cycle but the interesting problem right now or conundrum is that they're still remains a big disconnect between public and private valuations that when ready-mixed producers or even private quarry producers are making more EBITDA than they have for sure in the last 10 years, some more than they've made in their entire life, they don't want to hear that they're value has been significantly diminished as the stock market has diminished our value as well.

So it's very difficult to meet seller's expectations in the new valuation world. So that's one problem of getting good deals out there. And we are obviously always aware of where we are in the cycle, our leverage relative to that. But we're not going to say we're stopping, if we find compelling one off deals and we try to find deals that don't attract an option, do not attract strategic investors that are accretive and additive to our strong regional positions. We will still selectively do small bolt-ons that will be very accretive. But we are aware of our leverage and where we are in the cycle for sure.

Trey Grooms -- Stephens Inc. -- Analyst

Great, thanks a lot for that Bill and good luck gentlemen.

William J. Sandbrook -- Chairman and Chief Executive Officer

Sure Scott, thank you.

Operator

Thank you. Your next response is from Craig Bill of CJS Securities. Please go ahead.

Craig Martin Bibb -- CJS Securities -- Analyst

Hi, guys. So could you talk about -- you have the internal focus on improving margins with greater efficiency. It sounded like most of those initiatives are directed toward kind of gross margin. How long does this play out and how high is up?

William J. Sandbrook -- Chairman and Chief Executive Officer

As far as how long does it take to implement or are you telling me how long -- they better be everlasting.

Craig Martin Bibb -- CJS Securities -- Analyst

How long does it take to implement and are we talking about like a plus a 100 basis points or plus 50 or?

John E. Kunz -- Senior Vice President and Chief Financial Officer

Yeah, I would say it's probably going to be in a 150 range, 150 basis points to 200 basis point range. We think there is that amount of opportunity there. Overall, and it'll take more than the next four quarters. We're talking 12 of the potentially 24 months would ultimately play out. We see a lot of opportunity, when all the things that Ronnie mentioned out there, as far as actions that we can take and just improvements on the things that we have seen in the past year which we think are low hanging fruits that should allow us to achieve these results. So it's -- the initiatives are near term but as Ronnie said, it's going to be a continuous improvement environment where we're not going to stop. We think there is a pretty steep slope going upwards in the coming quarters, but we'll continue to push even after that as well.

William J. Sandbrook -- Chairman and Chief Executive Officer

And Craig, I'd add to John's comments on -- some of these initiatives that we're talking about especially with technology being the tool, are really transformation and we're talking about changing not only people's behaviors but the way they think in the concrete industry. Because at the end of the day, our process is the way we price, the way we deliver. All these things are going to be looked at and the amount of data that we have today and then we will be gathering in the future to make it smarter. That's good but if we don't make better decisions with it and really is meaningless. So that's really where when John talks about the timing of this, it's really transformational. And so, it's not something that you snap your fingers and all of our people wake up overnight and make these decisions because we're really changing the way we look at every aspect of our jobs.

Craig Martin Bibb -- CJS Securities -- Analyst

And do any of your competitors have anything like where is my concrete?

John E. Kunz -- Senior Vice President and Chief Financial Officer

Two other dispatch systems out there, we believe where is my concrete gives us a distinct advantage because of it being developed by a concrete and us being able to drive the changes, the growth of it, the modifications to it and really drilling down into things that drive our business. So embedding our own KPIs with our own goals within a system that helps us make better decisions, we think is key. There is other job that they are developing their own portal systems, their own customer relationship tools but they're more tied mainly to raw materials and not specifically the concrete. So we think we have a very distinct advantage around the technology that we're developing.

Craig Martin Bibb -- CJS Securities -- Analyst

Okay. So you have a new -- the Greenfield scene in gravel plant and outside of Dallas it's going to open this summer at some point. That's going to take your percentage of internally sourced sand and gravel from what to what?

