Martin Marietta Materials, Inc.

Good morning, ladies and gentlemen, and welcome to the Martin Marietta's first quarter 2020 earnings conference call. All participants are currently in a listen-only mode. A question and answer session will follow the company's prepared remarks. As a reminder, today's call is being recorded and will be available for replay on the company's website. I will now turn the call over to your host, Ms. Suzanne Osberg, Vice President of Investor Relations for Martin Marietta. Suzanne, you may begin.

Good morning, and thank you for joining Martin Marietta's first quarter 2020 earnings call. With me today are Ward Nye, Chairman and Chief Executive Officer, and Jim Nicholas, Senior Vice President and Chief Financial Officer. We would like to remind everyone that today's discussion may include forward-looking statements, as defined by United States securities laws in connection with future events, future operating results, or financial performance. Like other businesses, we are subject to risks and uncertainties that could cause actual results to differ materially. Except as legally required, we undertake no obligation to publicly update or revise any forward-looking statements, whether resulting from new information, future developments, or otherwise. Please refer to the legal disclaimers contained in today's earnings release and other filings with the Securities and Exchange Commission, which are available on both our own and the SEC's We have made available during this webcast and on the investor relations section of our website Q1 2020 supplemental information that summarizes our financial results and trends. We will reference this information during today's call. In addition, any non-GAAP measures discussed today are defined and reconciled to the most directly comparable GAAP measure in our earnings release and SEC filings. Today's earnings call will begin with Ward Nye, whose remarks will focus on the state of our business in light of the coronavirus pandemic, the actions we have and are taking, and the strengths of our positioning to manage the current environment. Jim Nicholas will then review our first quarter 2020 financial results and liquidity position, and then Ward will provide some closing comments. A question and answer session will follow Ward's closing remarks. I will now turn the call over to Ward.

Thank you, Suzanne, and thank you all for joining today's teleconference. First and foremost, we hope that you and your families are and remain safe and healthy as we confront the challenges and uncertainties presented by COVID-19. I also want to extend my sincere gratitude to our Martin Marietta team. I'm tremendously proud of how everyone is working together to manage through this unprecedented time and how the character of our employees has shown through. Day after day, Martin Marietta employees are safely and resolutely meeting the critical needs of our customers. They're also supporting their local communities in both large and small ways, donating vital supplies and equipment to healthcare workers and first responders, helping neighbors by picking up groceries and ensuring our colleagues are well cared for and safe. Our team has shown great courage, determination, and resilience as we successfully meet our stakeholders' needs while never losing sight of our core values of safety, integrity, excellence, community, and stewardship. These values define us and our character. We look to these foundational principles to guide our daily and long-term actions and decisions, particularly during difficult times. Martin Marietta remains open as an essential business. That designation means we're continuing to provide heavy building materials and services to our customers, even in those areas with shelter-in-place orders. Communities across the nation must maintain their vital infrastructure, and we're working hard to support that objective in a safe, efficient, and responsible way. Through the end of April, our workforce, operations, and supply chains have seen little disruption. We believe this is largely due to our company's decisive steps early to respond quickly to this pandemic, our domestic-focused approach to sourcing supplies and materials, and our expanded safety procedures, all of which are designed to protect Martin Marietta employees and the organizational health of the company. During this pivotal time, our focus is threefold, communication, resource management, and business continuity. We've implemented new robust protocols and practices, including remote working, social distancing, and enhanced equipment and facility cleaning, consistent with guidelines for the Centers for Disease Control and Prevention and the medical professionals who partner with the industrial hygienists familiar with our operations. These protocols were updated on an ongoing basis as public experts provide additional guidance. We also established a COVID-19 planning and communications task force, canceled all non-essential business travel and in-person meetings, and established contingency plans with respect to staffing. And we've been actively engaged enterprise-wide to enhance the substance and frequency of our communications to ensure the flow of the most accurate and timely information about our operations, thus enabling our employees, customers, suppliers, and other stakeholders to stay fully informed. Our operations teams have shown considerable agility, flexibility, and perseverance while keeping our business running smoothly. Among other things, they've taken timely and responsible steps to clean and disinfect their facilities while carefully screening necessary third-party visitors to minimize any COVID-19 exposure. Thanks to their dedication and effectiveness, our company has adapted extraordinarily well. Additionally, for our colleagues that typically work indoors in close proximity to one another, we're utilizing a combination of social distancing as well as work-from-home protocols. Our employees are dutifully meeting their job responsibilities and remaining fully accessible. Importantly, whether working at an operating site, an office, or remotely, our employees are empowered and encouraged to look out for one another. With our team safe and employee engagement high, we can be attentive to our other stakeholders, our customers, suppliers, creditors, shareholders, and communities as we have an essential business to run. As disclosed in this morning's release, Martin Marietta delivered strong first quarter financial and operational performance. Jim will discuss these results with you shortly. Let me first say that we're proud of these results, which underscore our commitment to operational excellence and to our disciplined strategies. While we had a promising start to what we believe would have been a record-setting 2020, we recognize this year will now be filled with an unprecedented level of uncertainty as the COVID-19 pandemic and related economic and societal outcomes continue to unfold. Accordingly, while we remain confident in the fundamental strength and underlying drivers of our business, we have withdrawn our 2020 four-year guidance issued back in February. We've not yet seen contractors and customers delaying or canceling building projects in a material way. While we typically do not comment on intra-quarter trends, these are atypical times. We're making an exception, and as highlighted on our supplemental information slides 13 and 14, we're sharing preliminary April shipment and pricing trends to provide greater transparency as to what we're now seeing in a COVID-19 impacted month. Specifically, for the month of April, aggregate shipments remained elevated in most areas but did not match the near record April 2019 volumes. We saw notable growth in North Texas, Colorado, and Indiana. Cement shipments continue to be strong and are currently trending close to prior year levels. The one notable exception is oil well cement shipments as demand continues to decline due to volatile and historically low oil prices. Ready Mix Concrete shipments are also trending near April 2019 levels, even as some home builders temporarily pause construction activity. April revenues for the magnesia specialties business are $10 million lower than the comparable prior year period. Demand for our lime and periclase products has slowed dramatically as steel-producing customers temporarily idled their facilities temporarily. in response to the COVID-19-induced shutdown of certain domestic auto manufacturers beginning in mid-March. In terms of April pricing trends, aggregates pricing improved mid-single digits over April 2019 as announced increases were broadly implemented earlier in the year. Cement pricing is up, even with several competitors announcing plans to delay price increases until June 1st. Prior to the COVID-19 outbreak, we were highly confident in realizing the full announced increase of $8 per ton implemented April 1, given overwhelming market support in a tight Texas cement environment. Ready Mix Concrete pricing is slightly higher than April 2019 levels. We'll have a clearer picture of Ready Mix Concrete pricing trends for the remainder of the year as the phased reopening of the Texas and Colorado economies unfold. Though ours is a basic and durable industry, it does not mean that we're immune to the disruptions caused by the pandemic. Our economy is interconnected, and dislocations in consumer behavior or other industries may impact Martin Marietta. As such, looking beyond April, we anticipate product demand will soften in the coming months, with the private sector feeling the effects sooner than the public sector. The timing, duration, and extent of weaker demand levels are presently unknown. Infrastructure, particularly for aggregates-intensive highways and streets, is expected to be the most resilient of the company's three primary end uses in the near term. The vast majority of state departments of transportation are operational and continue to advertise and award projects. Nonetheless, we expect many state DOT budgets will face temporary headwinds from lower fuel taxes, tolls, user fees, and other related revenue collections as much of the nation has been sheltered in place. The impact of lower funding levels is expected to become more meaningful in the second half of 2020, absent congressional action, and will vary considerably among the states. Florida DOT, for example, has accelerated over $2 billion of critical transportation projects to leverage construction efficiencies resulting from lower vehicle traffic, including closing additional travel lanes and performing more daytime hours work. To help mitigate state DOT funding risks, industry representatives are actively engaging with Congress to address surface transportation in the Phase 4 Emergency Relief and Economic Recovery COVID-19 legislation. The first recommendation is a federal backstop of nearly $50 billion in immediate flexible funding to offset the estimated 30% loss in state transportation revenues over the next 18 months. The second recommendation is the passage of a comprehensive major surface transportation reauthorization package. We believe our industry is better equipped than in recent history to execute on an infrastructure bill given the backlog of fully designed projects. Non-residential construction activity on existing projects has broadly continued in most regions. However, many commercial projects in the engineering or planning stages are being delayed or canceled particularly for office, retail, and hospitality. Some industrial activity, on the other hand, is not expected to experience significant near-term disruption from COVID-19. Warehouses, distribution centers, and data centers are expected to perform relatively well in the current environment as businesses increase e-commerce activity, secure regional supply chains, and become more reliant on cloud and network services. Similarly, Large energy sector projects along the Gulf Coast of Texas that are already underway are expected to continue. The residential market is expected to experience the most rapid and perhaps steepest decline from the impacts of COVID-19, as unemployment and general economic instability prompt homebuyers and home developers to delay plans. However, in contrast to the Great Recession, we do not anticipate a prolonged period of reduced residential activity, Today's housing inventories remain near all-time lows despite notable population gains in Martin Marietta states and the benefit from historically low interest rates. As we prepare for the secondary effects of the economic fallout from the coronavirus, we rely on our values-driven culture. As I emphasized earlier, the safety, health, and well-being of our employees, customers, communities, and other stakeholders remains our top priority. With established protections in place to accomplish this, we're focused on our business priorities of generating cash flow, preserving liquidity, and adjusting costs to align with product demand. Our team has developed extensive plans for a variety of economic scenarios, and we're ready to implement them with immediacy and integrity as warranted. In addition to strengthening our balance sheet through a timely $500 million bond offering in early March, We've cut non-essential costs, reduced capital spending for discretionary projects, and implemented hiring restrictions. We're tightening our belts and aligning our capacity with demand consistent with our commitment to being prudent stewards of shareholders' capital. We will reevaluate these actions as visibility improves. Having the right strategy, making the right decisions at the right time, and being able to safely execute them does matter. A lot. And Martin Marietta will do just that. We're well positioned geographically, financially, and otherwise to successfully manage through today's unprecedented environment and emerge more resilient and capable. How so? First, Martin Marietta has a much stronger geographic and competitive position today compared with any previous downturn in our more than 25 years as a public company. This is noteworthy, considering we navigated through the Great Recession and remained profitable throughout, never suspended or cut a dividend, and emerged with a healthy balance sheet. Today, we continue to generate record profitability on aggregate shipment levels much lower than our peak volumes in 2005, and with a geographic footprint that we've not only considerably expanded, but also improved. Moreover, we continue to thoughtfully execute on our strategic plans, carefully positioning our business through aggregates-led expansion in high-growth markets with attractive fundamentals and leveraging strategic cement and targeted downstream opportunities. These strategic plans not only provide Martin Marietta with new growth platforms, but also opportunities to expand our footprint to complement existing operations and build critical mass. We now have leading positions in 90% of our markets, up from 65% a decade ago, which supports favorable pricing trends, economies of scale, and cost flexibility. Second, we have experienced teams with decades of collective industry knowledge and expertise. Together, their leadership and contributions have produced strong and sustained financial returns for Martin Marietta and our shareholders, as recently demonstrated by our one, five, and ten-year cumulative shareholder return performance. This is largely the same leadership team that successfully formulated our operational response and prudently addressed our business needs during the Great Recession, the most challenging economic environment our industry ever experienced. In uncertain and evolving times, proven, cycle-tested leadership and experience is critical. In brief, Martin Marietta has the right strategies, priorities, experience, and teams to responsibly manage us through these challenging times. I'll now turn the call over to Jim for a more detailed financial review. Jim?

