Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2020 Eagle Materials earnings conference call. At this time, all participants’ lines are in a listen-only mode. After the speakers’ presentation, there will be a question and answer session.

To ask a question during this session, you’ll need to press star, one on your telephone. Please be advised that today’s conference is being recorded. If you require any further assistance, press star, zero. I would now like to hand the conference over to your speaker today, Mr. Michael Haack, President and CEO. You may begin, sir..

Thank you. Good morning. Welcome to Eagle Materials’ conference call for our full year and fourth fiscal quarter of 2020. We are glad you could be with us today. Joining me today are Craig Kesler, our Chief Financial Officer, and Bob Stewart, Executive Vice President of Strategy, Corporate Development and Communications.

There will be a slide presentation made in connection with the call. To access it, please go to www.eaglematerials.com and click on the link to the webcast. While you are accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during the call.

These statements are subject to risks and uncertainties that could cause results to differ from those discussed during the call. For further information, please refer to this disclosure, which is also included at the end of our press release.

This morning, let me start by remarking on two matters that are even more important than the earnings we are reporting on today. First is the health, safety and wellbeing of our employees. The second is being responsible citizens and good neighbors in the communities in which we do business.

As it relates to COVID-19, these two could not be more closely related. Regarding our safety response to COVID-19, we have been proactive in establishing protocols and processes that protect the safety and health of our employees, customers and business partners.

This early action has enabled us as an essential business to remain open safely in all locations. We are fortunate in that we operate and serve the U.S.

heartland and sunbelt states, own and control our local raw material inputs and have a fully domestic supply chain, and most importantly in this situation, virtually everywhere we operate construction has been deemed essential, allowing us to make and sell our products. Which brings me to our earnings this quarter.

We entered the quarter with strong momentum in terms of demand across our markets. We did not experience much business interruption for our fourth fiscal quarter in our markets. Posting record quarterly revenue should be no surprise for this reason. In the case of COVID-19, geography matters.

In these unprecedented times, rather than trying to predict the unpredictable, our emphasis is on deployment of rapid feedback loops. This involves being in intimate contact with our local operations as they navigate in this environment. We are a local business in many ways and can react quickly to any market changes as they occur.

We have successfully navigated severe cycles before and some would say we have an unrivalled track record in this regard. We navigated through the longest and deepest construction recession in U.S. history and made money every year, which very few in our space can claim. We are well prepared to respond quickly as issues arise.

Right now, part of our preparedness strategy is to conserve cash and strengthen our already strong balance sheet. Out of an abundance of caution, we announced during the quarter that we suspended our dividend. I want to emphasize and be very clear that suspending the dividend was part of a comprehensive plan of managing cash through this environment.

This plan also entails curtailing non-essential capital expenditures, share repurchases, controlling inventory levels, and a host of other prudent measures. It is timely and coincidental from a cash strategy standpoint that we have made some progress in our program of portfolio shaping.

We announced this quarter the sale of non-core ready-mix and aggregates assets in California. The sale of these assets is the result of a long-term effort that emerge where alternative ownership value exceeded operating value for us.

We also were able to sell our frac sand distribution business during the quarter and we continue to explore alternatives for the remaining frac sand business. We fully expect that the uncertainties around COVID-19 and its effects on the economies will be relieved over time.

We are well prepared to capitalize on opportunities in construction materials that will arise in the wake of these uncertain times. We are three times larger on the cement side of the business than we were a decade ago. We have built a strategic network of plants and terminals in the U.S heartland.

The latest addition was the recently acquired Kosmos cement plant that we began operating as an Eagle plant in March. Our wallboard business has attained unrivaled prominence for low cost production and customer satisfaction. In March, we completed the equipment installation to expand the capacity of Republic Paper.

We will finalize all aspects of the installation over the summer when travel reopens, but we are already seeing the benefits of this new equipment through added capacity. We are healthy, our balance sheet is strong, and we are poised to emerge from this uncertain time with the winds at our back.

In this regard, I think it is important that we not underestimate the power that already announced monetary and fiscal government stimulus will create for our businesses. Construction has led the way to recovery so many prior cycles and may well lead the way again. Our U.S. infrastructure needs are well chronicled in one way or another.