John E. Kunz -- Senior Vice President and Chief Financial Officer

The immediate impact isn't going to be that significant in the current year because we're going to be balancing some of the sand and gravel that we have from other internal sources. So our internal consumption is still going to be in that 30% to 40% range. Over longer term, you'll see some improvement of it but I wouldn't say there is going to be that much in '19.

Craig Martin Bibb -- CJS Securities -- Analyst

Okay. And then, (inaudible) where he had raised prices for ready-mixed in Dallas in April. Is that sticking and are you guys getting acceleration in price in Q2?

William J. Sandbrook -- Chairman and Chief Executive Officer

As far as ready-mixed pricing?

Craig Martin Bibb -- CJS Securities -- Analyst

Yeah.

John E. Kunz -- Senior Vice President and Chief Financial Officer

Yes, I would and Craig you're familiar with how that works. And so, I would say we've got good momentum going with project-by-project, market-by-market, and that's our focus as to where it's, ready-mixed is so much different then cement and aggregates, we don't -- it's not one price in this date everything happens at once. So we're -- our intentions are every single project, every opportunity we're looking at raising prices. And that's where we're going to continue to focus on.

Craig Martin Bibb -- CJS Securities -- Analyst

And then, rephrase within. Do you have more momentum in Q2 than Q1?

John E. Kunz -- Senior Vice President and Chief Financial Officer

I think momentum will be there, yes.

Craig Martin Bibb -- CJS Securities -- Analyst

Okay, great. And then lastly, it wasn't that long ago they were spending a lot of time talking about very tight situation for truck drivers. Where does that stand now or is it smoothed out?

John E. Kunz -- Senior Vice President and Chief Financial Officer

It continues. That problem or that, it's not even a problem now, it's just part of our lives. I don't foresee that ever going away, truck drivers are always going to be in demand and we continue to have strong programs around recruitment, strong programs around training, strong programs around retention. So we're focused on all areas of it. I think we're doing an excellent job and our HR group is focused on that. We just had a driver symposium two weeks ago just focused on the next generation of drivers and things we can do to attract them. And so, it's always going to be a focus Craig and that problems never going to go away.

Craig Martin Bibb -- CJS Securities -- Analyst

Okay, great. All right. Thanks a lot.

William J. Sandbrook -- Chairman and Chief Executive Officer

Thank you.

Operator

Thank you. Your next response is from Adam Thalhimer of Thompson, Davis. Please go ahead.

Adam Thalhimer -- Thompson Davis and Company -- Analyst

Hey, good morning guys. And Ronnie, welcome to the call.

Hey, I wanted to start with just a decision to maintain the annual guidance. Can you maybe talk about what you saw in April, where would the other trends out there that you're seeing that encourage you to keep the guidance where it was?

John E. Kunz -- Senior Vice President and Chief Financial Officer

Yeah, I mean when you look at Q1 and the impact that the weather had in northern California, we've already seen that begin to turn in northern California. So we would expect a rebound, there is some pent-up demand that we feel that we'll be able to satisfy in Q2. So I look at the sequencing especially of the expectations out there. Obviously, we're going to make some of that up, so it'll be a slight upward revision I would expect by some of the analysts to cover it. But our guidance of $215, we still very feel very confident in and being able to achieve for the full year.

So even as I look at the numbers what I said back in February with respect to the guide, the initial guidance that we gave, Q2 be the tightest which is I think what is out there with analyst expectations and then Q3 and Q4 we would expect to see some meaningful improvement. So we're comfortable with the full-year guidance we don't see any need to change it. The near-term look that we have suggest that we should be able to make it up and we didn't see a need to revise or to change the direction at all.

Adam Thalhimer -- Thompson Davis and Company -- Analyst

All right. That's helpful, John, and then I wanted to ask about the ready-mix pricing which was up nicely year-over-year sequentially despite weather in California high-priced market for you guys. How do you expect the price per cubic yard to trend through the year?