Thank you, Ward, and good morning to everyone. I will briefly highlight our first quarter results as well as provide a summary of our financial and liquidity positions, both of which support our near and long-term strategies. As detailed in today's release, our first quarter financial and operational performance exceeded our expectations, particularly considering the record-setting prior year quarter that benefited from carryover work from an extraordinarily wet 2018. On a consolidated basis, total revenues increased 2% to $958 million, a first quarter record. Gross profit was relatively flat, selling General and administrative expenses improved 10 basis points as a percent of total revenues. Deleted earnings per share was 41 cents, and adjusted earnings before interest, taxes, depreciation, depletion, and amortization, or adjusted EBITDA, decreased 6% to $149 million. The building materials business achieved record first quarter revenues. Across our geographic footprint, product demand trends remain strong. even in the Texas and North Georgia markets that experienced record or near-record precipitation levels. Aggregates, cement, and readiness concrete pricing also improved, with all divisions contributing to the solid growth, a testament to the strength of our markets and the disciplined execution of our locally-driven pricing strategy. Building materials gross profit improved slightly. Key takeaways include the following. Aggregates product gross profit decreased $5 million, largely due to our quarterly update of inventory standard costs. Our per ton production costs have been trending downward over the last 12 months, as cost control measures and operating efficiencies have their desired effect. All else equal, this would result in higher operating margins going forward. But in this quarter, it also resulted in a $4 million expense, as we reflected the lower cost in our updated inventory evaluation. In contrast, during the first quarter of 2019, we recorded an $11 million inventory evaluation adjustment to reflect the higher production costs experienced during the weather-impacted year in 2018. While this cumulative $15 million year-over-year inventory standard variance reduced quarterly product gross margin by 260 basis points, Lower unit production costs will provide future benefits. Cement product gross margin expanded 1,170 basis points, driven by improved cost absorption from higher production levels, as well as increased shipments to the San Antonio, Austin, and Houston markets. Pricing gains, combined with lower maintenance and energy expenses, also contributed to the improved margins. Gross profit for the ready-mix concrete business declined $9 million. Pricing improvements and double-digit shipment growth in Colorado were more than offset by lower Texas volumes from record rainfall delaying projects in the Dallas-Fort Worth area, as well as increased raw material costs. For the magnesia specialties business, product revenues decreased 13%, consistent with expectations, as chemicals customers increased continued to reduce inventory levels for reasons unrelated to COVID-19. Notably, product gross margin improved 500 basis points despite lower revenues, driven by ongoing cost control measures and lower energy costs. We still currently anticipate the destocking trend of our chemicals customers to be transitory in nature. Our consolidated results included several items that affect comparability with the prior year quarter. To provide additional clarity, we included a slide in the Q1 2020 supplemental information posted on our website that provides a normalized view of pre-tax earnings with the items affecting comparability removed from both current and prior year quarters. In addition to the aggregate inventory standard adjustments discussed earlier, these items also included $6 million of other non-operating expenses to finance third-party railroad maintenance in exchange for a federal income tax benefit of approximately $7 million, which drove the low income tax rate for the first quarter of 2020. Lastly, we incurred a non-cash expense of $2 million to implement a new paid time off policy for our employees. As you will see on slide five, first quarter 2020 earnings before income tax, absent items affecting comparability, improved $15 million. Moving on now to our capital structure. Throughout our history, Martin Marietta has operated with a growth mindset while maintaining a healthy balance sheet to preserve our financial flexibility. As a result, we have ample liquidity for the foreseeable future. Given today's environment, that is an enviable place to be. We will continue to balance our longstanding disciplined capital allocation priorities to maintain that flexibility. our priorities remain value-enhancing acquisitions, proven organic capital investment, and the opportunistic return of capital to shareholders through dividends and sharing purchases, all while maintaining our investment-grade credit rating profile. Our approach is intended to ensure our cash flows are sufficient for a range of scenarios. In today's uncertain environment, that range of scenarios is broader, and actions to enhance cash flows and preserve liquidity are even more important Before the extent of the economic disruption became better understood, we repurchased 211,000 shares during the first quarter. Since then, we have temporarily paused share repurchases. We will continue to closely monitor the situation, and as circumstances change, we will revisit this pause in our share repurchase program. To further bolster cash flows, as Ward mentioned, we are reducing our capital spending for discretionary projects. We now estimate full-year capital expenditures will be $325 million to $350 million, down from our original guidance of $425 million to $475 million. We demonstrated our ability to pull back on capital spending in safe and prudent ways that did not damage the business in the long run during the Great Recession. We are doing that again now, as appropriate. We've strengthened the company's balance sheet and cash position with a timely bond offering in early March, issuing $500 million of 10-year senior notes at a 2.5% coupon. Proceeds will be used to repay the $300 million of floating rate notes that mature later this month, with the bulk of the remaining cash preserved on the balance sheet. Looking forward, as you can see on our supplemental information slides, after satisfying the May repayment, we will have no additional bond maturities for more than four years. We are confident in our liquidity position. Net cash, combined with the nearly $760 million available on our existing revolving facilities, provided total liquidity of approximately $880 million at the end of the quarter. Additionally, at 2.3 times net debt to the consolidated adjusted EBITDA, we remain well within our target leverage ratio of 2 to 2.5 times at the end of the first quarter. With that, I will turn the call back over to Ward for some closing comments.