Roads and bridges will be built and repaired. Low interest rates make homes more affordable and we are not building at the pace that matches household formation and replacement needs. There are many reasons to remain constructive about the long term.

We still look forward to the separation of the two businesses but currently have no updates on timing for that transaction. That’s all for me as far as introductory remarks. Now let me turn it over to Craig to go through the financial results for the quarter..

Thank you Michael. Fiscal year 2020 revenue was a record $1.5 billion, up 4% from the prior year, reflecting increased cement sales volume and pricing, improved wallboard and paperboard sales volume, and the addition of two businesses acquired during the year. Acquirable businesses contributed approximately $32 million of revenue during the year.

Revenue for the fourth quarter improved 11% to $315 million, reflecting a very strong end to our fiscal year. Annual diluted earnings per share improved 14% to $1.68. As we highlighted in the press release, both years include the impact of several non-routine items, most notably an asset impairment charge related to the oil and gas proppants business.

For fiscal 2020, diluted earnings per share includes the effect of a significant tax benefit related to the CARES Act. This is development related expenses and the effect of an outage linked to the expansion of our paper mill. Excluding these non-routine items, annual earnings per share improved 10%.

The CARES Act enables us to use the tax asset generated primarily by the Kosmos acquisition and carry it back to recover taxes paid in prior years at higher tax rates than we’d pay today. The fourth quarter earnings per share comparison is also affected by many of these same non-routine items.

Adjusting for them consistently each year, Q4 earnings per share would have increased by 45%. Turning now to our segment performance, this next slide shows the results in our heavy materials sector, which includes our cement, concrete and aggregate segments.

Annual revenue in the sector increased 17% driven primarily by an 11% improvement in cement sales volume, improved pricing in both cement and concrete, and the results of the concrete and aggregate business we acquired in August 2019. Operating earnings increased 12%, again reflecting the improvement in sales volume and pricing.

Moving to the light materials sector on the next side, annual revenue in our light materials sector declined 4% as improved wallboard and paperboard sales volume was offset by an 8% decline in wallboard sales prices. Annual operating earnings declined 12% to $190 million, reflecting lower net sales prices partially offset by higher sales volume.

The light materials annual results also reflect the impact of two extended outages at our paper mill to tie in new equipment. The impact of the outage on the annual results was approximately $4.5 million. In the oil and gas proppant sector, annual revenue was down 44% and we had an operating loss of $15 million.

This business has come under increasing pressure in recent months as lower oil price further reduced drilling and hydraulic fracturing activity and we continued to adjust our operations to minimize operating costs.

In late March, we sold the distribution business of the proppant sector and we continue to explore alternatives for the remaining mining business. Operating cash flow during fiscal 2020 increased 14% to $399 million. Total capital spending declined to $132 million.

In early March, we completed the acquisition of the Kosmos cement business, funding the purchase through a term loan syndicated through our existing bank group. During fiscal 2020, Eagle returned approximately $330 million to shareholders through share repurchases and dividends.

In fiscal 2021, we expect capital spending to decline nearly 50% to a range of $60 million to $70 million, and as we previously announced and Michael highlighted, we have suspended share repurchases and future dividends. Finally a look at our capital structure.

At March 31, 2020, our net debt to cap ratio was 60% and we had $119 million of cash on hand. Our net debt to EBITDA leverage ratio was 2.9 times. Total liquidity at the end of the quarter was nearly $300 million and we have no near term debt maturities.

In April, we announced the sale of our concrete and aggregates business in northern California for $93.5 million. These proceeds combined with the tax refund stemming from our NOL carry-back and operating cash flow further improves our liquidity position going forward. Thank you for attending today’s call.

We will now move to the question and answer session.

Catherine?.

[Operator instructions] Our first question comes from Trey Grooms with Stephens. Your line is open..

Hey, good morning, and thank you for taking my questions. First off, I guess on the organic cement volume, very strong in the quarter. Also, your wallboard volume was also very solid, especially given the difficult comp you guys had.

