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Forterra, Inc. (NASDAQ:FRTA)
Q1 2020 Earnings Call
May 1, 2020, 10:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Charlie Brown -- Executive Vice President and Chief Financial Officer

Good morning and welcome to Forterra's First Quarter 2020 Earnings conference call. Today's call is hosted by Karl Watson, Jr., the company's Chief Executive Officer and Charlie Brown, the Chief Financial Officer. Thank you and good morning to everyone. Welcome to Forterra's First Quarter 2020 Earnings conference call. Today's call is a little different given that Karl and I are in separate locations and obviously we've had some technical difficulties getting started. We apologize in advance for any technical difficulties that continue, that hopefully we'll be able to straighten this out and any background that we may encounter during the call.

I would like to point out that Forterra intends to take advantage of the Safe Harbor provision of the Private Securities Reform Litigation Reform Act of 1995 as noted in the earnings release we filed last night. Please remember that our comments today may include forward-looking statements which are subject to risks and uncertainties and actual results may differ materially from those indicated or implied by such statements. Some of the most important risks are described in detail in the company's SEC filings, including our annual report on Form 10-K and our quarterly report on Form 10-Q filed last night.

The company does not undertake any duty to update such forward-looking statements. Additionally, we will refer to certain non-GAAP financial measures during the call, including EBITDA, EBITDA margin, adjusted EBITDA, adjusted EBITDA margin and free cash flow. You can find a reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measure and other related information, including a discussion of why we consider these measures useful to investors in our earnings release.

Now, I'll turn the call over to Karl.

Karl H. Watson -- Chief Executive Officer

Good morning, everyone. We appreciate you being on the call with us today and we apologize for the delay. I hope that you and your families are well and are managing through the challenges created by COVID-19. Before I go any further though, I'd like to take a moment to thank all of our Forterra teammates. We have people who are working from home and people who are going into our manufacturing facilities on a daily basis. I've been impressed by how well we have transitioned to remote work. We have not missed a beat, and in fact, are taking this time to improve many of our processes by eliminating waste to become more effective. In fact, this is the earliest we have ever announced our results and is a testament to these improvements our administrative teams have made.

Our commercial improvement initiatives have continued despite sheltering in place. Many of our salespeople have taken this time to complete their first level certification in our commercial excellence process well before internal expectations. We have remained connected with customers and are committed to the commercial improvement initiatives that are being reflected in our results today. The wonderful, wonderful people in our manufacturing facilities who safely come to work everyday deserve a special thank you for their resilience and determination to serve our customers and for continuing to focus on the plant-level operational disciplines needed to improve unit margins. We would not continue to persevere without them.

Although I am pleased by our results for the quarter, and the progress we have made, given the effects of COVID-19 has had across the country, I'm going to focus the majority of my comments on the company-specific impacts and our operational responses. Charlie will then discuss some of the key numbers with our first, within our first, quarter results as well as some factors to consider as you think about our business going forward. We entered 2020 with tremendous momentum and strong demand and this is reflected in the 13% revenue growth, 78% adjusted EBITDA growth and 55% improvement in free cash flow during the first quarter compared to last year's first quarter. These results exceeded our internal expectations for the quarter. We're seeing solid progress from the focus on our five improvement pillars throughout the organization. We believe we still have further opportunity ahead of us but have real traction and intend to stay committed to our course despite COVID-19 related demand uncertainty.

Being an essential business, we did not see a significant negative impact to our business results during the first quarter. Still, we must plan for and respond to potential negative effects of this pandemic. I will take a few moments to provide updates on the health and safety of our employees and actions we have taken to-date in anticipation of potential demand weakness. Being an essential business, we did not see a significant negative impact to our business results during the first quarter. Still, we must plan for and respond to potential negative effects of this pandemic. I will take a few moments to provide updates on the health and safety of our employees and actions we have taken to-date in anticipation of potential demand weakness.