Thanks, Jim. In summary, we are pleased with our solid first quarter performance and enhanced liquidity. In regards to our 2024 year guidance, we will reinstate earnings guidance once we have sufficient visibility to do so. That said, we remain confident that the attractive underlying market fundamentals and long-term secular growth trends in our key geographies, both of which underpin the company's record 2019 performance and strong first quarter 2020 results, remain intact and and will be evident once again as the U.S. economy stabilizes and recovers. Martin Marietta is well positioned geographically, financially, and otherwise to responsibly navigate today's extraordinary environment and drive sustainable long-term growth and shareholder value as we move forward. We have thoughtfully developed and consistently executed on our strategic plans, positioning our business as an aggregates leader in attractive high-growth geographies aligning our product offerings to leverage strategic cement and targeted downstream opportunities, and prudently advocating capital while maintaining financial flexibility. In doing so, we have built a business that is durable, resilient, and stronger than ever. If the operator will now provide the required instructions, we will turn our attention to addressing your questions.

Thank you, sir. As a reminder, to ask a question, you would need to press star 1 on your telephone. To withdraw your question, press the pound key. Due to the absence of time, we ask that you please limit yourselves to one question and one follow-up. Our first question comes from Trey Grooms from Stevens. Please go ahead.

Hey, good morning, everyone.

Good morning, Trey.

Hi, Ward. Um, so my first question is really around, um, you know, the, the state tax receipts, um, you know, that you mentioned being down, of course, um, you know, and you, you talked about the possibility of, you know, 30%, um, you know, being down 30% or so over the next 18 months for, for DOTs. Um, also, you know, you've got in the background, the, the FAST Act expiring this year, um, you guys have a lot more boots on the ground than most around this. So I wanted to get your opinion first off on how you think all this shakes out with some of the states are coming together and asking for, you mentioned the $50 billion there, but how you think this shakes out from where we sit today? And then as my follow-up, if we don't get anything from the Fed to bridge the gap, when would that start to impact state lettings and then ultimately, you know, aggregates demand?

Trey, thanks for your question. Look, I think a couple of things are worth noting. To your point, AASHTO is the one that has come out and asked for the $50 billion infusion from the federal governments to states. And, again, you're exactly right. That's taking into account that they're seeing something that could be a 40% delta in gas tax collections. So we'll see where that goes from the federal perspective. That's probably going to take a few months to see. I think on a state-by-state basis, what you're likely to see, Trey, are states are going to have to come back and their legislatures are going to have to address funding for different DOTs. And I think that's going to vary pretty considerably. If we look at Texas, which is our largest state by revenue, their DOT is in a pretty healthy place, and they've got a very healthy rainy day fund. They're indicating, for example, that they don't see a need to go to that during this first year. So the fact is, depending on how revenues come in, places like TxDOT may not need to go there at all. States like Colorado, which is our second largest by revenue, have the ability, should their treasurer choose to issue certificates of participation, and we think those types of levers can keep Colorado DOT in a very good place. North Carolina DOT is in a similar spot. We've discussed the fact historically that they've had some storm issues that they needed to manage through, and they had some issues relative to some litigation, commonly referred to as the MAP Act. COVID-19 has made that a bit more complicated for North Carolina DOT. The legislature is in session. They are looking at several things that they can do in that state One thing that's worth noting, and of course it's here in our backyard, we actually over the last couple of years have been very successful in bidding on work here in North Carolina. So, for example, one of your concerns is what will tonnage look like going forward. We've booked over 10 million tons of aggregates on six large NCDOT projects in North Carolina, and we've only shipped about 600,000 of that 10 million. So to your point, could different states feel different degrees of pressure? They probably will. Do we think southeastern and southwestern states that tend to be our leading states will come through that better than most? We think so. Do we think existing projects that are underway will continue going? I think the answer to that is we believe strongly that that will be the case. And I think you could see some instances in the second half of people looking at bidding activity a little bit more carefully, particularly relative to maintenance in public. But again, Trey, we see this as being pretty steady and pretty resilient, and there will be some one-offs here or there, and legislatures will need to endeavor to deal with it, and we think we will likely get some help from the federal government. The last thing that I'll add to it is I do think this gives increased impetus to as we said in the prepared remarks, toward getting a successor to the FAST Act. My view has long been that the Senate plan is likely to be the one that will be pushed forward. As you recall, that's a $287 billion five-year plan that basically is looking at a pretty significant increase over FAST Act funding levels. So we feel like that would be a very worthwhile and useful endeavor for our friends in Washington.