Understandably this was prior to much impact from COVID-19, but can you talk about what you’re seeing since the end of the quarter - you know, demand trends on both sides of your business in April and maybe into May, to give us a sense of how things are trending a little bit further into this pandemic?.

Yes Trey, this is Michael. I’d mention a few things on that. One of the things that I wanted to highlight was geography does matter in this situation. We’re a U.S. heartland producer. The heartland has not been impacted as much as the east coast or the west coast, so our demand volumes have remained pretty stable..

Okay, and that’s on both sides of the business, cement and wallboard?.

That’s correct. .

Okay, great. Thank you for that. Just an update on the cement price, I know it was slated for April. It sounds like a lot of markets have delayed until, I think, it might be June.

How are your markets looking from a cement pricing and the timing there?.

Yes, what you said is accurate. There’s a general delay of that cement pricing to that June timeframe and then we’ll re-evaluate the market at that time and determine if it’s a fit at that time. Right now, that’s our plan..

Okay, and that was in all of your geographic markets you’re in?.

Not totally 100% of that. There was a few markets that were able to get some--the price increases were enacted, but for the majority of the markets, that’s correct..

Okay. Last one for me, and this is more kind of big picture, during the last downturn wallboard pricing was hit pretty hard, and we’ve got a lot of uncertainty on the outlook here in the near to medium term.

Can you talk about what has changed for that business and how or why, if we were to enter a downturn here, how it could be different for the wallboard business there from a pricing standpoint - you know, any changes you’ve seen in the industry or with your business?.

Trey, this is Craig. It’s a good question, and we are challenging ourselves over the last two or three months and thinking through alternative scenarios.

One of the things we do come back to, if you think about where we were in 2007 - 2008, first on the demand side, the housing industry was pushing 2 million housing starts and so you had a long way to fall on the demand side. We haven’t even approached those levels of housing starts so far this cycle.

We started to see some good momentum January and February, but we’re certainly nowhere near peak levels of home building. We’re well below that.

The other thing, and I think people forget about a lot this a lot, is that we all remember the demand side, you’ve got to also remember we added a significant amount of capacity in 2006 and 2007, 6 billion to 7 billion square feet, 15% to 20% new capacity just as you were entering into the Great Recession.

It was a one-two punch with demand down and supply rising, and we enter this period of uncertainty with, frankly, the opposite issue. We don’t have any new capacity being added and, frankly, some of the raw materials, we’ve talked over the years are becoming harder and harder to find, if at least not more expensive to find.

So we are in a very different position than where we found ourselves 13 years ago, and then there are other structural changes in the business - consolidation, etc., that have also positioned our business better, so we enter this--and we were part of that capacity addition in terms of our Georgetown, South Carolina plant, so a lot of things are different as we go forward here..

All right, well thanks for the detail. Best of luck, and stay safe. Thank you..

Thank you. Our next question comes from Brent Thielman with DA Davidson. Your line is open..

Hey, great. Thank you, good morning. Maybe just a follow-up on Trey’s question on the wallboard side. It sounds like demand has held up pretty well here in your end markets, and I know sometimes pricing can be influenced at a national level and I think some other markets have been hit.

Have you seen relatively good pricing stability so far this quarter?.

Yes Brent, I would tell you really our price, and you can see it in our quarterly results, has been flat since almost this time last year. You saw that in this most recent quarter. We exited the quarter about the same as the average..

Okay, that’s great. Then a question on Kosmos, just because it’s relatively new to us. I’ve heard from some others delays in Kentucky on new public projects.

Can you talk about that asset’s ability to navigate that? Can you offset some of that or all of that by shipping into some other surrounding markets?.

Yes, that asset in itself, we’ve only owned the asset now since March 6, was kind of when we took over that asset. We went directly into an outage to make sure we saw what we had at the facility.

If you remember correctly too, that asset came with a pretty substantial distribution network, so you know we do have facilities that span several different states for distribution. Our sales team has been pretty consistent with the past team.

We have put in management from Eagle for the vice president of manufacturing and the finance side of the business to get some of Eagle’s culture in there too with it.

But the team has done a fantastic job, the existing sales team and everything, of really utilizing that network that we have out there and taking the product and moving it where the sales are at this time.

