John Kunz – Senior Vice President and Chief Financial Officer Bill Sandbrook – President, Chief Executive Officer, and Vice-Chairman.

Blake Hirschman – Stephens Adam Thalhimer – Thompson Davis Brent Thielman – D.A. Davidson Craig Bibb – CJS Securities Scott Schrier – Citi Rohit Seth – SunTrust Stanley Elliott – Stifel.

Good day ladies and gentlemen, and welcome to the U.S. Concrete Full Year and Fourth Quarter Results Conference Call. [Operator Instructions] As a reminder, this conference call is been recorded. I would now like to turn the conference over to John Kunz, Senior Vice President and Chief Financial Officer. Please begin..

Thank you, Latoya. Good morning, and welcome to U.S. Concrete's Fourth Quarter 2017 and Full Year Earnings Conference Call. Joining me on the call today is Bill Sandbrook, our President, CEO, and Vice-Chairman. Bill and I will make some prepared remarks after which we will open up the call to your questions.

Before I turn the call over to Bill, I would like to cover a few administrative items. U.S. Concrete would like to take advantage of the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Certain statements in this conference call may be considered forward-looking statements within the meaning of that act.

Such forward-looking statements are subject to risks, uncertainties and other factors, which could cause actual results to differ materially. 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 reconciliations and other information regarding the non-GAAP financial measures that we will discuss on this call in the Form 8-K filed earlier today under the Investor Relation's section of our website.

If you'd like to be on an e-mail distribution list to receive future news releases, please sign up in the Investor Relations section of our website under e-mail alerts. If you would like to listen to a replay of today's call, it will be available in the Investor Relation's section of our website under Events & Presentations.

Now, I would like to turn the call over to Bill..

Thanks, John. And good morning, ladies and gentlemen, and welcome to our call. 2017 was another exciting and opportunistic year for U.S. Concrete, filled with record-breaking milestones in many facets of our business. We reached new highs in volumes, revenue and profit, driven by solid growth both organically and through acquisitions.

For the full year, total revenue of $1.3 billion, it was up 14% over prior year with adjusted EBITDA of $192 million, up 20% over prior year driven by double-digit growth in both ready mix volumes, which ended the year at 9 million yards and aggregate volumes, which ended the year at 6.2 million tons.

We continue to capitalize on opportunities to leverage our market strength and operational efficiencies, which were evidenced by our sixth straight year of adjusted EBITDA margin expansion. We are particularly proud of our performance in light of significant weather headwinds in every quarter of the year within our various regions.

Once again, during the fourth quarter of 2017, results in the Northeast and Texas markets were significantly impacted by weather.

In the last two weeks of the year alone, we estimate we lost approximately 100,000 yards of concrete sales, which would have generated an estimated $12 million of incremental revenue and $2 million of incremental EBITDA for the quarter.

For the quarter, our expense compared to prior year quarter was $5 million higher as we incurred additional self-insurance costs for workers compensation and auto liability. The increased expense was a result of adverse claim development during the year and we would not expect this type of run rate to continue into the future.

A significant driver of these results was our relatively recent expansion of operations in New York and California, which have higher costs of claims relative to our operations in the parts of the countries.

In November, we completed the largest acquisition in the company's history with the addition of Polaris Materials, an acquisition that will open the door for additional growth in the West Coast and change the landscape of our existing Northern California operations.

Building on the momentum we created over the last several years, we also continued to expand our footprint into new markets like Philadelphia and Southern California and bolstered our positions in existing markets, both geographically and through differentiated product offerings, including our non-union acquisitions in Northern California and New York.

With our continued vertical integration expansion through the acquisitions of Polaris Materials and Corvette Materials, we now have the capacity to supply over 40% of our internal aggregate needs out of our own quarries and pits.

We remain relentless in our focus on operating excellence and the integration and synergistic growth from these acquired businesses. We saw a lot of positive movement out of Washington during 2017. The passing of the Tax Cuts and Jobs Act of 2017 will generate meaningful additional cash flow for domestic businesses. And U.S.

Concrete will certainly be a recipient of those benefits as a full taxpayer. We look forward to reinvesting this additional liquidity into our business to build on our momentum and provide significant value for our shareholders.

The passage of tax reform will also generate confidence among consumers and employers and should have a major impact on the construction industry and the sectors we serve.

The administration also recently announced the framework for its infrastructure modernization plan that would allocate $200 billion in federal funds to spur at least $1.5 trillion in infrastructure investments with partners at the state, local and private level.

