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US Concrete Inc (NASDAQ:USCR)
Q3 2020 Earnings Call
Oct 29, 2020, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the U.S. Concrete, Inc. Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I'd now like to hand the conference over to your speaker today, Mr. John Kunz, Senior Vice President and Chief Financial Officer. Thank you. Please go ahead.

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

Thank you. Good morning, and welcome to U.S. Concrete's third quarter earnings call. Joining me on the call today is Ronnie Pruitt, our President and Chief Executive Officer. We will make some prepared remarks, after which we will open the call to questions. As detailed on Page two of our accompanying 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 to 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, which was filed earlier today. A presentation to facilitate today's discussion is available on the Investor Relations section of our website.

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

Ronnie Pruitt -- President and Chief Executive Officer

Thank you, John. Good morning, everyone, and thank you for joining our third quarter earnings call. I hope that you and your families have continued to stay safe and healthy. Today, I'm going to discuss our record-setting results for the quarter and then share our perspective on how the evolving construction environment is shaping longer-term demand for our products. Building on our excellent second quarter results, we continued this momentum into the third quarter with record-setting financial performance. As we will detail today, we believe our business is well positioned to continue to deliver strong financial results, both in the near and long term. The transformation we've undertaken over the past several years to reshape our portfolio and capabilities for growth and improved margins have proven critical in enabling us to respond to the changing dynamics in the current environment.

Our diverse portfolio, commitment to innovate and agile culture has allowed us to respond to the construction demand in the markets that we serve and position us to deliver meaningful financial results into the future. Our performance reflects the great work our team has accomplished during these challenging times. In particular, I want to commend the hard-working U.S. Concrete team members within all of our operating regions. Their extraordinary efforts in keeping safe while simultaneously focusing on our operating performances have made it possible for us to continue to meet the demands of our communities, customers and projects, and I could not be more proud of them. Shifting to the business. We generated $374.2 million of revenue during the third quarter of 2020, as referenced on Slide three in our earnings presentation. On a consolidated basis, we saw a geographical shift to more normal levels with the East region, representing 34% of total revenues for the quarter.

The central region was 35% and 31% in the West region, where results were impacted by a constrained cement supply in Northern California. During the quarter, we recorded sequential increases over the second quarter in segment and total sales as well as increases in segment and total adjusted EBITDA. Consolidated adjusted EBITDA margins were 17.1% for the third quarter as we continue to drive significant margin growth in each of our operating segments. Our execution in the quarter enabled us to exceed our EBITDA expectations. This is in large part due to aggressive management of expenses, asset utilization and process reengineering of our existing platform as well as gains from our acquisition of Quorum earlier this year. We are pleased to announce that U.S. Concrete's aggregate operations had record-setting quarterly revenue of $64 million, which is a 20% increase over last year's third quarter, with almost 3.7 million tons sold. Our adjusted EBITDA for aggregates operations was $27 million during the third quarter as we expanded our adjusted EBITDA margin, net of freight to 54% as compared to 42% for last year's third quarter. Continuing the trend from our second quarter, our aggregate segment generated 37% of total reported segment adjusted EBITDA. Revenue, volume and EBITDA for aggregate operations were up in virtually every market year-over-year and quarter-over-quarter as we saw strong demand for our product and a significant increase in production.

We continue to increase the internal consumption of aggregates, which increased to 41% on an LTM basis through September. Our financial performance for our aggregates segment set historical records during the quarter for revenue, adjusted EBITDA and adjusted EBITDA margins. Strengthening our aggregate portfolio and our operations has been an area of focus for us, and we're seeing the fruits of our labor. Our ready-mix concrete segment delivered 2.2 million cubic yards of concrete during the quarter, generating $313 million of revenue and $46 million of adjusted EBITDA, benefiting from the markets in which we operate, our consolidated ready-mix concrete ASP was up sequentially over the second quarter and up over the third quarter of 2019.

Even with the fluctuations in volume across many of our markets, our ready-mix operating teams delivered solid adjusted EBITDA margins of 14.7%, which is 20 basis points higher than last year's third quarter and up from 14% for the second quarter of 2020. Our robust performance has also helped us to delever at a faster pace. As John will outline later, our net leverage ratio decreased to 3.65 times at September 30 due to adjusted free cash flow generated during the quarter. Maintaining reasonable leverage metrics across the cycle is a strategic goal of ours, and we are proud of the growth of our company over the past decade. Taking advantage of an attractive interest rate environment, we refinanced $400 million of our senior unsecured notes in September, which reduced our annual interest expense by 1.25% or $5 million annually.