We are also using technology where possible to facilitate customer orders and other interactions to further reduce direct contact. We are fortunate, the normal activities within our factories encourage social distancing. So our productivity has not been materially affected with the enhanced protocols we have put in place. Our management team has been connected top and bottom on a daily basis to monitor best practices, promote employee health and safety and implement swift action as needed. From a demand standpoint, the pandemic did not impact our first quarter shipments in a noticeable way. Our backlog, even with the impact of the pandemic, is stronger than it was last year at this time in our water business and is nearly as strong in our drainage business. These strong backlogs give us short-term demand confidence but due to the evolving nature of this pandemic, we are uncer we are as uncertain as everyone else as to the later stages of the second quarter in the back half of the year.

Due to the essential nature of our products and the current environment of fiscal stimulus, we are hoping the demand for our product will be relatively unscathed. However, hope is not a strategy and we have created plans to address various levels of potential declining demand. Transitioning to our operations, at this point in time we have not closed any facilities due to coronavirus issues. More than 70% of our costs of goods sold are either variable or semi-variable which gives us the ability to quickly respond to any potential changes in demand and we are also addressing our fixed cost structure to the extent possible. With the near-term being highly unpredictable, we are taking responsible pre-emptive actions without significantly inhibiting our ability to rebound when things return to normal. We have taken various precautionary actions to reduce our costs and conserve operational cash flow including implementing a hiring freeze, minimizing overtime, inferring annual merit increases, voluntarily reducing executive and board compensation, eliminating expenses that do not contribute to the short-term operations of our business and renegotiating contracts wherever possible. We're also tracking inventory across all of our facilities daily to ensure we have inventories necessary to satisfy our customers needs that don't over produce and have the ability to look for cost savings.

Lastly, we have put a halt on all non-essential capital spending. In addition to the actions taken in addition to the actions we have taken so far, we also had the extensive contingency plans in place if our product volumes were to begin to meaningfully decline in the coming months. Fortunately, this is not the first time the members of our leadership team had been a period of extreme economic uncertainty and this past experience will serve us well during this turbulent time. Just last week, we completed our in-depth quarterly reviews of each of our businesses. And this week-long exercise with a heightened sense of confidence in our management team and belief we can successfully navigate our way through any situation we may encounter.

With that, I'll turn it over to Charlie.

Charlie Brown -- Executive Vice President and Chief Financial Officer

Thank you, Karl. I'd first like to spend a few minutes discussing Forterra's liquidity and provide some context for how we are positioned for these uncertain times. We are a highly levered company but over the past year, we've demonstrated our commitment and capability to improve our leverage by focusing on our core pillars. And during the past quarter, we, again, delivered; improving cash generation from the prior year's period, reducing our leverage ratio by 0.3 times, as well as having the confidence to publish a leverage target of three to 3.5 times adjusted EBITDA.

Our first quarter stared well and we continued our voluntary prepayment under our term loan as we had in both the third and fourth quarters of 2019. As the pandemic progressed, however, we shifted our stance and initiated cash conservation activities including focused capital spending as Karl described in his comments. As a result, in the quarter, our free cash flow improved by more than 40 million over the prior year period. Out of an abundance of caution, we drew down $180 million on our ABL revolver and ended the quarter with $182 million of cash, or retaining the flexibility of the draw over $70 million more. As our term loan, and our term loan, which represents the bulk of our leverage is not due until October of 2023. We have included information regarding our liquidity position in the presentation we shared last night on Page 9. We do not have a crystal ball but we know that our leverage rat leverage, does raise concerns with some of our stakeholders. We understand our business, our sources and uses of cash and believe we have the people and tools to navigate our way through this pandemic. As Karl mentioned, we have taken a number of actions already and designed extensive contingency plans to be implemented if our product volume begin to meaningfully decline.