As said, we do have distribution in Pennsylvania and that was a trying market at the beginning, and they’ve been able to reallocate and move that product around a little bit. I think they’re doing a fantastic job.

More will come as we own it for more time, we’re just in it a couple months now, so I can give you more color in the next quarter or the quarter after that, after we get some time with it under our belts..

Okay, appreciate that. Then the Wildcat sale within the proppant segment, it looks like that helped profitability--profit this quarter.

Do you have the value of that sale, just so we can kind of get an apples-to-apples comparison [indiscernible]?.

Yes Brent, I would tell you we sold Wildcat at the very end of the quarter, so that wasn’t the improvement in profitability. Frankly, the improvement there was January and February volumes were very strong in that business, really a lot of a catch-up from really slow times in the fall and early winter.

Like I said earlier, the business has changed again in March and into April as oil prices fell dramatically, so the Wildcat sale proceeds were very minor. As we said, we wanted to exit and think about alternatives for the business and a sale made the most sense there, but that wasn’t driving the performance during the quarter. .

Great. I guess my last question is just on the separation process timing, to the extent you guys can talk about this.

I know a lot’s going on right now in the markets, but can you talk about what you guys are going to be looking for to advance that process, just from everything you’ve already done to date?.

Yes, I think Brent, as Michael pointed out and as we’ve said before, we’re in an uncertain time right now and the visibility over the next 12, 18 months is not where you want to have confidence in that.

While certainly our volumes have remained very strong here in April and early May, we want to have a high degree of confidence in our markets long term and the capital markets getting to where they’re trading in a regular way manner.

Until those things can happen and we can put these businesses in the right place, because what we also would recognize in the immediate term, these businesses do support each other and they are stronger together during uncertain times, so until you have some certainty there, the best course of action is to keep them together..

Okay, appreciate it. Thank you guys..

Thank you. Our next question comes from Anthony Pettinari with Citi. Your line is open..

Good morning.

Just following up on the comments on cement demand, understanding that the heartland markets have held up better than other parts of the country, just wondering if you’ve seen any cancellations or push-backs of public projects that could impact you, and just wondering if you had any general thoughts on the health of budgets in the states you operate, given obviously reduced gas tax revenues..

Yes, it’s a good question, and time’s really going to tell on that. Right now, our demand has been strong. Do we hear of projects here or there that may be delayed? Yes. Has it been impactful to us at this time? No. Really, it’s just too hard to predict what’s going to happen on that side.

What I like to focus on more is what we’re experiencing right now, and right now demand is strong in the markets. We don’t see that being impacted in the near term, and we’ll see what happens over the longer term, if anything..

Okay, that’s helpful. Maybe just shifting to the light side, we’ve seen this sharp spike on OCC costs with some collections. It looks like it’s being discontinued or delayed. Maybe that’s come back a little bit in the last few weeks.

Just wondering if you had any thoughts on spike in recycled fiber costs and your strategy for passing those through, to the extent that you’re seeing it. .

You’re right - we’ve seen OCC prices go up here in April and May. I think a lot of that stems from as the economy shut down, the generation of OCC has really declined, so as we restart the economy, you’d expect to see that generation improve and likely moderate pricing going forward. It was just such a snap reaction to what we’ve been dealing with.

You’ve also seen containerboard mills closing, etc., so that should lessen some of the pressure on OCC. As you may recall, we have the ability within our paper mill to pass through those incremental costs. It’s generally on a quarter lag, the way the pricing mechanism works, but we do have the ability on the paper side to pass those through.

On the wallboard side, that would be something we would start to feel next quarter because, again, it’s a quarterly lag, so we aren’t dealing with that this quarter, but as we look out into September and December, we could see those higher OCC prices, but they may also moderate.

It’s something we’ll be watching closely as things develop over the next weeks and months. .

Okay, that’s helpful. I’ll turn it over..

Thank you. Our next question comes from Jerry Revich with Goldman Sachs. Your line is open..

Yes, hi. Good morning everyone. Craig, in the past you folks have been able to take advantage of your strong balance sheet at a time when others were de-leveraging.