We are committed to long-term growth, which requires strategically investing in our operations because we remain confident in the long-term outlook of our business. Even during these challenging times, we remain committed to delivering innovation to our customers and their projects. Our growth is rooted in innovation with strategic acquisitions that complement our historical operating portfolio, and we are driving transformation and efficiencies in our business, as discussed in detail during our second quarter call. For example, we've applied the proven strategy to Quorum, the sand and gravel operation we acquired back in February of this year. To Polaris, as we continue to pursue the Black Bear expansion, to the back office consolidation efforts of our business as well as gaining efficiencies with dispatching of concrete with where is my concrete, our proprietary technology application. Our national research laboratory was also highlighted this August in a New York Times article about industry innovation and the adoption of our technologies such as carbon cure for producing low-emission concrete with a reduced carbon footprint.

I would now like to turn the call over to John for additional financial commentary.

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

Thanks, Ronnie. As mentioned, we are very pleased with our record-setting financial performance. Our third quarter adjusted EBITDA was $63.9 million, the highest we have ever reported for any quarter compared to $62 million in the prior year quarter. Our aggregates and ready-mix business continued to show their resiliency during the quarter as demonstrated by their outstanding results in light of the economic climate. Our aggregate volumes were up 17.6% compared to the prior year third quarter, driven primarily by the addition of Quorum with our base aggregates business up marginally. Ready-mix volume was off 13.2% compared to the prior year third quarter, with each of our regions experiencing some reduced levels of demand. Our consolidated revenue for the quarter was $374 million, an 8.5% decline compared to the prior year third quarter. Our cost containment efforts continue to result in adjusted EBITDA margin improvement for both businesses, with aggregates adjusted EBITDA margins improving to 42.1%, led by Quorum and Polaris, and ready-mix adjusted EBITDA margins improving to 14.7%. These improvements resulted in a consolidated EBITDA margin of 17.1% for the quarter. We were able to achieve higher margins through continued cost containment actions, more efficient utilization of our plants and equipment and the increasing use of technology-based data-driven decision making. Our material margin increased by 90 basis points to 48.4% compared to the prior year quarter.

Our EBITDA adjustments for the quarter relate primarily to stock compensation, contingent consideration, a pension liability settlement, realignment initiatives and purchase accounting adjustments for Quorum inventory. Our SG&A was 8.6% of revenue for the third quarter of 2020 compared to 7.8% in the prior year quarter. Adjusted SG&A, excluding stock compensation, acquisition-related costs and realignment initiatives was 7.3% of revenue in the third quarter compared to 6.3% in the prior year quarter, reflecting our cost control efforts, offset by higher incentive compensation expense and the impact of lower revenue. Based on the company's strong performance in 2020, it is expected that incentive compensation will be earned at levels above the nominal amounts awarded in 2019, resulting in higher expense during the quarter. We recognized $10.2 million of tax benefits in the quarter relating to the finalization of the interest limitation provisions contained in the Tax Cut and Jobs Act and the net operating loss carryback provisions of the CARES Act. For 2020, we expect our adjusted effective tax rate to be approximately 27%, and our interest expense to be in the $44 million to $46 million range.

As a result of our September notes offering, we expect to see a reduction in our quarterly interest expense of approximately $1.3 million or $5 million annually on a prospective run rate basis. However, in Q4, our expense will include onetime costs of approximately $12.5 million of fees and unamortized debt issuance costs associated with the October redemption, which are not included in the previously mentioned full year range. Moving on to our cash flow and balance sheet. During the third quarter, we generated $61.3 million of cash provided by our operating activities, $9.8 million more than in the prior year quarter. We generated $58.6 million of adjusted free cash flow during the third quarter compared to $41.5 million in the prior year quarter. Our operating performance and cost containment efforts during the quarter contributed to this improvement. Our working capital management activities added $1.2 million to these results during the quarter. For the nine month period, our free cash flow was $129 million, exceeding our 12-month target of $100 million.

Our cash flow performance allowed us to reduce our net debt position by $44.1 million as of September 30 compared to the June quarter end, resulting in $697.3 million of net debt at the end of the quarter. The increase in our trailing 12-months adjusted EBITDA, along with lower net debt position, reduced our leverage to 3.65 times or about 1/4 turn compared to our June 30 leverage ratio. We are also very proud to report that we have reduced our leverage by 0.5 turn in the six months since the completion of our acquisition of Quorum and our back at levels close to where we ended the year. As of September 30, we had total liquidity of $826 million, including $406 million of cash and cash equivalents, $240 million of availability under our revolver, plus $179.6 million of availability under our delayed draw term loan.

Our liquidity includes $413 million, which was used to pay principal and redemption premiums on our six and three in early October. During the third quarter, we invested approximately $3.3 million in capital expenditures compared to $10.5 million for the same period last year. For the full year 2020, we are planning for capital expenditures around $30 million. While we continue to manage through these challenging times, we are very pleased with our record results. These results would not be possible without the dedication and effort of our employees and management team to control costs and leverage our technology to improve the operating efficiency of the business, leading to our outstanding performance in this challenging environment.

With that, I will turn the call over to Ronnie.