As part of the plan the permitting process and regulatory barriers are being streamlined, shortened or eliminated.

Although, infrastructure activity represented 17% of the fourth quarter revenue, opportunity for additional expansion driven by the FAST Act, state and local initiatives, and momentum from the recently passed Tax Cuts and Jobs Act and the distinct possibility of increased incremental federal infrastructure spending in the coming years.

Construction industry forecast and leading indicators are showing strong signs for continued growth across the country and specifically in our markets. The Architectural Billings Index projects growth in each of its sectors and ended the year with project inquiries increasing three consecutive months across the nation.

Total construction spend in December was at its highest point for the month in over 15 years with year-over-year growth in both residential and non-residential sectors. Construction employment continues to rise in response to increased demand. The U.S.

Chamber of Congress Commercial Construction Index increased once again in the fourth quarter showing continued strength in overall backlog levels, new business opportunities and revenue forecast with a reported 99% of contractors feeling confident in the demand for new commercial construction over the next 12 months.

Residential construction markets remains strong with a 50% increase year-over-year in the building permits in 2017. Dallas-Fort Worth, Manhattan and Washington D.C. all remain at the top 10 cities for new apartment constructions during 2017 with Dallas and New York ranking number one and number two in the nation.

We feel confident that the nation and specifically our markets had a solid runway for continued growth over the next two to three years with an extended steady recovery that it supported by fundamental growth and gross domestic product, employment gains and industry and consumer confidence. I'll now take you through each of our markets.

In Northern California, which represented 26% of our revenue this quarter, we were able to continue the positive momentum after enduring record rainfall in the first quarter of 2017 in the Bay Area. There are many high-profile projects and a wide variety of construction going across the entire area.

We continue to strategically differentiate ourselves from our competitors. Recently, our operations in Northern California successfully placed 8,000 yards of ready-mixed concrete in less than 12 hours for a 23-storey office tower that achieved LEED Gold certification in Oakland.

Projects of this size and complexity demand product specificity, quality control and service requirements that we believe few can provide. One of the most exciting projects to come to this area will be a huge waterfront project in conjunction with the San Francisco Giants baseball stadium.

This project is one of many that represent San Francisco’s dedication to providing affordable and appropriate housing that support continued population growth.

In Dallas-Fort Worth which represented 24% of our revenue this quarter significant rainfall and abnormally low temperatures plagued the region in December, hindering what began the quarter with an opportunity to accelerate sales in response to weather deferrals from prior quarters.

Due to the deferral of the construction pipeline in the Dallas-Fort Worth area remains very strong with continued growth of population and expected increased investments in commercial and residential construction.

A great accomplishment in our DFW market was the successful placement of what has been coined as the mega slab at GM's new Arlington, Texas assembly plant. Our business unit covered over 256,000 square feet with 6,500 cubic yards of ready-mixed concrete. This historical placement included 650 truckloads, delivering continuously for over 30 hours.

I want to congratulate our team on the safe and successful completion of this complicated project. In New York City, which represented 22% of our revenue in this quarter, we experienced a substantial increase in public projects during 2017, led by most notably, one of our projects LaGuardia Airport.

This vibrant area boasts a variety of building projects across all sectors. And one of the most exciting on their horizon is the master plan industrial park at the Brooklyn Navy Yard, which includes five million square feet of new construction.

Job growth is expected to continue throughout 2018, which will continue to drive commercial and residential construction in this vibrant region. Our West Texas region, which comprised of 10% of our fourth quarter revenue, continues to be a steady contributor.

The rural strategy that we have implemented in our West Texas market with self-supplied aggregates provides consistent performance and profitability from loyal customers in the region. We continue to see a significant increase of rig count in the Permian basin showing great promise for this dynamic region. Our Washington, D.C.

and Northern Virginia operations remain an important growth area for our business. The addition of our greenfield plant in Northern Virginia this year is proven to be a prudent investment with the surrounding construction activity. The Washington, D.C.

market is also seeing continued success with a groundbreaking of the district's largest construction project ever. The Frederick Douglass Memorial Bridge is a replacement of the original 1950 bridge and a major investment in the infrastructure around burgeoning area of the district.

Overall, the economic fundamentals across our markets are very positive and with the recently passed tax reform and precursor to protect potential infrastructure build, we are optimistic about the overall economic and construction industry.

