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US Concrete Inc (NASDAQ:USCR)
Q2 2019 Earnings Call
Aug 9, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

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. [Operator Instructions]

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

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

Thank you, Leigh. 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 two 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 J. Sandbrook -- Chairman and Chief Executive Officer

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. An 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 to a single weather event. Specifically in Dallas-Fort Worth, we experienced over 19 inches of rain during the second quarter, compared to only 4 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 aggregates 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 interruption in another sand and gravel operation that supplies DFW. As Texas accounted for 44% of our total company ready-mixed volume, it's no surprise that the financial impact of 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 seven 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 remains solid and is, 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 were also plagued with significant rainfall in our other regions as well. In New York, we experienced the most rainfall in the last 10 years for a second quarter. And in Northern California, May was the wettest in over 20 years, following what you already know was 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 a quarter, where construction activity was deferred, resulted in aggregate inventory buildup at 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 greenfielding new operations due to ever-increasing restrictions on permitting, quarries tend 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 in aggregate are pushed into future periods. Our investments in reserves and assets to mine rock and produce and deliver concrete have very long time horizons. 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 underling 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 service 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-mixed 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 nominated 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 a significant increase 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 lever technology and streamline all processes within our company in order to increase delivery and production efficiencies, streamline back office functions and cut significant non-value costs at all levels of the organization at the operating level.

Now I'll turn the call over to Ronnie to discuss these initiatives in greater detail.

Ronnie Pruitt -- President and Chief Operating Officer

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 standardize processes and eliminate redundant functions. Our mix design process are becoming more streamlined and organized, providing opportunity for substantial savings in our raw material costs.

This can be seen in our material spread which, on a dollar-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 enhanced development, rollout and implementation of the functionality within the software. We're still in the early stages of development of all these capabilities we believe this platform will deliver and anticipate a steady rollout over the next 12 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-mixed operations and Polaris aggregates, represented approximately 32% of our revenue this quarter. Demand remains strong in the Northern California market, supported by solid backlog. Due to the wet weather, we have seen a deferral sale, as many 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 that 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 commanded premiums at our standard concrete while reducing our carbon footprint.

That, coupled with the help of our national research laboratory located in San Jose, will continue to support the success of our business. Although weather improved in the 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 for the first half in the second quarter. With regards to Polaris, our efforts to increase production capacity and export limits from our work at quarry are well under way. And improved operational efficiencies will continue to make Polaris a major contributor of our company while transforming the aggregate side of our business. The business development efforts of our Polaris team are on the cusp of seeing expanded agreements and 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. JPMorgan Chase recently announced that plans were approved to demolish the building on the site of their future skyscraper. In addition, we continue providing concrete to La Guardia 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 5 boroughs in greater New York, New Jersey metropolitan areas. In Washington, D.C. and Northern Virginia, demand remains strong, with commercial, residential and infrastructure projects all actively represented.

Amazon HQ2 continues to dominate the development news in the market through their own plans and through indirect economic impact. The building of their 22-story tower will have a far-reaching economic impact. Nearby housing units selling quickly, and one apartment complex is proposing to add 1,000 units in anticipation of the favorable impact the tower will have on the area. Our Central region, which includes Texas, Oklahoma and USBI 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 a 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 very active on the Charles Schwab campus in Westlake, Texas; as well as the Fine Art Center for Plano School District. The swift nature by which Texas Department of Transportation puts infrastructure projects into action, and all of their sectors that continually plan 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 ready-mixed operations continue seeing volume improvement as weather's improved. Backlog in bidding activity remains healthy, led by commercial, residential and public works project. Our key West Texas markets are driven by educational spend, such as West Texas A&M's expansion into Amarillo, medical spend with significant projects in Abilene and Lubbock, as well as continued demand from energy sector. Texas is also a 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 supports 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 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. 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. Our 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 Islands 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 the prior year quarter, primarily reflecting the impact of lower volumes in 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 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 is removed by the Treasury in the final version. As of June 30, our total debt including current maturities was $716 million. This included $607.6 million of senior unsecured notes due 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 metric 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 a reduction in this ratio. We continue to have a solid liquidity position in near-term maturities associated with our senior notes for our 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. plant, 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 expenses in the coming quarters to generate increased cash flow.

Through the first six months, we made contingent consideration in 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. In the remaining five months of the year, we expect to make approximately $2 million more of payments. During the second quarter of 2019, we spent approximately $10.9 million on capital expenditures primarily related to plants and machinery and 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 and our equipment acquired through capital leases to equal $20 million to $25 million, excluding capital for the development of a Texas aggregates quarry. Our cash flow from operating activities is 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 a 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 J. Sandbrook -- Chairman and Chief Executive Officer

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 contractor 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 a midpoint of $1.54 billion; and adjusted EBITDA in the range of $195 million to $210 million, with a 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 increases of 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.