Ronnie Pruitt -- President and Chief Executive Officer

Thanks, John. I'd now like to address our perspective on the evolving environment and what we see going forward. While we hope the most acute and severe impact of COVID-19 is behind us, we believe that recent shifts in behavior, coupled with macroeconomic trends suggest that residential, commercial and even the infrastructure markets will be evolving with the changing work and lifestyle trends. During the third quarter, we observed a 6% shift from commercial work to residential work, respectively, representing 55% and 27% of our total projects with infrastructure capturing the balance of 18%. We continue to monitor the efforts in Washington with respect to a federal infrastructure bill and are also hopeful that one will be passed by Congress. We believe that U.S. Concrete is uniquely positioned in the markets that we serve to benefit from any infrastructure bill and from these work and lifestyle shifts, including the current shift to suburban markets due to our geographical footprint, our portfolio of aggregates and ready-mix assets, our experience, our relationships and ability to support the technical standard of these sometimes complex projects.

While we are pleased with our recent performance, we want to emphasize that our focus is on the future market conditions, opportunities and strategies that are required to optimize performance and shareholder value. Fortunately, the markets we serve provide some natural diversification and hedge on market-specific issues. Naturally, Texas and New York and New Jersey metropolitan area all have different market fundamentals, even San Francisco has different attributes when compared to San Jose. Like many other companies, we are consistently analyzing all data, feedback and information so that we can best assess what is the new normal, especially in our urban markets. As you know, opinions vary greatly. And we also must be cognizant that prior to the pandemic, the U.S. economy was well into its near 10-year expansion. At this point, we are cautiously optimistic regarding next year's conditions in each of our markets. Although we do not believe it is possible to offer specific quantifiable judgments for volume of activities. What we are confident in, however, is that based on our success in the past two quarters of unprecedented uncertainty in our country, our team will be able to manage the business effectively and profitably in a range of future scenarios. Our team has proven its ability to adapt to a variety of scenarios in a rapidly changing environment. We continue to see long-term demand for aggregates and concrete, and we will continue to invest in our platform.

Our proprietary system where is my concrete empowers us to make informed decisions using data, interact with our customers and gain insight into and manage our pipeline with its CRM. The major lesson for us for 2020 is that significant percentages of our expenses are variable or highly variable. We built our company to take out costs during changes in an economic cycle. Our results and margins over the past two quarters support this thesis, and we believe it is an important dynamic in evaluating our business model. Based on the normal seasonality our industry experiences in the fourth quarter, we are projecting our fourth quarter adjusted EBITDA to be between $40 million and $45 million, with full year 2020 adjusted EBITDA between $186 million and $191 million, which would put us ahead of the $184 million generated in 2019. As discussed last quarter, every employee U.S. Concrete is operating with a sense of purpose to deliver durable long-term results for all of our stakeholders.

We set many new financial records during the quarter, which include record aggregate revenue, record aggregate adjusted EBITDA, record total adjusted EBITDA and record adjusted free cash flow generated. We have communicated over the last several quarters that we are focused on managing our operating margins and the results we have reported today highlight that promise and our performance. We are also pleased to announce a virtual Investor Day with a presentation and conference call that is scheduled for Thursday morning, November 12. We look forward to your participation during that call and hope the form allows for fresh insights into the company, our financial performance, our management team and strategies.

With that, operator, I would like to open the call up for questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Katherine Thompson with Thompson Research Group. Your line is now open.

Kathryn Ingram Thompson -- Thompson Research Group -- Analyst

Okay, my questions today. First, focusing on the aggregate segment, what were the primary components for the margin upside? In particular, how much was driven by lower energy cost versus other structural changes? And really, what we're trying to get through to is understanding what's perhaps more onetime and what is more sustainable going forward?

Ronnie Pruitt -- President and Chief Executive Officer

Good morning Katherine, thank you for your question. I think Quorum was obviously a very big benefit and tailwind on our margins. When I think about what's sustainable and what's onetime, I think we have lots of benefits around our operating procedures, especially in -- when we think about Quorum, it's a very simple process. It's a very easy mining operation. Very similar to Polaris in a way that sand and gravel is -- it's a low-cost way that we produce those products. So I think those operating -- probably things that we've put in is very sustainable. Pricing has also been a lift on that. And I think we're just at the front end of what we think our pricing strategies could be, both on the West and East Coast. And then I'll layer that in with the investments we've made in the central side with MW Ranch and MW Ranch has been really our first full two quarters back to back of operating. And so we're still working out the bugs at that plant, but that's seen significant improvements in margin as well. So like I said in my prepared remarks, I think all three regions, Central, East and West contributed to that. And so it's not just one area that we said we just picked up in this one place. So I think those things are very sustainable.