Our ready-mixed concrete backlog continues to increase and as of December 31, 2017 was approximately 7.9 million cubic yards, up 7.6% from the same time last year. Now I want to discuss the 2017 acquisitions on our current deal pipeline.

In 2017, we made good progress on executing on our core strategy of increasing our share of internally-generated aggregate EBITDA. In spring, we purchased Corbett materials, a natural sand producer in South Jersey to primarily supply a portion of our sand needs to our New York ready-mix operations by water.

In November, we closed on the acquisition of Polaris Materials on Vancouver Island to internet supply our own Bay operations as well as shipping aggregates in the markets in Southern California and Hawaii.

This addition filled the critical void in our integrated operational portfolio as a rapidly depleting California aggregate reserves while ultimately lead to elevated aggregate pricing levels. Additionally, the Long Beach terminal extended our operational footprint in the Southern California for the first time. The integration of Polaris into U.S.

Concrete has moved quickly and its ahead of our own internal plan. We're rapidly moving forward to increase capacity at the existing operations while simultaneously accelerating the plants future development of additional reserves, which were acquired as part of the Polaris transaction.

Back on the ready-mix side, as previously stated, 2017 saw us acquire additional operations in Texas and California, as well as placing a stake in the ground of Philadelphia for the first time. These operations also have been integrated into their respective U.S. Concrete regional structures and will be great contributors in 2018.

Our deal pipeline in both additional aggregate and ready mix opportunities remains full in all regions as we enter 2018. I'm optimistic that we will continue our deal pace at our historical levels. And 2018 growth will continue through both organic and acquisition related opportunities.

Now I'd like to turn the call to John to discuss our fourth quarter results in more detail..

Thanks, Bill. I would like to start by saying that we're very happy to announce that we have completed the remediation of our material weaknesses related to internal controls covering our tax accounting. We put a comprehensive remediation plan in place early in the year.

And after completing the 2017 year end review of our internal control environment, along with our auditors, Ernst & Young we concluded at our internal control environment including controls over tax accounting are effective. Now that we have that behind us, let's move on to our results for the quarter.

Not withstanding adverse weather and increased insurance cost, we are very pleased with the underlying operational metric that drove the fourth quarter results, which were highlighted by 28th consecutive quarter of year-over-year revenue growth. For the fourth quarter, consolidated revenue was $341 million and adjusted EBITDA was $44 million.

Average selling price for ready-mixed concrete and aggregate products increased 1.3% and 9.2%, respectively, compared to the prior year quarter. We estimate the incremental weather in the last few weeks of the year resulted in the deferral of approximately 100,000 yards of concrete sales in Texas and the Northeast.

For our ready-mix business, our raw material margin percent improved to 49.4% from 49.2% in the prior year quarter. And on a dollar per cubic yard basis, our raw material margin dollars increased to $66.24 from $65.12 in the prior year quarter.

In addition, as Bill mentioned earlier on the call, we recorded a $5 million increase in incremental self-insurance expense when compared with the fourth quarter of 2016. I want to point out that the $5 million was not added back to our adjusted numbers.

The expense related to – the insurance expense related to adverse claim development during the year and we would not expect this type of run rate to continue into the future.

We estimate the impact of weather-related deferrals and insurance costs resulted in approximately 190 basis point reduction to our adjusted EBITDA margins for the fourth quarter. SG&A was 9.7% of revenue for the fourth quarter of 2017 compared to 9% in the prior year quarter.

Adjusted SG&A, excluding stock compensation, acquisition-related professional fees and other transition cost was 7.6% of revenue in the fourth quarter of 2017 compared to 8.5% in the prior year quarter. Our net loss attributable to U.S. Concrete was $3.1 million in the 2017 fourth quarter or $0.19 per diluted share.

Adjusted net income from continuing operations was $8.2 million, $0.50 per diluted share for the fourth quarter, compared to $0.82 per diluted share in the prior year. Adjusted net income from continuing operations for the fourth quarter of 2017 was calculated using a normalized tax rate of 40%.

This normalized tax amount is consistent with being a full cash taxpayer in 2017. For the full year, income from continuing operations was $26.3 million compared to $9.6 million in the prior year. Adjusted EBITDA was $192.3 million, an increase of 20% over the prior year of $159.8 million.

The year was a huge success given the significant weather-related hurdles we had to overcome regionally in every quarter of the year. Moving to our cash flow and balance sheet. During the fourth quarter of 2017, we generated $10.6 million of net cash provided by operating activities as compared to $23.6 million in the prior year quarter.