Thank you for the color on that, Ward. And my second question is on just pricing. Ag historically has been very resilient through downturns. Do you see anything in your markets or do you think anything has changed to where that wouldn't be the case if volume was to drop significantly?

You know, look, I think the markets are better suited today than they were last time, and they did great last time. And I don't see anything that gives me any concerns around the aggregate's pricing thesis. I think that works. You know, if you look at the quarter, you can look at our quarter and say, well, the numbers were a little lower than we thought. You know, the fact is we saw really big increases in volume in our Central Division and our West Divisions. and our Central Division has an ASP, as does our West Division, that are lower than corporate-wide ASPs. I would not let Q1 pricing give you any degree of concern around the overall thesis. As you could tell from our supplemental materials, once you got into April, you saw pricing with a four handle in front of it. The other thing that I would say, Trey, is I think you will see greater resilience in cement, particularly in our business in Texas as well this year. We think we're going to continue, despite these recent trends with COVID-19, to see good, solid price increases in Texas cement. So, again, if we look at aggregates, no, I don't think anything has changed there. If anything, it's better, and I think cement is better as well.

Thank you for the colors, always very helpful, and I'll pass it on. Thank you. Take care. Stay safe, Trent.

You too. Thank you. Our next question comes from Catherine Thompson from Thompson Research. Please go ahead.

Hi. Thank you for taking my questions today. A follow-up on the North Carolina DOT, could you confirm for those listening that the 10 million tons you outlined is funded, and could you give a little bit more color on the timing and flow through these tons?

Yeah, no, the 10 million tons from everything that we have seen and gleaned, yes, is funded, and we anticipate those projects will be going. They tend to be, though they're not wholly, in eastern North Carolina, and they're going to be going through 20 and 21. So we see those projects as being certainly through the rest of this year and into next year, Catherine.

Okay, thank you. And then a lot of different puts and takes on margins, and I appreciate the color you have both in your PowerPoint and prepared commentary today. But taking a step back, could you give a little bit more color on a basis point standpoint or dollar standpoint, the bridge or margins in the quarter, also focusing on the geographic, what's geographic, what's one time, or any other factor that's relevant?

Sure. Absolutely, Catherine. I'm going to give you a couple of broadside views on that and ask Jim to talk you through a more detailed review. As you can tell, what's always interesting to me is when we have an inventory variation and it goes down, people who are uninformed will look at that and be troubled by it. Actually, that's something that we celebrate inside because it actually means our costs are going down, which is exactly what you want and exactly what our shareholders want. So, What we saw in part was a change in inventory because our costs were getting better. Part of what we can talk through as well is a certain degree of geographic mix shift that we saw change. For example, our central division saw volumes up over 20% in the quarter. Our west division saw volumes up over 15% in the quarter. And to give you a sense of it, Central ASPs are in the mid-12s, as are Western ASPs, and you look at overall ASPs at 1480. So when you go through that, you start to get a sense of what can be modestly different as you go through a bridge in a quarter that, remember, is our lowest volume quarter. So things can feel oversized in that. What I'll tell you is the more you look at this quarter, the more you're going to like this quarter. And let me turn it over to Jim. He can walk you through why I feel that way.

Yeah, thanks for it. So we, Catherine, we put in the supplemental slide, that walk, walking folks from the Q1 of last year to Q1 of this year, simply to help illustrate the improved quality of earnings this year versus last year. So kind of to put numbers to the descriptions that Ward just gave, the – Inventory revaluation item that was $15 million, that by itself is equivalent to 60 incremental margin basis points. In addition, the geographic mix from a margin perspective was about $10 million, so that's about 40 incremental margin basis points. A couple other items, we had increased production, so our cost absorption was very good. That was slightly offset but not wholly offset by higher freight costs. Those two combined netted out to about eight basis points that you would add back. And then lastly, diesel detail went into the quarter, and if you want to pull that out to kind of keep it normalized, that equates to about 16 basis points from an incremental perspective. It was $4 million. So the push and take, so you add all that up, the ins and the outs, gets us to right around 55% to 60% incremental margin.

Catherine, that was a lot of math and a lot of color, but I hope that helped.

Yep, helps. Thank you very much.

You bet.

Thank you. Our next question comes from Derek Schmoys from Loop Capital. Please go ahead.

Hi, thanks. I wanted to ask on your view on margins moving forward, specifically decremental margins. I mean, you tend to deliver about 60% aggregate incrementals in an up cycle, but given potential volume declines over the next several quarters, how should we think about decremental margins moving forward?

Yeah, I think theoretically it should be the same going down as it is going up. We will endeavor to do better than that. We've got cost reduction plans ready to go if things get materially worse. We don't see it getting materially worse necessarily, but we're ready for that. So I think for now it's probably safest to assume a symmetrical approach going up and going down.

But, Derek, what you should expect is just what Jim said. And in prepared comments, we said we were going to adjust costs as we go through a volume profile as well. I think part of what's important to remember is what we outlined. This is a business that was always profitable and never cut a dividend. And I think we can surprise in any marketplace today. Okay. Thanks for that.

The follow-up question is on non-res. Can you remind us how much of your non-res is split between the more cyclical office retail piece that you cited is expected to be softer in the coming months versus the heavy non-res that is holding up a bit better.

I'm going to give you a historic, and I'm going to give you a closer to real-time. So historic in a normal time, you would have expected about 30% of our business to have been non-res. you would have expected about half of that 30% or 15% to be heavy. You would have expected about 15% of it to have been lighter, meaning more office retail, et cetera. Actually, what we've seen is it's trended modestly more toward heavy, and you can imagine why, because more people are shopping behind a keyboard as opposed to in a shopping center. So while housing has been relatively good, retail that typically would have followed housing has not been as robust and it's shifted more toward warehousing and the Amazon nation of the United States. And that's actually something that we've benefited from. So what I would say, Garrett, is if you looked historically at a phase, say, that ended at the end of the first quarter, you would have expected a bigger piece of that than really we've seen being office and retail. It tends to be modestly more heavy today. If we go into a deeper government-mandated recession, and that's how I like to think about this one, You could certainly see the heavy side of it being a larger percentage, but at least historically that's where it's been. That's where it is as we finish the first quarter and we finish April. And as we think about what it could look like going forward, we tried to outline in the prepared remarks that it could be that light side of non-res that could feel some components of that earlier rather than later. So it's going to be, call it probably low double digits.