Kathryn Ingram Thompson -- Thompson Research Group -- Analyst

Okay. Thank you. Understanding that California was disrupted by fires, and there's a cement shortage in the state due to, at one point in time, two plants being down or unable to serve the market. Could you quantify the impact of the California fires to results? And even if it's just a high level, looking at what the top line impact is, but just the cost of operating. And is that demand just pushed out? And where are you today?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. Great question. I think that demand is pushed out. The fires were definitely an impact with rolling power interruptions. But the bigger interruption was the lack of cement supply, which was really from one of the plants being shut down permanently. And the reaction to that is going to be more imports. And those imports take time. I do think over the next quarter, we'll see a more consistent supply on the cement side, which, again, I think, will help us. On the cost side, I don't -- other than the unpredictability of that and pushing out the demand side. And so we saw some daily interruptions in cement supply. I don't think it was a big issue on the cost. But I do think on the demand side. And when we said the more normalized distribution of our revenue by region and the West Coast was still impacted by that. So we said 31%. I think more normally, we would see a pretty even split of our revenue by region. And so I think there is some recovery that we have to do. And I do think those volumes will be pushed into the fourth quarter and first quarter of next year.

Kathryn Ingram Thompson -- Thompson Research Group -- Analyst

Okay. Great. And then final question before I hop back into the queue, and thanks so much for picking my question today, is just a high level, when you look at the year-to-date, having the impact of the pandemic on major markets and you think about your, Texas and California, where do you see -- I know you aren't able to give specific forward guidance, but what's the net impact you see to those three regions as you look over, not just next year, but say, over the next 12 to 24 months? Thank you.

Ronnie Pruitt -- President and Chief Executive Officer

Yes, great question. And we look forward to giving some more insight into that in our Investor Day presentation. But I would say 12 to 24 months out, each region specifically, I think infrastructure plays a big role in all three regions. I think of all the regions that have lacked infrastructure, the Northeast is one that's probably been the most dramatic over the last four to five years, the lack of infrastructure spend. Obviously, in Texas, we're seeing a lot of residential and a lot of shift to residential. But we're also seeing infrastructure spend continue. And so I think Texas has been more of a balanced market. And then with the cement shortages in Northern California has been some impact, but we've also seen shifts there as well on the residential side. And that's where -- when I talk about that natural hedge of all of our markets having different drivers and our ability to pivot within those markets and I even called out that even in one quarter, we saw a shift from commercial to residential of about 6% difference. And so again, as I talked about in the second quarter, and I want to reinforce, we're a concrete supplier and an aggregate supplier. And at the end of the day, whatever the market demand is, we're going to meet that market demand. And whether that comes in residential or whether that comes in infrastructure, whether that's in commercial, we're here to service the market. We're here to service our customers, and we're going to service whatever those demands are. And so I think I like our footprint still. I like where we're at, and we're able to pivot to whatever that demand would be.

Kathryn Ingram Thompson -- Thompson Research Group -- Analyst

Great. Thank you again.

Ronnie Pruitt -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Paul Roger with Exane. Your line is now open.

Paul Barry Roger -- Exane BNP Paribas -- Analyst

Good morning everybody. Thank you for taking my question. So obviously, next week is a big week for the election, and it's difficult to know how it's going to pan out. Do you have a view on what the different outcomes could mean for U.S. Concrete in the industry, whether it's President Trump and President Biden? And irrespective of who wins next week and if we get a highway bill, is there a risk anyway that you have this sort of air pocket in early 2021 before anything new kicks in and demand is a little bit lackluster on the infrastructure side?

Ronnie Pruitt -- President and Chief Executive Officer

Yes, Paul, thanks for asking and happy birthday.

Paul Barry Roger -- Exane BNP Paribas -- Analyst

Thank you very much.

Ronnie Pruitt -- President and Chief Executive Officer

I mean, I'm not -- I don't want to get into predicting the outcome of elections. I think we're well positioned with either outcome that infrastructure is a big need and infrastructure is a need for our country throughout all of our regions. And so I'm confident that infrastructure will be a critical -- not only need for the spin, but also for job creation, for economic stimulus, it plays multiple roles in that. And so I think there's going to be lots of support for that under the outcome either way. And past that, I think the financial markets, the interest rates, I think our country is wanting to see stability. I think our country is wanting to see economic growth. And I think both parties realize that. And so I think we'll have to just take the wait-and-see approach and see what happens, but we're well prepared for any scenarios that are -- that come our way.

Paul Barry Roger -- Exane BNP Paribas -- Analyst

And this is quite interesting because, obviously, Mr. Biden is proposing quite a green agenda. And I think actually, within his proposed $1.3 trillion of infrastructure spending, there is a big emphasis on more sustainable products. Now I think I'm might say, U.S. Concrete does have a low tier two product in California. Do you see a situation where the penetration of this type of product may actually increase if there is more focus on the green agenda? And what could that do to margins and pricing, if anything?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. Every region is different, and it really comes down to the local specifiers and DOTs and the push for those greener initiatives. Carbon Cure is a great product, and we're definitely an early adopter of that, and we're going to be rolling that out into other regions. Flash is a great recycled product as well. There's also fly ash shortages with -- as you think about taking down coal-fired prior plants. There's more issues there. Slag is another product that we use throughout all of our regions. It's also a green product. So we have lots of initiatives for recycling. We're using more recycled aggregates in all of our operations. And we're going to continue that focus. But at the end of the day, the specifiers, the local DOTs, the local architects and engineers are responsible for specifying those products. And all of them have different levels of potential margin improvement. And I think we'll -- again, we're here to meet whatever the market demand is. We've put the technology in place. We're adapting quickly to that greener wave that's coming. And I think we'll be able to meet that demand no matter what it is. Thanks, Paul.