For example, and for illustrative purposes only, I will outline a scenario focused on the remaining quarters of 2020. If we assume a 50% decline in both our residential and non-residential demand, which represents 50% of our business, and a 20% decline in municipal and infrastructure demand, we would expect a 35% decline in total demand for the remainder of the year. Incorporating actions taken today, as well as those yet to have been implemented, we can still end the year with as much liquidity as we currently possess. I want to stress that this scenario does not reflect managements prediction of demand but to highlight that approximately 70% of our cost of goods sold are variable giving us a powerful lever during these rapidly evolving times. We have run various versions of this model, assuming different challenges and different actions and based on our analysis, we believe we have the resources and ability to weather the year under most reasonably foreseeable circumstances with ample cash remaining and zero liquidity issues.

Let me now briefly review our first quarter operating performance by segment starting with drainage. With drainage, I'll focus my comments on explaining how revenue increased slightly year-over-year with higher prices and lower volumes while our gross margin remained relatively flat. The late winter and early spring season has always been a volatile time for drainage as lower volumes can accentuate the impact of product and geographic mix as well as the resulting margin. While the average selling prices this quarter were favorable, approximately 60% of this price impact is the result of mix. Product mix accounts for a portion of this inflation as we've sold higher priced and cost products but geographic mix was also a factor as lower shipments in Texas, due to poor weather, resulted in higher prices but lower margins. Let me now briefly review our first quarter operating performance by segment starting with drainage. With drainage, I'll focus my comments on explaining how revenue increased slightly year-over-year with higher prices and lower volumes while our gross margin remained relatively flat. The late winter and early spring season has always been a volatile time for drainage as lower volumes can accentuate the impact of product and geographic mix as well as the resulting margin. While the average selling prices this quarter were favorable, approximately 60% of this price impact is the result of mix. Product mix accounts for a portion of this inflation as we've sold higher priced and cost products but geographic mix was also a factor as lower shipments in Texas, due to poor weather, resulted in higher prices but lower margins.

Switching over to our water segment, that business demonstrated significant improvements in revenue, gross margin and adjusted EBITDA as compared to last year. While we realize the benefit of higher prices, shipment volumes were also higher year-over-year as our customers return to normal buying patterns as compared to their destocking in the first half of 2019. In addition, during the quarter we also benefited from the lower scrap costs year-over-year. As a result of all of these factors, water adjusted EBITDA more than doubled in the current quarter compared to last year.

Our corporate adjusted EBITDA loss was in line with our internal plan for the quarter. The increase year-over-year primarily reflected our investment in our people, processes and systems. Our Q1 results reflect our execution of Forterra's five improvement pillars which are safety, plant level operational discipline, enhanced commercial capabilities, working capital efficiency and general and administrative expense effectiveness. As Karl discussed earlier, we're cautiously preparing ourselves for headwinds while continuing to execute on our improvement pillars. Although we have withdrawn our guidance for the remainder of 2020 in light of economic uncertainty generated by the COVID pandemic, we remain committed to our mid-term deleveraging target of three times to 3.5 times in the next few years.

This concludes our prepared remarks. Operator, will you please open the line for questions?

Questions and Answers:

Operator

[Operator Instructions] And your first question is from Rohit Seth with SunTrust.

Tom Buckley -- SunTrust -- Analyst

Hey, good morning guys. This is Tom Buckley on for Seth. Hope your families and yourselves are during well during this time. You guys have some really good results in the water business and it looks like the price increases are sticking and flowing through the earnings. Can you remind us of what the price increases you've implemented and how sustainable they are moving forward to the second half of the year? Hello, are you guys there?

Charlie Brown -- Executive Vice President and Chief Financial Officer

Yes, it appears that Karl is on mute.

Karl H. Watson -- Chief Executive Officer

I'm sorry, Tom, technical difficulties. Yeah, that's going to be the headline. Forterra, good results but bad conference call. Technology. The we had a 10% increase in July and a 6% increase in October. I want to go back a little bit, historically this business has had very low EBITDA margins for a business that has very low asset turns. And that operates in a very good market structure. We've had a 10% increase in July, a 6% increase in October; both of those are sticking and both of those are relatively large but we had a big hole to come out of. So they are sticking, there's no reason for us to think that they're not going to continue to stick, we see nothing in our bidding activity that would suggest that they would not stick and certainly myself and, Vik, the president of that business and our commercial teams are absolutely committed to that path.