I’m wondering if you could talk about what your M&A pipeline looks like now and overall your willingness, if an opportunity comes up, to deploy capital, given all the uncertainty that we obviously spoke about on the call?.

Jerry, I would highlight we just completed the acquisition of a $665 million cement plant, and so that’s something that we are in the process of integrating and working through. I think as Michael and I have highlighted, our focus is on improving our balance sheet and continuing to de-lever from here.

We have some unique opportunities because of Eagle, so the focus is certainly on the balance sheet and the health of the company. To your point, maybe there are some M&A opportunities that come out of this.

Way too early to project that, and again there’s a lot of requirements that need to be fit there in terms of value and quality of the asset, but it’s something we’ll keep our eyes open. But we are very focused on de-leveraging right now..

As you folks mentioned earlier on the call, your cement footprint is substantially larger in this cycle than it was a decade ago, and there’s been other consolidation plays.

How do you expect cement pricing to play out in the current recession compared to the last recession? Any observations that you would make, particularly in your markets?.

You know, when I look at our network, I’m really happy where we sit and where our acquisitions have been. We’re a heartland U.S. cement supplier, and that has served us well during this time and it served us well in the past. When I look at the volatility of markets and everything else, we’re in a more stable footprint [indiscernible] in many cases.

The increased capacity, I just see as a benefit for us. We could share and maximize some of our synergies across and maximize the output of some of our lower cost plants versus higher cost plants if we have to.

Right now, demand has been stable across the majority of our markets, so we’re prepared if something were to happen and to respond willfully to those, but right now we’re very comfortable where we stand.

We do recognize that there is uncertainty in the market and we’re prepared for that uncertainty, but right now we just don’t see it with where our network is located..

In terms of the industry’s focus on pushing pricing in June, given the uncertainty, can you talk about what kind of feedback you’re getting from your customers on that? Obviously it’s nice we got the pushback from a customer standpoint from April to June, but what are those conversations like with customers, considering the uncertain environment?.

It’s a good question. The market is going to determine what the price is. We’re in constant conversation with our customers and they’ll be the first to know the timing and implementation of that. We’ve got to see what the market is going to determine that price, so we’ll have more color for that in the coming months with that.

But our plan is, as we stated, with a June time frame..

Okay. Lastly, when you folks have made cement acquisitions in the past, there has been, I think a two-way street in terms of application of best practices.

Can you talk about, based on the short time that you’ve owned Kosmos, what you see as the opportunity set of implementing Eagle’s practices and vice versa, any opportunities for network benefits or otherwise that you’d call out?.

Sure. First, I’ll start off with the people and the talent we acquired. We’re very happy with the plant itself, the people. As you said, we’ve only owned it a couple months, so we’ve still got some work to do on some of the synergies and quantification and realization of all those synergies.

But first and foremost, the people that came with the transaction, we’re extremely happy with. We were able to at a stage earlier put in some top level management from the Eagle side to get some of our culture and also learn from the plant side that we bought on what they have for best practices and everything else.

This fits directly into our network and we plan on exploring those opportunities of integrating across that network. It’s a wonderful plant. It’s the second most efficient plant in the U.S.

from some of the reports we’re seeing, and we know we have opportunities around their mining side and that, and we’re going to be exploring those opportunities over this coming time frame. Overall when I look at the transaction, I’m extremely happy about that transaction, having that integrated into our network.

It provides even more and more stability to do the [indiscernible] and support across with Fairborn and Illinois Cement and Sugar Creek all being able to connect to that plant and everything.

Over the coming quarters, you’ll see a lot more conversation about that from us, but we’ve only owned it since the beginning of March, so we just need a little time to get in there and dig in there. As you know, travel’s been a little more restrictive lately to get in there and see some of these items..

Yes, it would be a long drive. Thank you..

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

Hey, good morning everybody. Thank you all for taking the question. A quick question - when you see the big drop and the economy being shut down, typically it’s the residential markets that get hit first, right? We are starting to see some of the data points looking like maybe the residential markets are coming off the bottom a touch.

Are you all seeing that in conversations with customers? I’d be curious to see how that bucket has been breaking down for you..