Great. Thanks for the call, and best of luck. Thank you, Gary.

Thank you. Our next question comes from Phil NG from Jefferies. Please go ahead.

Hey, good morning, everyone, and thanks for all the detail. I'm glad to hear Texas cement pricing seems quite robust and your expectation was to get the full eight bucks.

No, no, no, no, no, no.

Initially, initially, initially before COVID. So, so that's a good place. And that market's obviously been undersupplied for some time now. The color that you provided in deck in April looks like a pretty good momentum there. How much of that's incremental pricing versus carryover pricing? And then this is a higher fixed cost business. How should we think about decrementals for cement?

You know what? I think cement's going to hang in there pretty well. I mean, what I would say back to your first part on pricing, I mean, obviously we came into the year feeling very good about pricing, feeling very good about the eight up until COVID. I still think we're going to get price increases in Texas. And that ties back into the commentary that we had overall on aggregate pricing thesis being very tight, cement actually getting better. You know, in fairness, Phil, I think pricing is going to be better in the north than it's going to be in the south, but I think you're going to get it in both places. And, again, I think you're going to see very good cost control in cement this year. For example, if we're looking at our kiln maintenance expenses year over year, we're anticipating that they're going to be about $7.6 million less in 20 than they were in 19, part of what you saw in Q1. is they're about $2.8 million less in Q1 of 20 than they were in 19. So it's hard to know exactly how to address the margin issue there. You obviously saw very attractive margins for the first quarter because that business does have a higher fixed cost. But, again, we've put over the last decade about a billion dollars for the CapEx into that business. I think we've got cement plants in Texas that are close to state-of-the-art. We're utilizing very different energy resources at that facility today that are reducing our costs. So we think our cost profile will be good. We think our pricing profile is getting better. And actually part of what we're liking, too, is I think if you're seeing good aggregate pricing and good cement pricing, you're likely to see a much more steady market relative to ready mix as well. So, Phil, I've given you a lot of color around the way that that business is operating now and what the change is year over year and why we feel confident with that business as it sits. I hope that's helpful and responsive.

That's super helpful. And then appreciate the deck where you give us April trends, and this is not very scientific. I'm just eyeballing it. It looks like it might be down mid-single digits on a year-to-year basis. Appreciate April. Last year might have been like a record year. Any color on how April performed last year? and any color on how we should think about the rest of the 2Q in terms of demand trends. I think Jim just mentioned that he's not expecting a material decline going forth. You just want to, you know, triangulate all that.

Yeah. Look, what I'll tell you is last year in April was near record April. So what I'll tell you is April, looking at these trends that you saw, felt very good. And even if you look at those charts on, I guess it's supplemental slide 13, It shows a little bit of a dip in early April. And, by the way, we call that Easter. So that's exactly what that was. So, again, if you look last year at a near record April, if you look at very solid volumes this year in April, if you look at a better pricing environment, and, of course, part of what we spoke about earlier in the call with the odd conversation on the inventories is the cost profile is getting better. Look, it's hard not to triangulate around those three things and feel like you've got a very durable business. Okay. Thanks a lot. Thank you. Take care, Phil.

Thank you. Our next question comes from Stanley Elliott from Cecil. Please go ahead.

Hey, everybody. Good morning. Thank you guys for taking the question. On the residential market, how quickly can, you know, You know, people feel good about things or better about things, I guess, on a relative basis. How quickly can some of these residential projects get the green light to go ahead, i.e., could we end up seeing some of those volumes in the back part of the year?

Yeah, I think you could. I mean, let's look at it in two different ways, Stanley. Let's look at what the world looked like before the government mandated recessions. So housing was healthy through March. Permits were up 7.4% versus prior year. If we look at states that mattered to us, Texas was up 10.5%. Florida was up almost 11%. North Carolina was up almost 9%. So to your point, very healthy housing marketplace. Then comes down a series of shelter-in-place orders, and obviously you see confidence turn pretty quickly from the end of the year when it was high to what it felt like toward the end of March. Here's what I would say. If we look at regions that have declined, and they all have, the Northeast has declined the most. The Midwest has declined next to most. And then the one that has declined the least, to your point, has been the South. And if you think about where we have built our business, it's not exclusively, but it's largely a Southeast and Southwestern U.S. business. So what we would say is this. We think the South clearly outperformed on the upside. We think the South is going to outperform on the downside. But equally, we think if things get turned back on, that it will perform quite well. Here's part of what's different in this government-mandated recession versus prior one, Stanley. Housing is not overbuilt. So if we look at population trends, and we, again, noted that in the prepared remarks, population trends in North Carolina, population trends in Georgia, Florida, Texas, Colorado – all states in which we have one or two positions, are very attractive population dynamics. The other piece of it, Stanley, and this is one that I would ask you and your colleagues who spend time thinking about this to ponder, I think you're likely to see more people pivoting away from urban living and looking more to live in suburbs for a while. I think having some space is going to be something that people will gravitate towards, The other thing, and it pivots modestly away from your housing question, but I think it's relevant, I think as we think about what a transportation act is likely to look like in this next iteration, I think it's going to be heavier on surface transportation and perhaps lighter on transit because suddenly the notion of getting in trains or otherwise is going to be something I think people will be cautious of. So, again, Stanley, I tried to answer your question very specifically. Where were we pre-COVID? Where are we now? What did the percentages look like? Where do we think the comeback will be the quickest? And some of the, I guess, color around the why.

That's great. On the cost side, look, I don't think it's going to be quite like 2009, but you all did a really nice job of taking the cost out. With kind of what you have in place, could you look at SG&A being down on a year-over-year basis and then And then also maybe as a reminder, could you tell us how much you all used in terms of diesel gallons last year?

Yeah, I certainly can. What I will say is this. Look, we're always very sensitive to SG&A. And I think if you look at us compared to most of our peers and you look at our SG&A as a percent of revenue, you're going to be pretty impressed with where that is. What I will tell you is we will absolutely positively adjust that as we feel like we need to. And I think our track record reveals that's something that we will do. But importantly, Stanley, we'll do it in the right way. With respect to diesel fuel, last year we used right at, I believe it was right at 15 million gallons of diesel fuel last year. And for those of you who are wondering, we used a whopping 11.7 million gallons in the first quarter of 2020.

Perfect. Thank you very much. Appreciate it. Best of luck.