We generated $3 million of adjusted free cash flow as compared to $17.6 million in the prior year quarter. The decline is primarily attributed to additional interest and taxes that were paid in the fourth quarter compared to the prior year. As a result of the recent 2017 Tax Act, we expect our effective tax rate to be in the range of 26% to 28%.

We spent approximately $8.7 million on capital expenditures during the fourth quarter of 2017 primarily to purchase plant machinery and equipment in support of growing demand in our markets compared to approximately $9.4 million for the same period last year.

As of December 31, 2017, the book value of our long-term debt including current maturities was $693.3 million.

This included $610 million of senior unsecured notes due 2024, $9 million outstanding on our revolving credit facility and approximately $85 million of other debt consisting mainly of equipment financing for our new mixer trucks and mobile equipment less than $11 million of debt issuance cost.

As of December 31, 2017, we had total liquidity of $229 million, including $23 million of cash and cash equivalent and $206 million of availability under our revolver. Our availability is net of $20 million for outstanding letters of credit and other required reserves.

At December 31, 2017, our net debt to the last 12 months total adjusted EBITDA ratio was 3.5x. With this, we ended the year with a healthy balance sheet and adequate liquidity that support our ongoing operations and near term acquisition strategy. I will now turn the call back over to Bill..

All right, thanks, John. We're pleased to continue to deliver on our growth objectives and create a sustainable platform for continued success. We continue to believe that the construction cycle has a healthy runway for continued expansion.

The policies that have been put in place over the last 12 months, including the 2017 Tax Act and a potential acceleration in U.S. GDP and the potential for an effective monetization program that will increase funding and remove regulatory boundaries, all support positive outlook for growth over the next two to three years.

As we look to the balance of 2018, we are optimistic on the prospects for growth in our existing markets and our acquisition pipeline remains a viable avenue for additional growth, including potential new metropolitan market areas and increased vertical integration with additional aggregates.

We expect our markets to continue to outpace the national average for construction spending, allowing us to maintain our relentless focus on our two-pronged strategy to first grow organically through operating excellence and superior product delivery and service and second expanded through acquisitions that bolster our existing market positions and capitalize the potential opportunities in new high-growth markets.

We expect that the disciplined execution of our strategic growth plan should lead to increased value for our shareholders. Thank you for your interest in U.S. Concrete. We look forward to updating you on our future successes. We would now like to turn the call back over to the operator for the question-and-answer session..

Thank you. [Operator Instructions] The first question is from the line of Trey Grooms of Stephens. Your line is open..

Good morning, guys. It’s actually Blake Hirschman on here for Trey. First question, understanding on the volumes, there was some referral due to weather earlier, in the year I think you said, 200,000 yards last quarter and then updated that to 100,000 yards this quarter. Obviously, it takes time especially in the winter to kind of work through this.

Just trying to think about the timing and when that might flow through kind of any update on any color you might have there..

Yes. Thank you. As we said on the call, there has been deferred volumes throughout the course of the entire year because we have normally wet weather toward the end of the year in Texas and New York. But throughout the year, the first quarter was all California and the middle of the year was Texas.

And like we’ve said, it’s Texas and New York towards the end of the year. It all depends on cooperative weather patterns and the availability of our contractors labor force to be able to work on jobs simultaneously.

In the event that there is still significant contraction in available labor, all of those jobs have to be worked off sequentially as well as capacity constraints at our plants and with our own driver delivery professionals. So it's going to be worked off through the year as the weather cooperates.

You can see our backlog at the end of the year is that historical high at the end of the year period over the course of last number of years. And we're optimistic that that will be worked off as weather cooperates..

Okay, got it. And then as a follow-up on that.

On the backlogs, is there any way you can kind of decipher or take a guess at what acquisitions might have added to that? Or is that kind of too tough to tell?.

No, the acquisitions on – for the 2017 acquisitions that we haven't lapped yet were fairly small. If you remember, the Philadelphia operation with action supply and harbor and A1 are fairly small acquisitions.

As well as some of those are in segments that are more directed towards smaller and residential type opportunities, specifically in the Bay area, which wouldn't work off large construction project backlogs in their normal book of work. So I would say its de minimis on acquired backlog at least in this period. In other periods, you're absolutely right.

When we buy something like Ferrara or Nicanor [ph] agenda, we did inherit a very large backlog. But in the 2017 period, the acquisitions were for different purposes..