Yes Stanley, I think you’re going to see a lot of interesting macroeconomic data. We’ve already seen it. There’s going to be a lot more data to come, and this has been such a quick reaction, so you’re going to have to look through and see this data over a number of weeks and months before you can really start to put a trend to it.

Anecdotally, I think what you were just saying, that things have started to kind of bottom out and improve a little bit, you’re starting to see these many states reopen their economies, people are going back to doing some of their normal routine activities. You still have very low interest rates - that is an attractive thing.

Longer term fundamentally, I do think single family construction will benefit from this environment where you want to social distance, so there may be even some immediate reaction, but longer term I actually do think it’s probably good for both the businesses. .

The last thing for me, just a point of clarification, you guys talked about capex being down at least 50%.

I’m assuming that that is including capital maintenance requirements for Kosmos within that number?.

Yes, absolutely. I think Michael pointed out the Kosmos facility is a very modern facility. It’s been maintained well. We see some opportunities for improvement, but we’ve certainly baked that into our estimates for capital spending in the next year. As we’ve talked in the past, our sustaining capital needs are not significant on an annual basis.

The real investment in these businesses is upfront. The sustaining annual need is not significant. .

Perfect, thanks for the time..

Thank you. Our next question comes from Phil Ng with Jefferies. Your line is open..

Hey guys, good morning. Congrats on a strong quarter.

Given the continuous manufacturing process of cement, how you are going to manage the cost profile of that business in a downturn, and is there a good way to think about the incrementals from a volume perspective?.

When we look at it, I want to get back to the current with it, is our demand in the markets has been strong. We do have several, but we are planning if something were to happen, how we would respond. To your question, it is a continuous manufacturing process.

We’ve done several different capital investments over the past, and that’s what’s enabled us some to have even less capital in this year, when we want to pull the lever back and kind of rein in the cash spend side. Some of those capital investments have been really looking at the grinding capacity versus the clinker production capacity.

We have several different facilities where we have storage of clinker that we can do so we can continue to run, and then have extra grinding capacity to take that clinker in future with it, so that’s an example of one thing we may look at if the market were to turn. There’s multiple others.

In several locations, we have multiple kilns lines that we run. We can run one kiln line instead of two kiln lines. Right now, we have those as alternatives, but right now we’re just not seeing any kind of demand profile that has us enacting any of that..

Got it, that’s helpful. There’s obviously been a lot of noise and press some of these DOTs substantially be under water.

Any perspective on how you think of your key states from a budgeting perspective, any states that are in better shape, like a Texas, and any markets that are a little weaker for you?.

As said, in this near term right now, demand has been stable across all locations. There are some different micro impacts with items, like for example gold prices are up, so we provide into that market with it, but overall there’s not a market I’d highlight out as significantly weak.

We are watching some of the Oklahoma market with some of the oil and gas movement that’s happened in it, but that’s such a small percentage of our sales anymore that it’s not significant. I think it’s less than 5% of what we sell as a product on the cement side anymore, so it’s just not a meaningful number anymore.

But we are watching that market just to see what happens, but overall we’ve been pretty consistent. We’re in a heartland area that’s been pretty stable. .

Okay, great. Just one last one from me. Appreciate once again your business is pretty stable across the board, whether it’s your light or heavy material side of things. You are bringing on some capacity for paperboard.

Can you remind us how much of that business is locked up by long-term commitments? It sounds like just from a cost standpoint, you’re seeing some savings already. Thanks a lot..

I’ll do a quick comment and then I’ll turn it over to Craig to follow up on it. What we did with that project, as you know, as I mentioned in the first side, is that project was to expand the paper mill and give us more capacity.

You may notice in there that we were able to implement all the equipment, and we are seeing some additional capacity in the early, early stages of running the equipment, so that equipment let us speed up the machine a little bit. We’ve been able to run a little bit faster, and that’s translated into some tons.

We also do have a secondary part of that that’s going to be happening, that we need some equipment that’s already installed, but we need a person from a company from overseas to come over and help us with the final [indiscernible] of that machine and everything, and that will be in the summer when the travel bans open and everything.