Stanley, good to hear your voice.

Thank you. Our next question comes from Jerry Brevich from Goldman Sachs. Please go ahead.

Yes, hi. Good morning, everyone, and nice to hear you're all doing well.

And you sound like you're in good form too, Jerry, so good to hear you.

I'm wondering, Ward, if you could just talk about, given the difference in the footprints, how we should think about pricing in this downturn compared to the Great Recession. Nice not to have the river system assets. And, you know, what we saw in the last cycle was essentially pricing bottom after volumes did. And I'm wondering, given the change in the footprint, how are you folks managing the business potentially differently in this cycle compared to coming out of the Great Recession?

Yeah, one of the things that I'm sensitive to, Jerry, to your point, is we've got a one or two position in 90% of our markets today. In the Great Recession, we had a one or two position in 65% of our markets. Okay, so let's talk a bit about what critical mass can mean, and I think critical mass and the dimension of your question is our friend. I think equally you raise a really good point, and that is we've been very thoughtful about geographic areas that we wanted to exit, and geographic areas that we wanted to enter. And what we try to do is enter areas with high relative population growth and multiple economic drivers. So if we go back and take a look at the way our SOAR plan has come together and dictated that we have one or two positions, it truly has dictated that we have landed where we have. I think the markets where we have these positions today are far better than they were before. I equally think from a local land use perspective, The barriers to entry are as high, candidly, probably higher today than they were before. If you think about even during the last several years in what I think most would say has been a relatively good economy in so many sectors of the United States, you've not seen a great deal of greenfielding, and I think in a down economy you see even less of that. The other thing that's important to remember, Jerry, is in construction we're seldom going to be the reason why that a contractor is either successful in getting a job or not successful in getting a job. And what I mean by that is this. Stone is about 10% of the cost of building a road. It's about 2% of the cost of building a home. And somewhere between those two percentages on a non-residential project. In other words, we are the product that's utterly essential for that project to go forward because there is no substitute, generally speaking, for what we do. At the same time, we're not going to make or break what's going on relative to the project. I think that's one reason that you saw aggregates do so well in the last downturn. My sense is for all of those reasons, you will see it do, in my view, better as we go through this period of time.

And what if, you know, we're coming out of this and the residential pickup happens as you laid out in 21 under that scenario if absolute construction activity bottoms, call it fourth quarter of 20, you know, first quarter of 21, given the market structure today, when would you expect aggregates pricing to reaccelerate under that scenario that I just laid out?

You know, I think we will continue to be very consistent all the way through this, at least from a Martin Marietta perspective. You know, part of what we talked about historically is you're right, it would either go up, or the volume up would slow with the price up would slow with volume. The fact is, Jerry, if you look over the last several years, it's never really worked that way. Actually, pricing in some respects has done better overall than volume has done, particularly in places where there's been some reasonable consolidations. So to your point, if we look at what ASPs have done in Colorado, on a percentage basis, they've gone up, nicely ahead of aggregate volumes overall. So I think it's going to vary a lot by geographic region, but at the same time, this has proven itself not to behave in a down market as a commodity. So from our perspective, again, recognizing that we're a very small percentage of the overall costs, but we have a product in the ground that's more valuable tomorrow than it is today, we're going to approach pricing with that mindset.

So it doesn't sound like you think the 4% pricing in April is an outlier?

No, not at all.

Thank you.

Jerry, thank you.

Thank you. As a reminder, please, ladies and gentlemen, limit yourselves to one question and one follow-up. Our next question comes from Paul Roger from Exane BNP Paradise. Please go ahead.

Yeah, good morning, guys. Hi again, or good afternoon from here in London. You've talked a bit about the flexibility on the cost side. I wonder if you could talk a bit more on the cash flow side, and in particular, how much scope there might be to reduce working capital, and just link to that maybe also as a follow-up. Do you have any concerns on the receivable side?

If I may, Paul, I'll turn it over to Jim, and he'll take you through those. One of the nice things about – I'll give you this one bit of color. One of the nice things about being a building materials supplier is you either have lien rights on private jobs or you have bond rights on public jobs. So actually, ours is one of those sectors that tends to have more stable and collectible receivables than most, So with that as a preliminary background, I'm going to turn to balance the question over to Jeff.

Yeah, thanks. It's something that we're mindful of and we're watchful of. In the macro matter, I will say our receivables are backstopping our AR facility, so that is a natural offset. So we get the access to funds almost immediately. So the AR receivable is a great source of funds for us through our $400 million AR facility. As far as it relates to bad debt expense or writing off those receivables, it has historically been a very, very, very small, I would call it insignificant expense for us, averaging around $3 million per year at most. And so that's not something that I'm troubled by. We will, of course, monitor that and take action as needed, but it's a very, very small number typically. So that's not an issue for us.

I'll stay clear, and just maybe as a quick follow-up, when you think more medium-term about what this crisis could do in terms of the structure of the industry, do you think there's the potential that this puts a bit more pressure on some of the mum-and-pops, so some of the smaller aggregate guys, and could it actually create opportunities for you to even potentially accelerate some of your source strategies?

You know, it certainly could. What I'll tell you is most closely held businesses are probably in a pretty good place going into this downturn. My experience is it's more succession issues that tend to drive those decisions than it is near-term economic issues. But I'm not going to be naive and assume that there are not some people out there who may feel otherwise in that respect. One of the things that you'll see if you look at our balance sheet is we're right at 2.3 times debt to EBITDA. That's very much within the range that we like to stay. Paul, if you go back and take a look at where we were going into the Great Recession and what we looked like coming out of the Great Recession, we did utilize that downturn to grow our business very, very responsibly. We continue to say that our best first dollar is in the right acquisition and emphasis on the word right. So we will continue to watch for that. We like to believe that we're going to be a preferred acquirer if businesses should come up. And we will watch that and we will be very thoughtful about the way that we approach it.

That's very clear. Thanks, guys. Thanks.

You too, Paul. Thank you.

Thank you. Our next question comes from Michael Wood from Nomura Internet. Please go ahead.

Hi, this is Ryan from Mike. Can you just provide an update on funding in Texas, specifically in terms of what levels of oil prices mean for contributions to state transportation funding? And then similarly, what do you expect to occur on asphalt margins as inputs drop? You know, will pricing follow inputs lower? Thanks.