Got it, that’s helpful. And then last one from me, switching gears to the Polaris acquisition commentary sounds good. You kind of mentioned, it was a heavier plan and talked about accelerating future reserves there.

Kind of with all the moving pieces just was curious if you could give us some 2018 guidepost may be around volumes or expected revenues, EBITDA, anything along those lines would be helpful. Thanks and good luck..

Yes, you’re welcome. Obviously, we don't provide that level of detail in our existing operations. And what we've guided to in the past is there was very recent Polaris under previous ownership guidance they used to provide. I would say that that would be a baseline and I'm optimistic from there..

Thank you. The next question is from Adam Thalhimer of Thompson Davis. Your line is open..

Hey, good morning, guys..

Hey, Adam..

Bill, what are your thoughts on organic ready-mix volumes in 2018?.

Organic? I would say mid-single digits. We're optimistic in all of our markets that we have a healthy backlog that gives us some visibility to substantiate that belief. And I fully think that in expanding GDP, which I think we're all going to start facing with the fulfillment of the tax reform is going to substantiate that as well.

So I would say mid-single-digit organic volume growth..

Perfect. And then, curious about the bidding activity in your main markets and maybe I can get to even rank them, just in terms of kind of how robust the bidding pipeline is..

I would rank them as of one, one, one and one. All four of our major regions have ample opportunity right now. And we're still in the part of the cycle where we can be selective in the projects that we go after, which provide us the largest opportunity for outside margins in each of our respective operating regions.

So Adam, it's really difficult to rank them. They are all very robust at this point..

And then in New York, are we still talking about this phenomenon where you might see some activity shift out of Manhattan into the Boroughs?.

Yes, I don't think it's necessarily a phenomenon. I think it's basic economics 101.

It exists in San Francisco, it exists in New York, where the price of midtown condominiums, apartments or any other type of housing is so astronomically expensive that people are having to shift to lower-cost areas, but still want proximity where they short commute into those cities, which means Oakland in San Francisco and it means that West Shore of the Hudson River in the Northeast..

Okay.

And then, lastly, I'm curious what do you think your ready-mix EBITDA margin would have been in Q4 without those deferred volumes?.

So without the deferred volumes?.

Yes, without the deferred volumes probably adjusting for 100,000 yards that we spoke about, I would say, it's around $2 million that would translate into an adjusted EBITDA. So when you take that and if you add back the self-insurance cost that we had, there might be about $7 million add back to normalize where we would have expected it to be..

Okay, perfect. Thanks, guys..

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

All right, thank you, good morning. Bill, I know you don't guide, I know it's a little early in this quarter, but just kind of given all the noise of 2017 and even in the last quarter there.

Can you just talk qualitatively about how things have started to progress this year so far?.

Well, Brent, the number one determinant in this part of the year and first quarter is always weather. So that's a combination of cold and snow in the North and rain in the South or rain in California.

So I would say, if you would watch what's going on specifically in each of those regions, it will give you directionally where us and other situated companies that are dependent on outdoor activities are coming out in the first quarter. And you also have to remember that it ramps up January, February much slower than March.

So even if there are some weather headwinds earlier in the quarter that a very weather-friendly March can trump some pickups in weather in the first two months..

Okay. And then, maybe Bill, can you talk about maybe how you're thinking about managing through some of the inflationary pressures developing out there? Not necessarily on the cement side, but things like labor and diesel, I guess, to name a few.

How do you think about deposit on those arising costs as you move through 2018?.

That's a very good question, Brent. As far as the cost of diesel, the cost of diesel now is up $0.30 some in the quarter year-over-year.

And we are in the process of reinstituting our traditional fuel surcharges indexed at a lower diesel value than we previously would have at the last time in the cycle when there was inflationary diesel cost expansion. And that would be just a transparent pass through, not a markup, but just to recover our cost on a like-for-like basis.

And that is starting to be instituted now across the footprint and will be messaged to customers here going forward.

As far as labor, normal labor, and there are inflationary aspects especially where there is driver shortages in Dallas is well-documented that driver wages are increasing faster than the normal inflation rate, which is being reflected in higher prices. And it's not that difficult to pass through. Obviously, pricing is always competitive.

But our customers are facing the same thing with their labor. So they are very well aware of the fact that there is inflationary pressures that has to be passed through the entire value chain into the ultimate end-user. We're very focused on these inflationary periods.