But right now, we are seeing improved production out of there. I think we’ve publicly stated that it was going to be a 70,000-plus ton addition and we are seeing some of that currently today, and we’ll see more as the summer comes and we’re able to finally get that equipment up and running to full capacity. .

Thank you. Our next question comes from Josh Wilson with Raymond James. Your line is open..

Thanks, good morning Mike, Craig and Bob. Hope you and your families are well. .

You too..

First a housekeeping item.

Could you quantify what the sales contribution was of the ready-mix and aggregates acquisition in the quarter?.

On the revenue side?.

Yes..

Yes, it was a pretty minimal number. I think for the entire quarter when you look at both Kosmos and the concrete acquisition, it was around $14 million for the quarter, and it was split almost evenly between the two. .

Got it.

Then regarding the frac sand business, good to see some profits there, but could you walk us through what some of the building blocks were, given that volume was still down year-on-year in terms of contribution of cost cuts, and maybe what the fixed cost outlook is for that business going forward?.

Josh, obviously over the last 12, 18 months, we’ve taken some significant impairment charges in that business to where we’ve written it down to next to nothing, and so as you see in the earnings release, the depreciation and amortization has gone down considerably.

So then as I mentioned, we actually saw while it may be down year-over-year, we did see volume improve in January and February, and a little bit of volume on a fixed cost business like this goes a long way, so that’s what was driving the earnings improvement during the quarter.

But as I also highlighted earlier, we obviously have seen another change in that business in March and into April..

Then the last one from me, in terms of the organic cement volume, any end markets or states that particularly contributed to the strong growth and how those trends are continuing?.

I think as we saw during the quarter, and I’d even highlight for you if you go back to the September quarter, the December quarter, we had seen really good volume improvement and it was really across the entire network that we saw it. The fourth quarter was no different.

We really saw very good momentum as we were coming out of the winter, inventories are low, but it was very broad based. .

Okay. Good luck with the next quarter..

Thanks..

Thank you. Our next question comes from Robert Muir with Berenberg. Your line is open..

Thanks very much. Thanks for taking the question. Firstly, can you--is there any update on the $120 million tax benefit associated with the Kosmos acquisition that you talked about earlier this year? I think I saw the federal income tax receivable on the balance sheet moved quite a bit, and I just wondered if there was any color around that. Thank you.

.

Yes, absolutely. When we acquired the Kosmos cement plant, we were able to accelerate the depreciation. For tax purposes, 65% of the purchase price was immediately expensed, and so we went from a taxable income position to a net operating loss.

Uniquely because of the CARES Act, we were able to carry that backwards and recover previously paid taxes, and so that certainly is what’s driving that income tax receivable.

What I’d also highlight for you and we’ve mentioned in the press release, what that also meant was we could carry back that NOL to years that we were paying taxes at 35% versus the current rate of 21%.

That generated another $30 million-plus of receivable benefit during this quarter, so we’ve actually filed that tax return and are seeking our refund, and that should be coming over the next couple of months..

Great, then the second question I had was just on the Chicago market. Notwithstanding obviously the effects from the virus, but I think that market--I think the Illinois shipway is going to be closed this year still for repair.

How do you think that market is likely to evolve? Are you seeing any changes in how it’s being supplied by other players that normally access it, maybe from the Mississippi, etc.? Are you seeing any changes in the supply?.

We’re well positioned in that market. We have our Illinois cement and we also have our Skyway, that grinding facility there in that market. We do that federal waterways are going to be shut down for some repairs and everything during the summer.

We’ve been in conversation with our customers that it will impact and everything, and we’re comfortable with supplying them appropriately. I haven’t seen anything notable on market shift changes or anything like that.

That plant, we run pretty much at capacity and we run that plant to satisfy our customers and everything, but don’t see anything significant right at this time..

Okay, great. The final question was just I think you mentioned Kosmos was the second most efficient plant. Is that in your portfolio or is that in the U.S. as a whole? Then when I look at the 8-K that you put out, I think EBITDA margin looks to be about 28%, but that could be wrong.

Could you clarify that for me, please?.