No, sure. Let me deal with the latter one first. If we go, the only place that we have asphalt is in Colorado, just as a reminder. And one of the great things about being in Colorado is you're not on either one of the coasts. So what it tells you is asphalt and liquid stays relatively close. steady as you go through it. So if we look at liquid costs as we went through Q1, they were really about $450 a ton. They've recently come closer to about $420 a ton. So we don't think we're going to see big variations in that Colorado market relative to liquid. One of the things that's worth knowing is if we look at our backlog in asphalt and paving, we've got about $100 million more in work year-to-date this year in April than we did in the prior year. So we've got a very attractive paving business in that marketplace, and we've got a cost structure that we think is going to be quite helpful to us as we go there. The other thing that we saw in Q1 is we saw some municipal work accelerated. And as a practical matter for us, what happens is we bid on municipal work. Oftentimes we negotiate private work. So at times you'll see a modestly lower selling price on the muni work simply because it's bid. So I just wanted to make sure that we talked through that. Back to your other question. Several things relative to TxDOT. You know, if we look back over the last several years, going back to as late as 2017, and look at numbers that were awarded at TxDOT, you know, 2017 it was $5.1 billion. In 2018 it was $7.6 billion. In 2019, 8.9. You know, we've had a couple of different estimates right now, but the latest estimate I've seen for Texas is around $7.9 billion. So, again, if you look at 7.9 and you look at how that racks up relative to history, you know, that's not a bad place to be. You know, the thing to remember on Prop 1 and Prop 7, and I think that was the gravamen of much of your questions, Prop 1 allocates portions of oil and gas revenues to the state highway fund through 2034. Prop 7 really comes into play if sales and tax collections reach $28 billion, and after that the next $2.5 billion are transferred to DOT. We're going to have to watch and see how some of the Prop 1 and Prop 7 monies go. I think we haven't seen any big surprises coming from that so far. And in part, that's driven by what I've mentioned before. Texas has a $10 billion rainy day fund. And the Texas Comptroller so far has indicated that the state can manage whatever revenue loss they've seen in this first year without having to go and tap into that rainy day fund. But in any event, we know a very robust fund is there. Several things. I tried to give you what I think is responsive data relative to asphalt, liquid, and paving in Colorado, give you a good sense of what total TxDOT current lettings have looked like over a period of years, where those dollars have come from, and where we think that is, and the backstop of uranium they've found.

Very helpful. Thank you.

You're welcome.

Thank you. Our next question comes from Selden Clark from Deutsche Bank. Please go ahead.

Hey, thanks for the question. How do you think about the impact from mix as it relates to both revenue per unit and gross margins across the different construction end markets? Do the decrementals change across different end markets, whether it's, you know, infrastructure, commercial, or resi?

No, not really. There's really, again, from my end up perspective, we're relatively agnostic in terms of ASP and profitability. They're pretty consistent.

Okay, thanks. And then just getting back to the oil and gas question for a second, could you just give us a sense of what you think your direct exposure to the oil and gas complex is? And then realize this might be a little bit more difficult to contextualize, but in your internal planning meetings or stress test scenarios, how do you think about your more indirect exposure to the oil and gas industry as well?

So thanks for the question. Here's the way I would respond to that. I guess several things. One, lower oil actually helps us on diesel pretty considerably. If we go back to the sheer volume of gallons that we burn through a year, you know, 50 million gallons is not a small amount. So it helps us in that dimension. To your point, do we have some energy exposure relative to stone that we have sold to people traditionally in the shale fields? The answer is yes. If we go back and say, okay, what did that look like at absolute peak? At peak back in 2014, we sold 7.5 million tons to different shale producers who needed stone to build pads or internal roads. At the absolute bottom of the cycle, we sold 1.4 million. And last year, we were 2.3. And this year, we said we probably thought we'd be somewhere between 2.5 and 3 million because we thought that was a pretty steady growth. eddy run rate. So I would say that relative to those things. Now, with respect to your other question, which is a good one on the balance of some of non-res, if we think about those really large energy projects, not shale activity, but the large energy projects in South Texas, here's what I would say. The first wave of those really has gone There were total awards for about 7.9 million tons of aggregates and about 660,000 cubic yards of concrete. And of those 7.9, we won about 3.5 million tons of it. And that's consistent with what we've said. We said we weren't going to get all of that, but we would get our share of it. And I think we certainly have. If we think about what the rest of this year is likely to look like, I think in 2020 we'll probably ship around a million tons during the course of the year to those different projects. And what that means is this. It means Port Arthur, LNG, Golden Pass, and some other large projects that are still down there on the books will likely be pushed out to the right just a little bit. And as a reminder, that's going to tally up to modestly over 14 million tons of aggregates coming forward in these projects over the course of time. So, again, I've tried to address diesel cost and what that energy means to us and our business. I've tried to address what's going on in the shale fields, both at peak, trough, last year and what we thought this year would be, and what our overall view is on the large energy projects on the Gulf Coast.

Okay, that's really helpful. Thank you.

You're welcome, Solomon. Thank you.

Thank you. Our next question comes from David McGregor from Longbow Research. Please go ahead.

Yes, good morning, everyone. Ward, nice to be speaking with you again.

David, good to hear your voice. It's been too long.

Yeah, it's been a while. A question on the FAST Act and the expiration in September. I know there's been a lot said and written about the likelihood of something like this actually getting done before the election, which seems to be increasingly remote, in the opinion of many. In which case, I guess we're looking at a continuing resolution situation. Just help me with the continuing resolution. Is it possible to get an increase in spending levels under continuing resolution, or are you kind of locked in at existing levels?

No, I think the fact is if they agree to it, you could get an increase in it. And actually, David, what's been interesting, that's exactly where we thought we were coming into the year. We anticipated that the most likely result in 2020 was to be in continuing resolution land until post-election time. I do think it's going to be interesting to see if there's going to be a push to have a successor to the FAST Act before then, because obviously it does expire in September. I think the one thing that I would say is this. I think everyone learned from the experience a decade ago that short-term CRs are not good for anybody. They're not good for the government, they're not good for the states, they're not good for the contractors, and they're not good for the material suppliers. So I would say that I'm not sure that we're totally in a place that it's only going to be CRs. I think you might see something more at the Senate level as opposed to the House level, but they clearly, if they wanted to take it up, they could.

Okay. And then also, earlier in your comments on the call, you made reference to bidding activity in the second half of the year, and you thought that people would be looking at that a lot differently. Obviously, given the macro, it's I guess we could guess at what you meant by that. But could you go back and elaborate on that a little further in terms of just how you see bidding activity unfolding over the balance of the year?

Well, I think our comment's more geared toward private activity and what may or may not happen then. And I think much of it, David, is going to be dictated by how quickly we come out of some of these stay-at-home orders and how the economy, frankly, reacts to several things. I think that's going to be your driver. I think the light portion of non-res has historically proven itself to be the place that people can either turn on or turn off with greater precision than others. I think home building, the same thing can be said there. If you look at what home builders have done even during the last several weeks, many of them hit pause for a period of time. I think we certainly feel like they're going to come back and resume soon. But, again, I think what we're trying to outline, David, is none of us have ever done this before. This is going to be a little bit different. The things that I think are going to be constant is I think we're going to do really well on pricing. I think we're going to do really well on costs. I think we're going to get our share of business. I think the question is going to be exactly what will business on the private side look like. And I think if anybody can tell us that, you know, that's somebody we'd all like to have on their payroll.