Traditionally, in times of raw material inflation outside of the ones that we just spoke about it's a very good time and a very fertile time for ready-mix companies to raise pricing, recapture what their additional costs are and in fact, able to expand our margins.

So we're not – we're cautiously optimistic that we're going to be able to continue that dynamic. And would rather face this than a deflationary environment..

Okay, Bill, that's really helpful. And I guess, from that standpoint all things equal from a geographic perspective.

I know things can swing around but that mid-single-digit kind of price growth assumption for ready-mix still kind of appropriate for the year?.

I would say that's appropriate, mid-single, yes..

Okay, and then just lastly how much of the 9% increase in aggregate price is the inclusion of Polaris and I guess, secondarily would you expect that business or price into that business to grow faster than the corporate average this year?.

I would say a large part of the price increase is Polaris coming in at higher price point. And as far as the pricing dynamics across the portfolio, I think there are a significant inflationary pressures on raw materials, especially aggregates in California because of their increasing shortage value.

Everybody has to think about Polaris as the California quarry basically. The dynamics that go along with California quarries on the commercial side would be definitely in play for that asset. And as California aggregate pricing and inflationary pressures creep in, we will obviously be able to partake in that..

Okay, thank you..

The next question is from Craig Bibb of CJS Securities. Your line is open..

Hi, guys. It sounded like you had wet and cold New York and Dallas, which would push the mix towards San Francisco, but your price is only up 1% year-over-year.

What are the factors worth play?.

That is right Craig, there has been some mixed impacts on this. Now California, pricing and San Francisco pricing is historically high, but New York is even higher. And so when we’ve shifted volumes out of New York, our volumes in New York quarter-over-quarter were down almost 4%, I believe.

And as that shifted it is a fairly good weather California, it wasn't one for one swap. So there is a mixed shifts in this overall pricing..

And nothing competitively changed at ready-mix?.

Yeah, I wouldn’t say that there is any difference in the competitive landscape in any of our buckets, especially with new entrants or with the new behaviors from existing competitors that have been there over the last two, three or four years. I don't see any major competitive landscape shifting..

And I realized you guys do not provide guidance. If I take mid-single-digit organic volume growth and kind of mid-single digit price, I don't know that I can get to the consensus EBIDTA number, which is like almost 30% above where we were in 2017.

So what am I missing or what has to happen so that we can get to that level of growth?.

Let me answer the first part of your question that you are going to have to ask the other people to make up the consensus since we don't give guidance. As far as what you might be missing, I don't know what you have in front of you. Remember we are shifting the portfolio a little bit more towards the aggregate EBITDA side, which is at a higher margin.

And we have high expectations for our recent aggregate acquisitions..

Okay, and so that actually bleeds right into my next question. You haven't provided a lot of detail on the Polaris acquisition other than pointing to their EBITDA guidance prior to the acquisition.

And obviously I think everyone understands that as you increase volume, there is a lot of leverage and that EBITDA margins will snap back well above where they were historically. But it isn't clear how quickly that will play out.

So over two years it's a lay up to get to the type of EBITDA margins they were talking about pre-deal, but how does that play out kind of over 2018?.

I fully expect to realize what their guidance was over a two-year period. And as I' said in my prepared remarks, we're ahead of our own plan. So I expect at least partial realization of a two-year synergized plan of somewhat earlier than that..

Okay, is there anything that we should be concerned about or sticking points that might cause things to go slower or no surprises?.

Not competitively, not regulatorally. It's only going to be weather, Craig. Because all the other pieces are in place, backlogs are in place, price, forward pricing is in place, the demand is there.

It's just the ability to get those projects out of the ground through whether or if labor gets tighter and our downstream customers are more labor constrained, so their cadence of project completion is slowed. Those are the type of things that I'll be looking at..

And then the last one. On the $5 million, I think it's workers comp increased. I'm assuming that some type of catch up but you explained that it was worker comp claims are higher in New York and California.

So it sounds like maybe that number should be somewhat higher going forward?.

What it really related to was the adverse development of a few claims.

So what we referred to it as is our self insurance cost and we had some adverse development during the year, which sort of got us by surprise, we do an annual actuarial review with one or two through the year and look at it actuarially and to make sure that our numbers are correct and it sort of – the number sort of caught us by surprise when we did that evaluation and we had a post catch up to our accrual and that's really what it relates to..

But the ongoing accrual will be – won’t change?.