Paul Barry Roger -- Exane BNP Paribas -- Analyst

Great. Thanks very much.

Operator

Thank you. And our next question comes from Trey Grooms with Stephens. Your line is now open.

Trey Grooms -- Stephens Inc -- Analyst

Hey, Good morning.

Ronnie Pruitt -- President and Chief Executive Officer

Morning, Trey.

Trey Grooms -- Stephens Inc -- Analyst

Well, nice results and great job navigating this tough environment, especially on the margins. But I guess on the 4Q guide, I think I heard -- was it $40 million to $45 million, if I heard that right. Are you seeing -- or are you assuming any change in the demand picture baked into that range there? Or is it more kind of the same on the demand front?

Ronnie Pruitt -- President and Chief Executive Officer

I think we've baked in a lot of different scenarios into that number. Normal seasonality is what we referred to it first. And so as you know, seasonality affects our business. And in our markets, obviously, the Northeast can have a wide variety of winter weather and Texas can be dry or wet. And then with California, we're trying to bake in a more normal supply side, and that's been our biggest issues there. And so I think it's a combination of what we see in our pipeline and what we believe a normal weather pattern would contribute to that. And so we've always seen a drop-off in the fourth quarter because of those normal weather patterns. And so I think as of visibility today, we like what we see. And we believe that those results would be delivering a very good year for U.S. Concrete.

Trey Grooms -- Stephens Inc -- Analyst

Good deal. Yeah, thanks for that. John, during your prepared comments, I think you mentioned that each region has seen some declines in demand. So North Texas has been relatively strong. And did you guys -- was there any change in that market there? Or any other color you could give around that?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. I'll take that, Trey. Because I mean, at the end, we continue to see sequential improvements as the restrictions were lifted. And we talked about that in the second quarter. And I would say, in the North Texas market and really our Texas footprint because West Texas would be included. And I don't -- I'm -- I think we had a good quarter, and I'm very pleased with our results, and I don't want to use weather as an excuse. But in September, we had nine weather days. In last year, September, we had 0, literally 0 weather in Texas last year in 2019. And we did have weather in September. And so I'm not using that as an excuse, but it does impact and that volume will shift, and we will see those shifts continue. But it was -- it is something that definitely impacts our day in and day out volume when we have that kind of dramatic difference year-over-year in one month.

Trey Grooms -- Stephens Inc -- Analyst

Understood. But no change in kind of the underlying demand that's -- that you've been seeing there in that -- well, in Texas, I guess, overall. I know West Texas has probably seen some slowing. But I guess from -- on a sequential basis from 2Q, outside of weather, it sounds like things are still kind of as they were?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. Again, I think we'll continue to see shifts in what those segments are. And I think as we continue to see more residential, it will lead. And the good thing for us in these suburban markets that we do serve, including not just West Texas, I mean, we serve a lot of rural areas in our ready-mix footprint as well as we stretch out from the DFW Metroplex. I think we'll see the continued underlying demand there. It's just going to be formed in different ways. And so as residential now takes the lead on that. Obviously, as you see these residential pockets that are in these outlying areas, we'll see light commercial and other support of whether those are schools or churches or other things. But I think, overall, we've continued to see very consistent demand cycles.

Trey Grooms -- Stephens Inc -- Analyst

Okay. Got it. Thanks for that. And John, this kind of goes back to you just as a housekeeper. I think you mentioned incentive costs to increase in 4Q. Is there any more color you could give us around that?

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

Yes. I mean, last year, the incentive compensation numbers that we paid out were relatively nominal for the year. Our expectation is that we will have a payout this year associated with them. So we had to accrue, and we accrued at a higher number, a couple of million dollars in expense more this year than what we ultimately recognized last year. I really can't tell you what a full year number is because it's going to depend on our performance in Q4. We have to continue to perform in Q4 to be able to earn a bonus or earn our incentive compensation. But that situation may persist as we go into Q4 because, again, last year, it would be a much lower number than what would otherwise be anticipated this year.

Trey Grooms -- Stephens Inc -- Analyst

Got it. Okay. That makes sense. And last one for me. I mean, you guys did a great job on free cash flow, exceeded your targets there. How are you thinking about free cash flow generation going forward, maybe 4Q and maybe beyond that?

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

Sure. The color around Q4, Ronnie said, our EBITDA range is that $40 million to $45 million. So you can sort of work back. Our capex guidance is around $30 million. So there's that delta between year-to-date and that guidance is one. And then what you shouldn't overlook well is we do pay the premium on the notes redemption. So that's an incremental $12 million. So we'll have a normal interest expense and then $12 million of incremental expense for the fees associated with the redemption. So you can do the math around that sort of get to your cash flow number.