John E. Kunz -- Senior Vice President and Chief Financial Officer

I would say, we would continue on that trend. I mean, we're again, in each market with different reasons for it, for seeing momentum in all of our markets for pricing. And like I said, we look at every single project, every opportunity and focus on both, overall price but also the margins that provides and so it's a mix when it comes to what Bill talked about earlier with the success of us being able to overcome the lack of volume in California because of weather and still overcome that with lower priced markets in Texas, but I would say that momentum is going to continue.

William J. Sandbrook -- Chairman and Chief Executive Officer

And Adam, I would like to add one point to that is you have to understand it that we've built this company differently than other ready-mix producers in the country either private or publicly traded. We specifically chose the markets we are in and we specifically chose our acquisition strategy to structure those markets in our best interests not only for pricing but also for raw material purchasing and this is where that strategy will play out in this environment.

John E. Kunz -- Senior Vice President and Chief Financial Officer

Yeah, I would say we're going to be in that low single-digit range so that 2% range plus or minus is probably right for each of the coming quarters.

Adam Thalhimer -- Thompson Davis and Company -- Analyst

Okay, perfect. Thanks.

Operator

Thank you. Your next response is from Brent Thielman of D.A. Davidson. Please go ahead.

Brent Thielman -- D.A. Davidson and Company -- Analyst

Thanks. Good morning.

William J. Sandbrook -- Chairman and Chief Executive Officer

Good morning Brent.

Brent Thielman -- D.A. Davidson and Company -- Analyst

The 11% improvement in aggregate price, it sounds like the West Texas region with a nice contributor this quarter and I assume that dilutes the absolute ASP a bit. Can you just give us a sense for pricing, I guess sort of change by region particularly California and kind of what you are seeing tax rate there?

John E. Kunz -- Senior Vice President and Chief Financial Officer

Yeah, I mean, California both northern and southern, we saw good momentum in pricing and a lot of our consumptions there is internal and we also have external sales in Southern California and in Hawaii and some other markets. We saw the pricing momentum there and most of that stock and Texas, we do have a lot of aggregate operations in West Texas than we have somewhere around the Metroplex that are internal consuming aggregate plants. But we also sell external customers as well.

And I think the same thing we saw very good momentum in pricing and so, as we look at our internal consumption, we go through an exercise of really analyzing the market and seeing what the next best opportunity is and seeing what are the markets are doing and so we believe that those price is stock. And the same thing in the North East there is a little bit of lag there because of coming out of the winter and then volumes are ramping up so fast. So I think we will see even that momentum in the North East gain even more traction moving forward.

Brent Thielman -- D.A. Davidson and Company -- Analyst

That's great. And then, Bill I think about your comments just around private expectations and at one point you guys have had talked about interest in building a platform in Southern California. You have obviously got the terminal and expanding capacity, I mean is the lack of not having a ready-mix position in that market impacted your ability at all kind of find a helm to the product?

John E. Kunz -- Senior Vice President and Chief Financial Officer

No, not at all. In fact that product is in such high demand we -- we may even relook our plans to vertically integrate there as we sell multiple concrete suppliers at a very nice margin. So we are very happy with being a distributor stone into that market or being accelerator stone into that market at this point and with the GAAPs and evaluation that's our best strategic decision in the short term.

Brent Thielman -- D.A. Davidson and Company -- Analyst

Got it, OK. And then, the backlog looks, I mean roughly light year-on-year but is it up more materially in one region versus another or stable across the board?

William J. Sandbrook -- Chairman and Chief Executive Officer

I would say it's pretty stable across the board. I haven't noticed really any meaningful change between the regions. You get puts and takes in each region overall but pretty consistent between years.

John E. Kunz -- Senior Vice President and Chief Financial Officer

And Brent to highlight that, when you fly into any of these major metropolitan areas specifically in our footprint whether it be LA, San Francisco, the DFW, New York, Philadelphia, Washington DC, the amount of tower cranes still in each one of those markets is exceptional and proportional to the size of each of those markets. So I don't see any softness in any of our markets.