Yes, when I said efficiency, we were looking at the thermal efficiency of that plant, so when we look at the plants, we look at them thermally efficient.

I missed the second part?.

I think they’re related. On the 8-K, those results were as Cemex ran them, and I think it was 2018 and calendar 2019 is what’s included in the 8-K..

Okay, that’s great. Thanks very much. Thanks for the questions. .

Thank you. Our next question comes from Keith Hughes with SunTrust. Your line is open..

Thank you. You said a lot of positive things, more positive for April and May, more positive than I’ve heard on virtually any conference call this earnings season.

Just bottom line, are your volumes up year over year in April and May, or down slightly? Can you just give us any sort of gauge on what this looks like?.

Yes Keith, I think what we’re trying to communicate is that we really haven’t seen much of a change in the business, and not trying to give any forward guidance on volumes being up or down, just volume--you always have year-over-year comparisons as well to consider, but volumes have remained strong across the businesses.

That includes wallboard and cement here in April and May. Look, we fully understand what’s going on in the economy and there’s changes. We just haven’t seen it impact us yet..

Okay, and on that note, particularly on wallboard, do you expect to run normal production schedules for the time being, unless that demand pattern changes?.

We absolutely will run the facilities to meet the demand levels that are in front of us, and that’s what you always do. You don’t really have the ability to store inventory of wallboard - it will deteriorate over time, you can’t store it outside, so you’re always matching supply with demand. That’s pretty typical for us..

Okay, thank you..

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

Hi, this is actually Rob Whitworth on for Paul Roger. Thanks for taking my questions.

I just wanted to ask, when you do your scenario planning, are there any situations where you would have liquidity concerns, say if there’s a U or an L-shaped recovery? Are you still confident about the state of the balance sheet?.

Yes. We’ve made some modifications to the existing facilities here in April and gave us some extension on the maturity dates, among other things, and as I mentioned earlier, we had a sale of a non-strategic asset that wasn’t driven by the current situation but it was certainly timely - that was $93.5 million.

We have the NOL refund that we have filed for and should receive in the general near term. What we found in the last recession was what we know about these assets, and they are a significant cash flow generator.

Our capital spending needs, as we said, are not significant, roughly half of what our depreciation and amortization is on an annual basis at this point, so these assets do generate a lot of cash.

Wallboard plants can be moderated very quickly to the extent necessary, and so we feel good about where we are from a liquidity position at this point and if need be, we can continue to trim further..

Brilliant, thank you. Just as a follow-up, obviously you’ve already touched on falling state infrastructure spending already, I’d just like to know what your expectation is around stimulus from the federal government this year, what your expectations are post the FAST Act expiring in September. Thank you..

Yes, any kind of stimulus that comes is going to get in the pipeline, it’s going to take some time to materialize into anything, so as we look at it, we’re looking at what’s in front of us right now and then we understand some of the uncertainties in the midterm or later term of the year.

But right now, I don’t see any stimulus hitting us in this short time frame with it, it’d be a mid or longer term impact to it, and it’s going to take time to work through the system..

Okay, thank you..

Thank you. We have a question from Adrian Huerta with JP Morgan. Your line is open..

Thank you. Hi, good morning everyone. You mentioned the strong volumes that we have seen already over the last three quarters. You said also that it was kind of across the markets.

Do you think you’ve gained market share during these three quarters, and can we say that comps will start getting tougher now in the coming quarters on a year-on-year basis? I’m talking about cement volumes..

You know, the market share question, we’ve been pretty consistent on our market share for quite a while now on both sides of our business, so I don’t see us gaining market share with it really. It’s just more on the markets we participate in and the customer base we have on it.

As said before, I’m really focused more on we had plans for things happening in the future, but we’re focused on running the business as it stands today.

We have run cases where what we’d do if there’s downsize potential in the future, but right now we’re just seeing a stable market and we’re going to run our plants as the demand dictates at this time..

Excellent, thank you..

Thank you. That’s all the questions we have for today. I’d like to turn the call to management for any closing remarks..

The only thing I want to say is thank you very much for calling into our conference call, and we will be talking to you again in the summer. Thank you very much..

Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect. Everyone have a great day..