Questions and Answers:

Operator

[Operator Instructions] Your first question comes from p. Your line is now open.

Trey Grooms -- U.S. Concrete -- Analyst

Good morning gentlemen. 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? You mentioned what, I guess, is kind of like inventory build in the channel or at distribution points in the first quarter. And if I understood it right, it impacted the second quarter shipments. Just any more color you can give us on that? And is that typical, and is that behind you at this point, as we kind of go into 3Q?

Ronnie Pruitt -- President and Chief Operating Officer

Hey, Trey, this is Ronnie. If you think about Polaris on a year-over-year basis, volumes were down about 3%. In DFW, as Bill talked about, volumes in 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 into May that we talked about obviously affects the ability for us to continue to take Polaris materials into Northern California. So it's just a lag. And as those 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 the tick-ups in demand, then we'll continue to see the ebbs and flows of the inventory.

Trey Grooms -- U.S. Concrete -- Analyst

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 -- President and Chief Operating Officer

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

Trey Grooms -- U.S. Concrete -- Analyst

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 weather has 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 material spread in the back half as well?

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

Sure. When you look at the back half of the year, Trey, we're obviously anticipating improved volumes really in the support in] the DFW market specifically. That's really what penalized us during the current quarter is that we had 40-hour guarantees in place. And it was basically washed out for the second quarter as a whole. If you go back and look historically at your margin expectations, the margin expectations are no different than what they were, really, call it, back in the '15, '16, '17 time frame. So it's not unreasonable that the margins are going to improve. I don't even think they hit the levels that we were back in the '15, '16 time frame as a whole. With respect to the 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 out DFW, just that region out, we're actually up.

Ronnie Pruitt -- President and Chief Operating Officer

Yes. And Trey, I would add to that, 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 take place in April. And we always talk about the lag of ready-mixed pricing. I'm very encouraged from the standpoint of our quarter results, our material margins debt. 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 put in place are now catching up. And so this additional volume will only play into a better material margin going forward.

Trey Grooms -- U.S. Concrete -- Analyst

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

Ronnie Pruitt -- President and Chief Operating Officer

Thank you.

Operator

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

Larry Solow -- CJS Securities. -- Analyst

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

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

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

Larry Solow -- CJS Securities. -- Analyst

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

Ronnie Pruitt -- President and Chief Operating Officer

Yes, Larry, this is Ronnie. So what we assume is normal. So we went back to normal, which is 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 I talked about, even in Northern California, the amount of slabs, big mass pours we're doing on weekends. So Saturdays gives us some ability to make up.

But the markets still have their labor challenges. Not just our labor challenges for drivers; it's our customers' labor challenges for actually placing and finishing as well. So we did bake in -- a normal weather pattern is what we assume is 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.

Larry Solow -- CJS Securities. -- Analyst

How about just in terms of -- you mentioned that you still have some difficulty, I guess, in hiring and retaining truck drivers. Has that improved at all? Has that been basically sort of status quo year-over-year?

Ronnie Pruitt -- President and Chief Operating Officer

Yes, I would say in the Northeast and Northern California markets, our driver pool is more stable. In the South, in the 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.

Larry Solow -- CJS Securities. -- Analyst

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

William J. Sandbrook -- Chairman and Chief Executive Officer

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

Ronnie Pruitt -- President and Chief Operating Officer

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

Larry Solow -- CJS Securities. -- Analyst

Okay great. Thank you very much appreciate it.

Operator

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

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

Hey thanks. Good morning. Bill or Ronnie, can you talk maybe more specifically about some of the internal initiatives you're taking that 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 J. Sandbrook -- Chairman and Chief Executive Officer

Yes, we'd be happy to. 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 homing in on every single mix, and not having any waste of raw material costs 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 poor concrete, from the way they treat our trucks in their ordering methods, from their cancelations. 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, our back office consolidation.

And then on the commercial side, we talked about the CRM and the meetings we had in Dallas with our regional BPGMs 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, it's 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, as this is a very mature business. And you've been around it along time, too. We've got to change the way the business is done.

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

And on aggregates, are you starting to have discussions kind of on the next round of price increases? Given the strength that some of the markets are in, do you think you could see something in excess of what you've experienced to date?

Ronnie Pruitt -- President and Chief Operating Officer

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

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

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

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

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

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

And the last one, just on the ready-mixed 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 -- if we compare it to last year, you'd be beyond that?

Ronnie Pruitt -- President and Chief Operating Officer

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

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

Okay great. Thank you so much.

Operator

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

Stanley Elliott -- Stifel, Nicolaus & Co. -- Analyst

Good morning guys. Thank you for taking the question. Apologize if you missed it -- talk about kind of what the volume cadence had been in the recovery in July? Or would you care to?