Brent Thielman -- D.A. Davidson and Company -- Analyst

Great. Now I hear you there. The other question I had just on the DC market, I know it's smaller in scale but it sounds like some pretty considerable opportunities coming to HQ2 and all that. Could that become a more meaningful piece of the pie or is it simply sort of constrained by just the size of operation out there?

Ronnie Pruitt -- President and Chief Operating Officer

I mean, it's a very meaningful piece of the pie and strategically we're looking at many opportunities in that region and evaluating as Bill said, with the difference between the multiples between private and doesn't make sense to buy, does it make sense in Greenfield but we will be -- that is a very important market to us. It does have a lot of opportunities and it's similar to other markets where the growth is just continue to expand outward from the center and so we're going to have to capture that with opportunities that we will be looking at or we are currently looking at now for either Greenfield or acquisition. Yes.

Brent Thielman -- D.A. Davidson and Company -- Analyst

Okay, Ronnie. Thanks all. Appreciate it.

Ronnie Pruitt -- President and Chief Operating Officer

You're welcome, Brent.

Operator

Thank you. Your next response is from Stanley Elliot of Stifel. Please go ahead.

Stanley Elliott -- Stifel, Nicolaus and Company -- Analyst

Good morning, guys. Thank you for taking the question and Ronnie welcome to the call. On the new system we're talking about transformational. I mean, and then there's some discussion around better in terms of pricing. Is pricing going to move to more central location or kind of help us frame that out if you will?

Ronnie Pruitt -- President and Chief Operating Officer

Yes. So I would say the central location would be more system driven and instead of -- I'm not envisioning a central spot that prices everything for the country, but it's more of the ability for us through our own CRM to control not only the expectations and the targets we want for not just margins, but all the way through and controlling our delivery costs and looking at fuel increases and predicting fuel and predicting labor and all those things and just being smarter in the way that we can set targets in each region independently of each other because each region has its own drivers.

But our ability to control that so that when cells people and professionals that we have or quoting work that they really have a very good insight on not what's just today but what's coming over the next six months, I mean a lot of the things we've told you in the past is we quote these jobs and then they get delayed and then six months later we're stuck with this price and that's what we want better intelligence into predicting that and being able to drive better value for those forward-looking jobs that today we're pricing at a point in time that we want to get smarter on.

Stanley Elliott -- Stifel, Nicolaus and Company -- Analyst

And so It is fair to assume that you had some of these sorts of systems in place to help you on the pricing side. I mean just trying to kind of get a sense for kind of the magnitude of change here?

William J. Sandbrook -- Chairman and Chief Executive Officer

Yeah, we've had cell systems that had targeted margins and things like that really were focused on raw material and deliveries, but with what we're doing now we're actually going to capture customer-by-customer. The customers behavior, how the customer orders, when the customer cancels, what rates they pour at I mean those things impact every single part of our business and when I start talking about labor, it's a tremendous impact on how each customer could be different and how they place, actually place concrete and we can capture all that history with customers to say this is why they deserve what they deserve because they're really good or maybe they're not very good and we're not capturing the margin because we're just looking at a point in time and treating all customers the same and we have to be better at understanding the impact all the way through our system and that's what these tools will allow us to do.

Stanley Elliott -- Stifel, Nicolaus and Company -- Analyst

Great, very helpful. And could you remind us again kind of expectations for aggregate pricing in the coming year and then will the Dallas Fort Worth quarry coming online and I think you said third quarter, will they have a meaningful impact in terms of the volume shift?

William J. Sandbrook -- Chairman and Chief Executive Officer

No, when you look at pricing, let's not about pricing first. We would still expect to see price improvement as we go through the remainder of the year. We're obviously up over 10% in the first quarter I would not expect it to continue at that rate in the coming quarters. So I would say that mid-single digit is probably the right average for the remains of the year, there'll be some stress between the quarters. As far as the volumes, what we said is we would still expect to see meaningful improvement of volumes. What we had said is, with Polaris on there at 6 million tons or in our operation of 6 million tons we would expect to see double-digit improvement in volumes. I would expect to see double-digit improvement in volumes in the remaining quarters as we go through the remainder of the year as well.