Tom Buckley -- SunTrust -- Analyst

Great, that's really helpful. And then moving on to you guys have seen a margin tailwind for some time due to the lower scrap steel costs. Do you think there's more savings to be had there as they pass through your cost of goods sold or do you think we've kind of settled at a low level here?

Karl H. Watson -- Chief Executive Officer

The scrap steel market is so volatile. It has its largest increase after its largest decline. So, it will be up and down. Our long-term strategy though is to decouple our pricing from the scrap prices to where we our prices need to get to a point that when scrap is in the upper quartile levels, we return our cost of capital. If it falls below that we'll make pretty good money, if it goes above that we'll struggle for a few months. So, scrap has continued to come down. We think that it's largely maybe sort of hit its bottom right now. Where it's going to trade in the coming months is it's highly variable and largely unknown but it does correlate very well to oil prices historically as oil prices have come down, scrap has come down. But this is not an ordinary time. So, scrap inventories are low across the country but scrap demand is low across the country so supply and demand are sort of equalizing at a very low level. So we don't see a lot of decline

Tom Buckley -- SunTrust -- Analyst

Thank you, guys, appreciate it.

Karl H. Watson -- Chief Executive Officer

In scrap pricing.

Tom Buckley -- SunTrust -- Analyst

Great, thank you so much. Appreciate it.

Karl H. Watson -- Chief Executive Officer

Thanks, Tom.

Operator

Your next question is from Jerry Revich with Goldman Sachs.

Jerry Revich -- Goldman Sachs -- Analyst

Yes, hi, good morning everyone and nice to hear you folks are doing well. Karl, I'm wondering if you could talk about relative to the two pricing announcements given the and the length of commitments in the business. What level of realization do we have in the first quarter results and what does the cadence look like in terms of when do you have enough recently bid work flowing through to see the price increases flow through the results here?

Karl H. Watson -- Chief Executive Officer

Well, I think you're seeing a good portion of the July increase flowing through in this quarter. I would say you see a very small part of the October increase flowing through in this quarter. We had announced an increase for April. We rescinded that in the wake of this pandemic and we'll reevaluate in October. We just thought that was prudent to do from a customer standpoint. But we still think that with what we have in place, and our current bidding activity and what we are bidding at and winning work at, that the two increases from July and October still have multiple quarters to still flow through. One of the things that we did in April, two things we did in April, one, we announced a price increase on the raw material; just a base product. Two, there's a lot of add-ons that go along with the base product and we announced an increase in those prices and three, we shortened, we put in processes to shorten the tail. When we rescinded the price increase, we just rescinded the price increase but not the other two. So, in April we will get a de facto increase on the accessories that we send out and by shortening the tail that should make our future increases go through at a faster rate.

But, Jerry, we think if we don't do anything else, we still have multiple quarters of pricing equipment that will flow through.

Jerry Revich -- Goldman Sachs -- Analyst

Okay, thank you. And in terms of the level of bid activity in April, it sounds like, based on your comments, your shipping volumes remain quite favorable and I think you still have the easy comp and the water business from the destock last year. So, it sounds like shipments have been pretty good in April based on your prepared remarks. Can you just fact check me on that and talk about what the bid pipeline cadence has been in April compared to last year?

Charlie Brown -- Executive Vice President and Chief Financial Officer

Yeah, Jerry, this is Charlie. I would just add that it is in our 10-Q. We did put out that the April volumes that we've seen through yesterday were, for water, were in line with prior year. So, as you had indicated, that might be a little bit lower than what we're seeing, obviously, in the past three months of 2020 but still very solid. And the drainage, we're down about 15% through April. I'll let Karl comment on the bidding activity that we've seen most recently that would be impactful.