Trey Grooms -- Stephens Inc -- Analyst

Okay. Okay, that's all helpful. That's all I have. Thank you very much for taking my questions.

Ronnie Pruitt -- President and Chief Executive Officer

Thanks Trey.

Operator

Thank you. And our next question comes from Stanley Elliott with Stifel. Your line is now open.

Stanley Stoker Elliott -- Stifel, Nicolaus -- Analyst

Nice work in a very tough environment. Could you all talk a little bit about some of the things you're learning from the where is my concrete, some of the best practices, metrics, whether it's -- how long you're on location or any sort of these internal improvements that you're gaining insight to that I think can be transferred across all the regions?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. Good morning. And great question. Stanley, as we look at the full integration of not just the where is my concrete, but the CRM piece of that, along with our driver app, along with our customer app, we're measuring, like you say, on job times, we're measuring in plant times. We're measuring time for the drivers to check-in. We punch in in the cab. So we're measuring so many different things today that a year ago, two years ago, five years ago, were unheard of. The more critical thing to me is we're capturing that in a way that as we load that information into our CRM and then our sales force is out there looking at how we quote jobs in the future. We're no longer in a position that, we're just quoting something on material margin, and then we have a rough estimate of delivery cost. And then we think that here's the margin that could be. Now we know down to the customer level, how does that customer order, what's their behavior? How do they place concrete, how do they hold our trucks, how do they use our equipment? And we're feeding all that into a system that now we're literally specifically going down to the customer level and being able to quote jobs based on what we have, I would say, a much higher confidence level in what margins we'll be able to generate with no longer just a price and a material margin. And so as we take all of this data, it goes into our scheduling. It goes into the way we dispatch, it goes into the way we anticipate labor, both drivers, plant labor, raw materials. It just flows through our whole system that, again, I talked about it in the last quarter. We're a very, very, very good company at reacting. We react extremely well. What we're trying to be is a better company at predicting. And if we can get to a company that is really good at predicting what will happen instead of reacting to what will happen, obviously, we can be way better at driving margin improvement when we anticipate and predict and not react.

Stanley Stoker Elliott -- Stifel, Nicolaus -- Analyst

Perfect. And then switching gears a little bit. On the pricing on the ready-mix side, I apologize if you mentioned in the conversations. But with California being down, Texas being good, New York, sound like it's good too. How much of that improvement was regional mix? And then I guess the other question is with residential looking like that's going to be probably the strongest market for most of the materials space in 2021. Does that have a negative impact in terms of kind of your reported price or margin as we're looking forward?

Ronnie Pruitt -- President and Chief Executive Officer

There could be some definite mix in that, and there's obviously differences in strength in residential versus the year higher complex commercial and infrastructure projects. I think the most exciting thing for me was that we were able to move pricing in all of our markets, and we talked about that was achieved in all markets. And so even with the drop-off of volume in one of our higher-priced markets and more of a shift in to Texas, we still were able to show pricing improvement in all of our markets. And I think that gets back into your previous question about technology, how we use that, how we are smarter at the way we price and then as John mentioned, the material margin across our footprint was up as well. And so we're able to see where raw materials are going to influence us, we're able to see where logistics influences us. And then we're able to obviously target those margins. And so I would continue to tell you, Stanley, that, that EBITDA margin and that material margin, those things we're measuring, will be a much better indicator of how we're running the business. We're going to continue to push pricing everywhere, and we'll push pricing as hard as we can. But at the end of the day, there is going to be fluctuations in end-use markets and strengths and mixes and all that stuff will be noise. But if you focus down to our material margin, you focus down to our overall EBITDA margin, I think that's where you'll see how this technology and our ability to be smarter than what we do will continue to pay off.

Stanley Stoker Elliott -- Stifel, Nicolaus -- Analyst

Perfect. Thank you very much with that.

Ronnie Pruitt -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Rohit Seth with Truist Securities. Your line is now open.

Rohit Seth -- Truist Securities, Inc -- Analyst

Thank you for taking my question. I just want to talk a little bit about the shift from urban to suburban, it's been for the past cycle. There's a lot of focus on your urban footprint and a lot of your production capacity is in the New York and San Francisco region. And so how do you think about your positioning? And maybe what's your strategy to run the business in its upcoming cycle where there might be a secular trend going in the opposite direction. And then given the capacity you already have and maybe outside the various city cores, is that enough production capacity to sustain sort of the earnings level that you're doing right now?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. That's a great question. As we look at those footprints, specifically in those regions that you highlighted, and I was able to travel a couple of weeks ago up to New Jersey and New York. And as I look at what's happening in those markets, we've talked about this in the past, Seth. I mean a lot of our production capacity is our rolling stock. And so when you think about some of the rural areas that we service in the New Jersey market and even around our New York footprint, that production is really shifted by our ability to move trucks. And so we can move those trucks pretty easy, like literally in a day. And in the boroughs, we're seeing a lot of activity around affordable housing. We're still seeing a lot of activity in our pipeline. We're still pouring concrete in Manhattan. And even though everyone thinks Manhattan has completely shut down, we're still -- we did projects there yesterday. So we are still pouring concrete in those areas. I think the San Francisco San Jose market is -- it's an interesting one for us as we look at how we project normal data, data around permits and data around other economic things. And the tech money there is just one that is really hard to predict. I think there's still a lot of money in that area. We're still doing a lot of projects there. But we're also able to pivot in that area to further out around the San Jose markets to those residential as well. And again, I mean, we have capacity on wheels. And so we move those wheels, and we can meet that capacity. We have plenty of plant capacity. So it's really our ability to shift the drivers and the trucks where we need them. And I think that's the flexibility we have.