Stanley Elliott -- Stifel, Nicolaus and Company -- Analyst

Great guys. Thanks for taking the questions.

William J. Sandbrook -- Chairman and Chief Executive Officer

Sure.

Operator

(Operator Instructions) Your next responses from Julio Romero of Sidoti and Company. Please go ahead.

Julio Romero -- Sidoti and Compnay -- Analyst

Hi, good morning.

William J. Sandbrook -- Chairman and Chief Executive Officer

Good morning.

Julio Romero -- Sidoti and Compnay -- Analyst

I wanted to ask about operating cash flows, believe the last two years sort of seen as a sequential decrease in cash flow going from Q1 to Q2. Should we kind of expect a similar cadence for cash flows as we go into Q2 and also throughout the back half of 2019?

William J. Sandbrook -- Chairman and Chief Executive Officer

Yes, so there's a few things in there, obviously Q2 is our -- one of our stronger quarters, Q2 and Q3 are one of our stronger quarters so you do have some consumption of working capital needs in Q2. If you're looking at it just on a true cash flow perspective and modeling what I'd like to point out as well is that with respect to our contingent consideration payments that we were alluding to earlier we referred about $40 million for the year. I would say, I know we made an $8 million payment in April on one of the acquisitions so that occurred in April, the $23 million with the sand and gravel quarry that is a late Q2, early Q3 potential payment.

So just depending upon the timing of that and the offset of that would be any cash received for eminent domain cost that we recover from the government in Q2. So you have a lot of puts and takes in there for the quarter in when you're scheduling out or looking at leverage and cash flow in total or an aggregate to determine your debt levels for the company you should consider those as well.

Julio Romero -- Sidoti and Compnay -- Analyst

Okay, that's helpful. And then just wanted to drill down a bit further on freight. I appreciate your earlier comments about the availability of drivers still impacting yourselves and every one of the industry. How have freight cost per ton trended recently, can you just talk about some of the puts and takes there?

William J. Sandbrook -- Chairman and Chief Executive Officer

I'm sorry. I wasn't clear on the question Julio. You're saying our pricing per ton in aggregates, is that what you're looking at?

Julio Romero -- Sidoti and Compnay -- Analyst

Correct, yeah, I just saw it versus beat the volume. Can you talk about that?

William J. Sandbrook -- Chairman and Chief Executive Officer

Yeah. So our pricing, what we said was we're over 10% on our ASP for aggregates for Q1. I wouldn't expect that double-digit improvement to continue but we're talking high single digits certainly for the remainder of the quarters. It's kind of vary a little bit between each quarters but I think on average, you should see a mid to high single digit price improvement.

Julio Romero -- Sidoti and Compnay -- Analyst

Okay, helpful. Thanks very much.

William J. Sandbrook -- Chairman and Chief Executive Officer

Sure.

John E. Kunz -- Senior Vice President and Chief Financial Officer

Thanks Julio.

Operator

I am showing no further questions at this time. I would like to turn the conference back over to Bill Sandbrook, Chairman and Chief Executive Officer.

William J. Sandbrook -- Chairman and Chief Executive Officer

Thanks, Tamara, 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 second quarter with you in August.

Operator

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.

Duration: 58 minutes

Call participants:

John E. Kunz -- Senior Vice President and Chief Financial Officer

William J. Sandbrook -- Chairman and Chief Executive Officer

Ronnie Pruitt -- President and Chief Operating Officer

Trey Grooms -- Stephens Inc. -- Analyst

Scott Evan Schrier -- Citigroup Inc -- Analyst

Craig Martin Bibb -- CJS Securities -- Analyst

Adam Thalhimer -- Thompson Davis and Company -- Analyst

Brent Thielman -- D.A. Davidson and Company -- Analyst

Stanley Elliott -- Stifel, Nicolaus and Company -- Analyst

Julio Romero -- Sidoti and Compnay -- Analyst

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