Great. Thanks, Warden. Thank you, David.

Thank you. Our next question comes from Timna Tanners from Bank of America. Please go ahead.

Yeah, hey, good afternoon, guys. Thanks for all the great color. You bet, Timna. Thank you. Ward, I really wanted your perspective on kind of the three different components of potential government support. So I know there was just some discussion on FAST Act and, you know, continued resolution versus a replacement, but also you mentioned the AASHTO nearly $50 billion request. And there's, of course, the never-ending waiting for the infrastructure stimulus potential. So if you look at those three different categories, can you comment on the probability that you see of each and when it would affect your markets?

Yeah, I guess what I would say is this. I'm increasingly wondering if the phase on aggregates just ends up being the new highway bill. And that's one reason that we're wondering if they don't go ahead and accelerate the and rather than having CRs this year on the FAST Act, we might see a new highway bill. And by the way, we would be perfectly fine with that. I think that's a good, steady undertaking. I think the one that I would watch here near term will be how that $50 billion is received, because I do think there's going to be increasing pressure from state DOTs on their members of Congress and Senate members to shore up some revenue shortfalls that state DOTs are going to have. Tim, if we go back over the last decade, what you'll clearly see, and you've done great work on it, is it's been the state DOTs that have really filled the hole over the last decade. The federal government has not. And I think there's going to be a real need for the federal government to help offset that in the downturn. So near term, I will watch more closely on AASHTO or the AASHTO-like request, I'd be more focused on the emphasis of having a ready-to-go highway bill behind the FAST Act.

Okay, that's helpful. And then just one quick follow-up was on the AASHTO request. They point to that potential 30% decline in state revenues for DOTs over the next 18 months. But is that a Martin number or is that their number? And would you think that that would translate to your specific states?

No, that's their number, and I think it varies considerably by state. And actually, Temna ARPA has a really good chart that can take you on a state-by-state journey, if you're so inclined, on what federal funds, what state funds look like, and then how state funds roll into it. So different states, for example, will deal differently with gas tax or vehicle transfer fees or others than And then equally, depending on what the source of the funds are, dictates how much of a trust fund you may have around some of those dollars.

Okay, great. Thank you.

You're welcome.

Thank you. Our last question comes from Rohit Seth from SunTrust. Please go ahead.

Hey, thanks for taking my questions, including me in here. I think building on the last couple of questions, if we didn't get – you know, a full $50 billion bailout, you know, something somewhat less than that, and now the money goes into the DOT fund, and you get a continuing resolution with the FAST Act, and given what you have in your backlog, because it gets a little bit more complicated than just looking at those two metrics, but is there potential for growth in the infrastructure and market in 2021 in those circumstances?

You know, I think there could be in some states, Rohit. I mean, I don't think you can dismiss that. And, again, part of what I was outlining, and I think it was in part going back to Jerry's question, he was talking about the difference in the markets that we operate in today versus where we were a decade ago. You know, if you look at the fiscal condition of states today, most of the states, aside from some of these very discrete COVID issues, are in very good conditions, particularly with rainy day funds. We talked about a big rainy day fund in Texas. There's a big rainy day fund in North Carolina as well. So I think what's happening with a lot of states, in fairness, they're waiting to see what comes out of Washington, and then they're going to make their own state-by-state decisions on what they need to do. What I will tell you is if you go to each one of these large states in which we have a significant presence, they all tend to view infrastructure as a critical priority. And they view it as a critical priority because their population trends are such that if they don't stay ahead of that, they're going to be in a really difficult place. And by the way, that's a high-class problem, not a bad problem. So short answer is yes, I think you could see degrees of growth. I don't think you would necessarily see it everywhere under that scenario, but I think you could see it. Yes, Rohit?

Okay, and then, you know, it's five years since the FAST Act, and when we look back at kind of how that played out, the states have raised their money funding as well. If we did get a new highway bill, what do you think changed in terms of how closely that money can be put to work, what projects are out there in the marketplace, and just your thoughts on what the highway looks like?

Yeah, here's what's different. If you think about what happened last time, Rohit, at state DOTs they had significant layoffs. So they came into the recovery without a lot of engineering and design professionals. So the fact is they weren't in a position to put jobs out to bid and award and get notices to proceed. I think that's fundamentally different today. I think when we go back and think about that statement I gave you just a few minutes ago relative to Colorado when I said we've won jobs, $100 million more in work year-to-date in April of 20 than we did in the prior year. I think that's actually pretty good evidence of where DOTs sit today. You can also go and look and see how different DOTs have dealt with it over the last decade. Texas DOT, frankly, has just hired a lot of people. North Carolina DOT has outsourced a lot of that design work to very specific engineering firms across the state, and they put themselves in a position where that their delivery rate could actually be very attractive. And oddly enough, that's one of the things that the state is sorting through right now because they were able to get projects out much more quickly, frankly, than they thought they would. So, again, if you look structurally at how DOTs are set today versus where they were a decade ago, it's very different. And I think from a contractor or material supplier perspective, it's an advantage to the industry.

Okay, thank you. And then last question on M&A last quarter. It sounded like the pipeline was heating up a bit, but the world has probably changed. I mean, can you comment on what the deal flow looks like out there? Do you still have an appetite to do maybe a sizable deal, or are you going to be a little bit more conservative in your turn?

You know what, I guess a couple of things, Rohit. Number one, I think if you go back and look at the deals that we've done, I think, you can look at the history on them and you'll be pleased with what we've done. And I think that's in large part because we've been thoughtful about what and we've been thoughtful about when and we've been thoughtful about size. So I'm going to give you the answer you would expect, and I'm going to say it all entirely depends. I mean, there could be some deals that would come along that would be so impactful to us, If you were looking over our shoulder at a model, you would say, good heavens, go and do that. And there are going to be others that we will likely be more cautious with, and frankly, you would urge that as well. Part of what I spoke of in the comments is we have an experienced management team, and this is not our first rodeo. And it's not going to be our first rodeo looking at deals in a market that might be different. We will look at them. We want to grow our business. We want to grow it responsibly. We also understand the value of a fortress balance sheet, and that's what we have today. And what we want to make sure we can do, Rovita said, the best of all worlds, and I think we've got a path to do it.

But you're going to maintain that investment grade at all costs, is that right?

We've certainly said it's important to us. I'm not sure we've ever said at all costs, but it certainly is important to us.

All right. That's all I wanted to know. Thank you.

All right. All right. Thank you all for joining our first quarter 2020 earnings conference call. Martin Marietta has the right strategies, the right priorities, and the right team to responsibly navigate through these challenging times and drive sustainable long-term growth and shareholder value as we move this company forward. We look forward to discussing our second quarter 2020 results in a few months. As always, we're available for any follow-up questions. Thank you for your time and your continued support of Martin Marietta. Please stay safe and stay healthy. Take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.