Rohit Seth -- Truist Securities, Inc -- Analyst

And so -- but I mean, you still have to have your own plant network because the trucks can only move so far to keep that concrete in the mix or within spec, right? So there is a transportation limitations. Is there not?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. I mean, I think there's a transportation limitation, but when you think about where a lot of our plants are, we were traveling 15 to 20 to 30 miles into metropolitan areas. You flip that around and you're going 15 to 20 to 30 miles outside of metropolitan areas. That's a pretty big reach. And so when you think about these big urban areas and you say, OK, well, you could go 30 miles in or 30 miles out, so you got a 60 mile circle there that that's a pretty good reach that we can still hit. I mean we've got trucks in West Texas that will drive over an hour, one way to get the job. So we have the expertise. We have chemicals. We can do things with concrete today that we couldn't do two years ago that we couldn't do three years ago. We have technology on our trucks to control slump. We can add mix on the fly chemicals. While the trucks going down the road, we can be adding chemicals to it to, again, anticipate what the concrete needs for the customer are, to control the slumps, to control the set times, to control all kinds of opportunities there that we're just doing so many things different than what the ready-mix business has historically been. And I think we're going to go into way more detail on that in our investor presentation on November 12. I'm going to break it down and really show people the differences of concrete today. And I think it's just a misnomer that, oh, you only got an hour, and that's all you can do. And if you don't get it done in an hour, man, you're in trouble. That's just not the case today. We partner with a lot of our chemical companies to put this technology in place. We're constantly maximizing and optimizing our mixes. And so I think we have a lot of versatility around pivoting to those urban areas or rural areas, whichever direction we want to go.

Rohit Seth -- Truist Securities, Inc -- Analyst

Understood. And given those developments, you can effectively compete with some of the smaller guys?

Ronnie Pruitt -- President and Chief Executive Officer

Absolutely.

Rohit Seth -- Truist Securities, Inc -- Analyst

All right. And then on Polaris, can you just maybe provide an update on your expansion plans, the Black Bear quarry in 2021 as -- could be a significant year in that regard. So just remind us what the plan is, how much capital is required and the expected ramp?

Ronnie Pruitt -- President and Chief Executive Officer

Yes, Seth, I appreciate that. I would tell you that on our Investor Day in November 12, I'm going to break down that entire project and what the meaning could be. And so I would like to save that for them, but we continue down the path of the opportunities we've talked about and Black Bear's one of the bigger opportunities that we have. And I'll be giving a lot more color on that on November 12.

Rohit Seth -- Truist Securities, Inc -- Analyst

All right. Can't wait everybody. Thank you.

Ronnie Pruitt -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question comes from Will Jellison from D.A. Davidson. Your line is now open.

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

Well, I'm working with Brent Thielman today. A question for you about your core aggregates business. I'm wondering how your expectations for that company has changed since you acquired the company in February.

Ronnie Pruitt -- President and Chief Executive Officer

I don't think our expectations have changed at all. I think when we acquired that company, although it was right at the beginning of an unanticipated pandemic. We had done business with that company for a long time. The operation has been critical to New York for a long time. And our expectations were absolutely -- that it was a very strategic purchase for us. And I don't think nothing through this has changed other than the fact that it's probably been even more strategic through this interruption in different pandemic-related things. But long term, it's meeting or exceeding all of our expectations.

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

Okay. Great. That helps. Thank you. And then I'm wondering, are you cultivating a pipeline of potential acquisition candidates right now? And have you observed any more willing sellers since your last earnings call in August?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. I would say we're going to give a lot more color into our longer-term strategy on our November 12 call with investors. But at the end of the day, I don't see this cultivating because we're not -- we're not out there cold calling people to see if they want to sell. I think at the end of the day, we're going to present our investors with long-term strategic value in what we do, and we're going to be very disciplined around what we do. And we're going to let a lot of different factors around our capital structure, around our leverage, around how we trade on our multiples and a balance between our aggregate and ready-mix acquisitions. And so I would say we have lots of opportunity that we'll be going into more in-depth with on the call in November.

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

All right. Well, thank you. I look forward to that call in a couple of weeks here.