That accrual as it sits right now is right around $19 million. I don't expect that number to change much. But what we're trying to point out is that we certainly don't expect that type of incremental cost on a run rate going forward. We just – we believe that's an abnormally high charge or high cost to incur in any given quarter.

We will incur workers comp cost as we have in each and auto cost as we’ve incurred in each of the past few quarters. We just don't expect the type of run rate. I mean, when you look at the year-over-year comparison we are $5 million higher than what we were in the fourth quarter of 2016..

Yeah, so I understood that but was wondering if the annual accrual should be $5 million higher. So we are $1 million or $2 million per quarter higher going forward..

So as we grow and as what Bill was referring to, as we grow in California and New York, you will see increased expenses associated with that, because it's really tied to correlation in the hours worked. So we will see some increase. I don't have a number to give you an exact number because it depends on a lot different factors associated with it.

But again, the $5 million is just what we thought was a very high number..

Okay, yeah, That makes sense. Congratulations on the great year 20% EBITDA growth against all that weather that's fantastic..

Well thanks Craig, appreciate that..

The next is from Scott Schrier with Citi. Your line is open..

Hi, good morning, I wanted to follow-up on the previous question about inflation, your comments on the fuel surcharges. Considering that we have seen material spread margin has been decelerating a little bit over the year.

If you really want to push through these fuel surcharges and I could imagine we're getting some of those volumes back, is it fair to say that we should expect more of a normalized operating leverage in ready-mix in 2018 or based on some of those factors should we expect it to trend possibly a little bit lower than what we consider normalized..

I would go with a normalized thesis. As we recapture some of the inflationary pressure in specifically in our fuels, that will be additive.

But the deceleration that you reflected on, we ended last year's fourth quarter on a material margin spread of 49.2%, we are at 49.4% now we actually and then expanded that in the first quarter of this year from 49.2% to 49.6%. So there can't be an expansionary aspect of this because we ended the year higher than we did in the previous year.

And any time you get material margins up close to 50%, I mean those are world-class numbers. So I would dispute the fact that these are decelerating. In fact, the dollar-on-dollar total material margin has expanded significantly through the last number of quarters. But to your point, I would expect a normalized run rate on these margins and costs..

Got it. And then on aggregates on the volume growth, I'm just curious if you could parsed it out a little bit. I mean I know up north we had the bad weather.

Is most of that growth due to Polaris? Or if you could talk about how much you have seen out of Corbett in the quarter also that would be helpful?.

A lot of that is Polaris because you have to remember, in the Northeast, where we did have somewhat of a slow or weather impacted December. That would have affected our internally supplied aggregates as well. And our external aggregate sales would be affected in a similar fashion. But there is some noise here on the like-for-likes because of Polaris.

But I would say most of the growth in fourth quarter was as a result of that, about 80% most..

Great, thanks. And last one, can you just talk about how you're thinking about leverage and you’re speaking earlier about a robust acquisition pipeline in all the opportunities. So if could you talk about how you're balancing leverage with your inorganic growth strategy that would be helpful? Thanks..

Sure. As I mentioned earlier, we're about 3.5x leveraged and we're cognizant of that. What we look for with respect to our leverage ratio is on a long-term basis, we would anticipate to be in the mid-2s or somewhere around that range.

One of the most important factors with respect to our acquisition strategy is making sure we have sufficient liquidity to whether any potential downturn. And as I mentioned, we have over $200 million of liquidity as of year-end. So there is certainly some room for us to use the liquidity for acquisitions here in Q1.

And as we generate cash we can certainly, reinvest that in the business and buy potential targets going forward. But any Bay acquisition we would reevaluate our balance sheet as far as where we are potentially raise capital.

Does that answer your question?.

Yes, great. Thank you very much and good luck..

Thanks Scott..

Thank you. The next question is from Rohit Seth of SunTrust. Your line is open..

Hey, thanks for taking my question. My first question is on tax reform and the impact on your tax rate.

Can you provide any color on that?.

Sure. I mean if you look at where we were before, we called out a normalized rate of around 40%. So the rate, the statutory rate dropped by about 14. But when it dropped by 14, we lost the Section 199 manufacturing deduction. So when you drop from 35 to 21, that's a 40% reduction. So that would have taken us from 40 down to around 26.

But the 199 manufacturing deduction is covered around 3% or so benefit that we lost. So that's how we get from 40 into that 26% to 28% range..