Karl H. Watson -- Chief Executive Officer

Our bidding we our bidding activity in water has been fairly robust. Not a meaningful drop-off, there is a slight decline but not meaningful. I mean, it's if not for this pandemic, you may not even be looking for, or may not even notice it, but obviously everybody's hyper-focused on any sort of sign of something slowing down. So it's nothing that doesn't appear to be typical e or could be, typical ebbs and flows in a normal environment. In our drainage business, a little bit the same but there is a portion of our drainage business, residential construction that it's widely publically acknowledged that a lot of the home builders are putting off new lot development. So, probably in mid-March we saw a lot of residential subdivisions go on hold. They weren't canceled, they didn't come out of our backlog but they did go on hold. However, just recently in probably, in what was potentially could be our hardest hit market, Houston, we've actually had a few of those subdivisions release and they took a pause but now they said, no, we're going to go ahead with these. Now, those are anecdotal abut I think it does show a glimmer of hope that residential may not be as bad as what we were internally potentially planning for. So, I would say, overall, Jerry, that bidding activity is still relatively robust.

Jerry Revich -- Goldman Sachs -- Analyst

Okay, I appreciate the description. Thank you.

Operator

Your next question is from Daniel Wang with Berenberg Capital.

Daniel Wang -- Berenberg Capital -- Analyst

Hey guys, thanks for taking my question. Just a quick question on the water segment. I know you had mentioned that I suppose shipments in April are roughly flat year-over-year. Have you seen any changes in distributor activity in the wake of the pandemic?

Karl H. Watson -- Chief Executive Officer

I would say the only change in activity is that they're trying to conserve cash too so stock orders. I mean, bringing stuff into inventory has lessened a bit and so we have to sort of take that into consideration when we say shipments are relatively flat. And if we added the normal stock order volumes that would have typically been there, we may have been a little bit better than flat. So, that is the only thing that I have seen, that we've seen, that is meaningfully different.

Daniel Wang -- Berenberg Capital -- Analyst

Perfect. And just one other point on the capex, I suppose, I know the initial guidance was for $45 million to $55 million. Q1 was notably down from last year. Just how much of that $45 million to $55 million is maintenance and how much, I suppose, are you budgeting in for 2020?

Karl H. Watson -- Chief Executive Officer

We think that we could reduce our capex spending by $20 million to $25 million and still not damage the business to be able to take advantage of the upside coming out of this.

Daniel Wang -- Berenberg Capital -- Analyst

All right, perfect. Thank you for the thank you for taking my questions.

Operator

Your next question is from Ryan Frank, RBC Capital Markets.

Ryan Frank -- RBC Capital Markets -- Analyst

Hey guys, this is Ryan Frank on for Mike Dahl. Thanks for taking my questions and congrats on a strong quarter before all of this started. I just want to first follow-up on the drainage volumes in April. How much of that would you attribute to kind of a Texas or a geographic difference versus kind of an end-market demand?

Karl H. Watson -- Chief Executive Officer

That's a great question, I'm going to broadly range this. Probably more than half of that was due to Texas. There was also some small weakness in Florida but between the two of those, that would be the majority of it. It really wasn't so much in market weakness as to weather and some delays and we've seen some backlog in Florida. Still very strong backlogs but there's been a delay in recent.

Ryan Frank -- RBC Capital Markets -- Analyst

Okay. Thank you. And then my second one is, I know corporate expenses have been kind of a big focus point for you guys this year. With all the cost-cutting action, can you help quantify, you know, do you think they can be flat year-over-year, dollar wise if you're down some, just a little bit of quantification on the corporate side.

Charlie Brown -- Executive Vice President and Chief Financial Officer

Sure, this is Charlie. Obviously we didn't expect this pandemic. We had been planning for more of a flat corporate expense for 2020 and now I believe with the pandemic we have some extra incentive to move. This spend that we have, and we mentioned this on process and systems, that spend needs to be mid so that we can realize some benefits. At the same time though, we have lots of costs and now we have a lot more time to focus on this. And Karl noted during his comments, that we were able to close the books faster this quarter than we ever have and be prepared for this call that much sooner.