William J. Sandbrook -- Chairman and Chief Executive Officer

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 a complete wash-out in 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 -- Stifel, Nicolaus & Co. -- Analyst

And when we think about kind of the constraints that we're seeing with driver shortages, etc. -- and difficult comparison, sort of] relative on July and August -- is double-digit ready-mixed volumes achievable, especially when we think about kind of the opportunities you all have in the month of September?

Ronnie Pruitt -- President and Chief Operating Officer

Double-digit percentage increase?

Stanley Elliott -- Stifel, Nicolaus & Co. -- Analyst

Yes.

Ronnie Pruitt -- President and Chief Operating Officer

Quarter-over-quarter for the third quarter?

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

Yes. I would think it's -- yes.

Ronnie Pruitt -- President and Chief Operating Officer

Absolutely. Yes, it's...

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

Well, I would say we can achieve that, [Indecipherable].

Stanley Elliott -- Stifel, Nicolaus & Co. -- Analyst

And then, 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 clearly, you guys are industry leaders in terms of margins. And just trying to get a framework of what sort of upside there might be from already very strong margins.

Ronnie Pruitt -- President and Chief Operating Officer

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

William J. Sandbrook -- Chairman and Chief Executive Officer

And Stanley, this is Bill. If you remember, we've had a 3-year -- the entire industry's had a 3-year run of abnormal weather. If you would look at '16, '17 and '18 compared to, let's say, '13, '14 and '15, it's not even comparable on a weather basis. And when we were hitting those margins up in the 15s, we had this discussion with the whole market of how high we could go. And aspirationally, we had always targeted 17. Now that seems like a long time in the rearview 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 '13, '14 and '15, it is not unrealistic to maintain and exceed those prior expectations that we had.

Operator

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

Adam Thalhimer -- Thompson, Davis -- Analyst

Hey good morning guys. The ready-mixed 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 awards?

Ronnie Pruitt -- President and Chief Operating Officer

Yes, Adam, 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's a mix there. Definitely, we see some deferred, but we also are continuing, even into this month, selling as much or more than we're pouring.

Adam Thalhimer -- Thompson, Davis -- Analyst

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

William J. Sandbrook -- Chairman and Chief Executive Officer

Well, I would defer to the corporate initiatives that Ronnie's heading up, both at the tactical and back office level; 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. And then, just last one for me, for John -- can you give us some help on -- trying to parse through 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 pay down debt?

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

We just made the $22 million payment. We're expecting 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'll certainly be some excess cash flow we have ease to generate and pay down debt from going forward. Once we got the $22 million payment out, there's not much as far as the contingent and deferred payments left. So there's only about $2 million left. So that was the biggest one.

Adam Thalhimer -- Thompson, Davis -- Analyst

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

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

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

Adam Thalhimer -- Thompson, Davis -- Analyst

Okay. That's right.

Operator

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

Rohit Seth -- SunTrust. -- Analyst

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

Ronnie Pruitt -- President and Chief Operating Officer

Well, we've talked about 2 phases of that. One's the permitting of the ship loader itself, which is within what we described -- well on pace, meeting our expectations and just the governmental things that we have to go through. And then, the second one was the Black Bear expansion. And that project as well is within the guidelines that we've talked about before, both from a permitting and engineering standpoint. So we're full steam ahead and both of those.

Rohit Seth -- SunTrust. -- Analyst

Do you have any sort of time frame on the first phase?

Ronnie Pruitt -- President and Chief Operating Officer

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

Rohit Seth -- SunTrust. -- Analyst

I thought that permit would've allowed you to ramp up without having to expand the quarry.

Ronnie Pruitt -- President and Chief Operating Officer

We already have the capacity there with the ship loader to do what Orca can 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'll come through the same funnel on the ship loader. So those 2 projects are tied significantly together. So that's why it's all working in lockstep together.

Rohit Seth -- SunTrust. -- Analyst

So where are we with Polaris in terms of how much can you ship on those existing permits that you have, before any expansion?

Ronnie Pruitt -- President and Chief Operating Officer

We've made it clear that our expectations was 6, and we could get up to 8. And we can do that now.

Rohit Seth -- SunTrust. -- Analyst

All right let's go ahead and reset again.

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 J. Sandbrook -- Chairman and Chief Executive Officer

Thanks, Leigh. 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

[Operator Closing Remarks]

Duration: 44 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 -- U.S. Concrete -- Analyst

Larry Solow -- CJS Securities. -- Analyst

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

Stanley Elliott -- Stifel, Nicolaus & Co. -- Analyst

Adam Thalhimer -- Thompson, Davis -- Analyst

Rohit Seth -- SunTrust. -- Analyst

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