Okay. And then, a few quarters ago, we talked about incremental margins in like the mid-20s. And given there is a lot of weather headwinds in 2017 might be some inefficiencies, you guys had labor but no revenue offset.

I mean, is that incremental 25 still a good run rate in 2018?.

I would say that, that is exactly what we should be. Seth, when you hit the nail on the head. When you have these operations especially in New York that are heavily unionized and you are weather impacted, you have a lot of inefficient utilization labor.

And we actually had the same dynamic in our Dallas market, specifically the last two weeks of the month of December, which aren't robust weeks to begin with but we are complete bust this year, which impacted these costs and the incremental margins significantly. But you are spot-on with where normalized is..

Okay. And then, just on Polaris, you provided a lot of color, thank you for that. Is there any over – immediate overhead synergies that we could use? I know you've disclosed some pro forma financials not too long ago, but it would certainly help for modeling on the quarterly basis particularly..

We are in the process of taking overheads out of that business, have accomplished some of that during the first part of this year already. As far as dimensioning it, we haven't dimensioned the entire operational aspects of that business.

So I'm hesitant to put any color around that other than what I said earlier to Craig is that we – if you look at a two-year post run rate synergized EBITDA, we're pulling some of that back into 2018 because of some of these overhead reductions as well as expanded sales opportunities..

Got you, all right. That’s all I had. Thanks for taking my questions..

Okay, thanks Seth..

Thank you. [Operator Instructions] The next question will come from Stanley Elliott of Stifel. Your line is open..

Hey, guys, good morning. Thank you for taking the question. Quick question, when you are thinking about the material margin and on a go-forward basis.

Is there anything either with admixtures our fly ash or anything like that would be a headwind? Or should we think that's going to be additive to material margins going forward?.

Hi Stanley, I think it's going to be additive. We have undergone extensive negotiations with our admixture suppliers over the last quarter are making some minor tweaks in there that are very advantageous to us. And we look at the – we look a little bit deeper than just the pure cost of the admixtures.

The partnership we have with our admixture suppliers to help us to actually obtain higher margin businesses and upsell the aspects of the admixtures they provide us. It is just as important as getting across down to admixtures side. So we can get it on the revenue side and the cost side on the admixtures.

As far as the fly ash side, actually last year, our usage was up year-over-year. We expect that to continue. Although, long-term, there are some supply concerns as more and more coal-fired electric generating plants are being phased out for cheaper natural gas and other renewable sources.

So long-term, I do have some concerns about fly ash availability but in the short-term I don't see any headwinds..

Perfect. And then I think you had mentioned that you guys are 40% internally sourced on the aggregate side. What's the ultimate goal, once we start layering in Polaris? Are you guys 80% internally sourced? Or any numbers or even directionally would be very helpful..

You might have misunderstood. It would be when Polaris is fully synergized into our operating footprints in the Bay area that will be at 40%. We’d like – we continue to want to take that higher. North of 50% would be where we would want to be over time.

The trick on the aggregates is, you are well aware is the cost of large deposits when we're trading where we are and those deals are trading up in the teens, they are somewhat difficult to actually the trigger on, so they have to be a very, very critical to our current, our future operating footprint.

And deals like Polaris, as I said, were aggregates are becoming more and more scarce in California, they are absolutely worth the investment. In more rural areas of the U.S., where we don't operate, I'm not interested in. So there is only a select number that are even of interest to us.

But I'd continue to look at our footprints, our potential new footprints and any aggregate reserves around them they would be fair game for us to get north of 50%..

And then kind of back on M&A piece with the Polaris in toe, does that help you looking at markets, either in Northern California or in the Southern California, in terms of what we're able to do from a synergized kind of all-in number given the vertical integration potential there?.

It certainly does. I mean, anywhere you can reach aggregates – excuse me, anywhere you can supply aggregates by water into a ready-mix market, either on the costal areas or through inland shipping channels with minimum amount of double handling, those are all candidates for future growth regions for U.S.

Concrete, which puts the entire West Coast in play at this point..

Great, guys. Thanks and best of luck..

Okay, thank you Stanley..

Thank you. This concludes the Q&A session. At this time, I'll turn the call back over to Bill Sandbrook for closing remarks..

Thank you. Latoya. And thank you, everyone, for participating in the call this morning and for your continued support of U.S. Concrete. This concludes our call. And we will look forward to discussing our first quarter 2018 results with you in the future. Thank you..

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