Ronnie Pruitt -- President and Chief Executive Officer

Thank you.

Operator

Thank you. And our next question comes from Lawrence Solow with CJS Securities. Your line is now open.

Lawrence Scott Solow -- CJS Securities -- Analyst

Great. Thanks. Good morning, Ronnie, John. Congrats on a good quarter ability to certainly navigate through a tough environment. Can you maybe just parse out a little bit more on the pricing on the aggregate side, the near 13% increase. I assume some of that was certainly mix. And can you maybe just help us bucket some of the drivers there? Is that Quorum? Is that -- I assume maybe the MW ranch is helping there as well. Can you maybe help us with that?

Ronnie Pruitt -- President and Chief Executive Officer

Yes, Larry, great question. I would say, obviously, Quorum helps. Quorum is a close supply. And so when you think about pricing in the way we look at the closer to the markets, the higher the FOB prices. So Quorum has definitely been a contributor to that. I would also point out that we -- for the first time ever, we exceeded over one million tons of shipments through our Long Beach terminal from Polaris, which Southern California and that Long Beach terminal is a very good price point as well. So we're getting lift there. And then, yes, I mean, the Texas market has been solid. And so I think it's -- there's -- obviously, on a like-for-like basis, Quorum was a very big lift, but we've seen very good momentum in all markets. I'm pleased with where we're at in all of our markets. And I think, again, as we look at our focus strategically around more growth in our aggregate side, I mean, this is what the expectations would be from our investors that aggregate is more disciplined. Aggregates is more reliable and aggregate is more sustainable through any -- whether that's a pandemic or any other economic down headwinds. And I think we're proving that out.

Lawrence Scott Solow -- CJS Securities -- Analyst

Right. Okay. Great. And then on the -- similarly on the ready-mix side, I assume mix probably may have actually impacted your pricing, but you still were able to have a nice 2% year-over-year gain. So was pricing actually up in all your markets? Or?

Ronnie Pruitt -- President and Chief Executive Officer

Yes, it was up across the board. And again, I would -- I think as you think through the headwinds that we faced through the pandemic and what normal reactions would be or could be during economic downturns in ready mix. And I think, again, we -- the industry has tagged with being undisciplined and all these other things that happened in 2007 or '08 or '09. And now we're trying to overcome those things from 10 to 15 years ago. There's been a lot of consolidation in a lot of markets. And not just the markets we're in, there's been a lot of consolidations over the last 10 years. And I think there's just more discipline out there in pricing. And I think technology is a big piece of this. And I still -- there's a big difference in the way concrete is priced and the way cement is priced and the way aggregates are priced. And concrete is literally priced on a daily basis. We bid jobs every single day. And we have an opportunity. And we have an opportunity that we can take it either way. Our choice is to continue to be very disciplined around our pricing strategy. And so I think a lot of those processes and the way we look at things during this time is paying dividends around the way we choose to price.

Lawrence Scott Solow -- CJS Securities -- Analyst

Okay. And then just maybe just anecdotally just discuss sort of any changes in sort of level of your pipeline or sort of level of bidding activity as we sort of look out. And I know you don't want to give -- not ready to give any guidance, but does that remain fairly constant? Is that -- any material changes over the last few months?

Ronnie Pruitt -- President and Chief Executive Officer

Yes. It's interesting. We track a lot of different data points. And when pipeline bidding activity, tracking different metrics of all kinds. And obviously, we've seen lots of activity on the residential side. And the residential piece of our markets are a lot more shorter time frame from quote to execution. And so literally, it's -- we're executing on those on a daily basis. I would say we're still seeing a lot of activity in our bidding activity. And if anything, we continue to see a slower pace from actual bid to start. And I think those are the trends we'll just have to overcome through the next several months of getting the election past us and figuring out what's the next opportunities there as the markets start to rebound.

Lawrence Scott Solow -- CJS Securities -- Analyst

Great. Thanks so much. Appreciate it.

Ronnie Pruitt -- President and Chief Executive Officer

Thank you, Larry.

Operator

[Operator Instructions] Thank you. And I'm showing no further questions in the queue at this time. I'd like to turn the call back to Ronnie Pruitt, President and Chief Executive Officer, for any closing remarks.

Ronnie Pruitt -- President and Chief Executive Officer

Thank you, Jimmy. Thank you for joining our earnings call today, and we look forward to your participation in our Investor Day on November 12. Until then, stay safe and be well.

Operator

[Operator Closing Remarks]

Duration: 55 minutes

Call participants:

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

Ronnie Pruitt -- President and Chief Executive Officer

Kathryn Ingram Thompson -- Thompson Research Group -- Analyst

Paul Barry Roger -- Exane BNP Paribas -- Analyst

Trey Grooms -- Stephens Inc -- Analyst

Stanley Stoker Elliott -- Stifel, Nicolaus -- Analyst

Rohit Seth -- Truist Securities, Inc -- Analyst

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

Lawrence Scott Solow -- CJS Securities -- Analyst

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