All those things are beginning to show benefit so while there is cost that will be continued to grow, hopefully as we put in better systems, we'll be able to start taking out costs as well. And certainly during this pandemic we're very focused on that and we'll see that come down. So I would look for flat to slightly improved corporate costs. It would it is a long struggle, as you know Ryan, to take out some of these costs as you know we had multiple systems, we still run multiple systems that need to be synchronized and other activities that just are not as efficient as we would like. But those are definitely part of our pillars to focus on and I think we are making good progress there.

Ryan Frank -- RBC Capital Markets -- Analyst

Awesome, thank you guys very much.

Operator

Your next question is from Matthew Bouley with Barclays.

Matthew Bouley -- Barclays -- Analyst

Hey, good morning, thanks for taking the question. Hope everyone's doing well? I wanted to ask about the energy markets in Texas and Houston, just in light of what's happening with oil. Can you perhaps size your exposure to the energy complex there? I know you called out in the queue that there was, perhaps a little bit of impact there already in Q1. So, you know, whether direct or indirect project exposure, kind of how you guys are thinking about the impacts there going forward? Thank you.

Karl H. Watson -- Chief Executive Officer

Well, there's two sides of that coin for us. The bad side of that coin is, is we have a fairly large business in Houston and when the oil sector suffers in Houston, construction is going to suffer marginally and with the layoffs, residential construction will be a bit less like it was in 2014 and 2015. However, Houston is not completely oil-dependent and as we saw in 2014, 2015, it wasn't as bad as people had expected but we certainly think that our business in Houston will in 2021 will be affected by what's going on in the oil markets.

The other side of that coin though is that the oil and gas segment takes a very large amount of scrap metal and once the economy starts coming back, if the oil markets still remain relatively depressed, scrap prices will stay down for an extended period of time. There's a very direct correlation in a normal operating environment where scrap prices are highly correlated to oil pricing. So, net/net, we'll take that penny because that would actually be a better outcome for us if you had to suffer through this.

So there's bad things to happen to us in Houston, the goods things are happening in scrap pricing with this oil demand but we see net/net, not a huge effect on our results.

Matthew Bouley -- Barclays -- Analyst

Okay, Karl, that's really helpful. And then secondly, I was wondering if you guys could perhaps give an estimate of decremental margins, you know, if volumes are under a little bit of pressure, sounded like a little bit more so on the drainage side. You know, I hear you on the variable cost structure but, you know, when you think about what's fixed here, you know, to what extent can you flex SG&A and what's sort of that resulting decremetnal on the volume side? Thank you.

Charlie Brown -- Executive Vice President and Chief Financial Officer

You know, I'd say on that one, Matthew, we typically have that issue, that exposure, in the first quarter anyway just because volumes are so variable due to the start up of the construction season. So we built a pretty focused capability on being able to flex our SG&A but, you know, there's only so much you can do in an organization when you know it's just a seasonal issue. So, when we talk about a lot of the scenarios, that is something that we have continued to focus on is how can we continue to how can we improve our exposure to the SG&A side and I think we've made good progress and that's something that, you know, we were working on as one of our pillars regardless but now we have more time, more focus, to spend on it. So, the first quarter impact that I talked about, that really was more of a mixed when we talk about the geographic and the product mix.

So, I don't really feel a lot of concern, actually, like I said, I actually am much more confident to be able to see with the decline in Texas, you know, the other regions actually stepped up significantly and are showing, beginning to show, the progress that we would expect given the investment in time and energy that we've put into those. So, the decrement was not substantial considering the fact that we did have volume down but pricing up and to be able to have a flat margin despite our highest margin region being on a low volume period. That's that speaks volumes to where we're going.

Matthew Bouley -- Barclays -- Analyst

Okay, helpful. Thanks a lot guys.

Operator

[Operator Instructions] And you do have a follow-up question from Jerry Revich with Goldman Sachs.

Jerry Revich -- Goldman Sachs -- Analyst

Yes, hi, thanks for taking the follow-up. Karl, I'm wondering if you can just expand on your manufacturing excellence initiative given the obvious lack of ability to travel. How should we think about the timeline of rolling out that pillar of the strategy and what inning, if you will, of that improvement effort do you expect to be exiting 2020 as so many things are back on track into 3Q?

Karl H. Watson -- Chief Executive Officer

Jerry, that's a very insightful question. Our our operation implement initiatives are really based around liens and based about, around, the people who are doing the work at the local level, being empowered, trained and turned on about making improvements. And a lot of that does take a human to human interaction, rapid improvement events and with this lack of travel, there's no doubt that that has been hampered. I and I guess hampered could also mean slow. It does not mean that we're not making continued progress especially with some of our larger facilities. We are continuing to make progress. But, the lack of being able to be on site, touch, feel, train, motivate, push, guide, is probably going to delay us about three months.

But, it in no way stops the direction nor the intensity of our efforts but a very insightful question. Not being on site it has made it much more difficult over these last 45 days but you also have a lot of horses in the barn who are chomping at the bit to get back at it and

Charlie Brown -- Executive Vice President and Chief Financial Officer

We've had to restrain we've had to restrain, Karl, from traveling to the plants despite his strong desire to be out there but it is, I think, the right thing to do for our people and to keep them as isolated as possible. We've talked about that extensively internally, how do we take care of our people and make sure that our operations are safe and so we've done a lot more Zoom and other events and I think, you know, it is, like Karl said, a frontline activity. It does mean that you have less ties on, you know, hands on activity with management coming in but, again, we believe we are moving in the right direction.

Jerry Revich -- Goldman Sachs -- Analyst

And how big is that margin gap between your most efficient facilities in Texas and facilities that need more work and where that difference is addressable, you know, outside of the volume levers that you folks can do in Texas, just an apples to apple basis if you raised the fourth quartile plants, if you will, what sort of margin gap are we thinking about?

Karl H. Watson -- Chief Executive Officer

Well, multiple dollars per ton. We have I've said on a few calls, some of the productivity improvements that we've seen where we've been very intensely focusing on this and we've probably been to that level of detail in maybe 30% of our plants? 35% of our plants. So, we have a lot of room to go still, Jerry. A lot of room to go.

Charlie Brown -- Executive Vice President and Chief Financial Officer

And I wouldn't want to because it's I just I wouldn't want my comments to somehow undermine the progress that's made. We do have some plants outside of Texas that are well run and but on average Texas is definitely lower and I do think that that's going to be the opportunity to, unfortunately, even if we have significant lean training at a plant, it still takes time for those improvements to roll through. So, lots of upside across the group over the next two years, probably at least, to get to continue to extract great value or noticeable value going forward.

Jerry Revich -- Goldman Sachs -- Analyst

Nice performance in a tough environment. Thank you, everyone.

Karl H. Watson -- Chief Executive Officer

Thank, Jerry.

Operator

Thank you. I'm showing no additional questions in the queue. At this time, I would like to turn the conference back over to management for any closing remarks.

Charlie Brown -- Executive Vice President and Chief Financial Officer

Thank you for your time. I we pray you and your families are safe and doing well and we look forward to talking to you on our next call. Thank you.

Operator

[Operator Closing Remarks]

Duration: 39 minutes

Call participants:

Charlie Brown -- Executive Vice President and Chief Financial Officer

Karl H. Watson -- Chief Executive Officer

Tom Buckley -- SunTrust -- Analyst

Jerry Revich -- Goldman Sachs -- Analyst

Daniel Wang -- Berenberg Capital -- Analyst

Ryan Frank -- RBC Capital Markets -- Analyst

Matthew Bouley -- Barclays -- Analyst

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