Business Breakdowns
· Matt Reustle, Rob Hansen
[00:00:00] S0: And is there a split between that, what I would just reference as government-funded versus private market-funded? Is that split evenly? Is there a big mismatch between the two? And just general trending over time, has one been significantly better business than the other? [00:00:00] S1: So from the company's perspective, it almost doesn't matter who's paying for it because they all pay the same price. The government-funded stuff is a lot more steady because you're constantly fixing roads, you're constantly building roads. An interesting piece of that is that 75% of the spend on the government side actually comes from state and local government. Now the other piece of it is on the nonres side, the privately funded side, all of that is coming from businesses and just general construction. So it does tend to be a little bit of a byproduct of economic activity, but you can have a situation like now where there's a lot of public money coming from the federal government that can help. So on the public side, it tends to be very steady Eddie and grows and not as much cyclicality. The private side does have a little more cyclicality.
· Rob Hansen, Matt Reustle
[00:00:00] S1: So from the company's perspective, it almost doesn't matter who's paying for it because they all pay the same price. The government-funded stuff is a lot more steady because you're constantly fixing roads, you're constantly building roads. An interesting piece of that is that 75% of the spend on the government side actually comes from state and local government. Now the other piece of it is on the nonres side, the privately funded side, all of that is coming from businesses and just general construction. So it does tend to be a little bit of a byproduct of economic activity, but you can have a situation like now where there's a lot of public money coming from the federal government that can help. So on the public side, it tends to be very steady Eddie and grows and not as much cyclicality. The private side does have a little more cyclicality. [00:00:00] S0: Let's get into the history of this business just a little bit. You were telling me a fun story when we were talking before about their IPO and what that was tied to. So just some background on Vulcan, how it came to be a market leader. And from my research, it seems like only one of the major pure players and operators in this space. But what's the beginning? And any key milestones that you would talk about in terms of what led to them being in that leadership role today?
· Rob Hansen
[00:00:00] S1: Yes. So Vulcan is a very, very old business. 1909, this was started as Birmingham Slag Company. There were a few different iterations of itself, but business continued to operate and eventually seven families formed together to create this business. But the most important date was in June of 1956, President Eisenhower put funding for the Federal Highway -- Interstate Highway System. So these families came together, merged themselves and then went public on January 2, 1957, in order to take advantage of this government money that was going to be funding this Interstate Highway program. Fast-forward to 1970, they had about 70 aggregate operations in, call it, eight states. And then you have today, 400 aggregate operations in 22 states. They have about 16 billion tons of aggregate reserves, which is about a 60-year supply. But what's interesting about these quarries is I was looking through one other 10-Ks at one point, and there's a Norcross quarry, for example, in Georgia. And this quarry has actually been in operation since 1970. So these quarries have 50- to 70-year lives. But this one has been in operation since 1970. And then if you look at today what they have left, it's the 49-year supply based on today's volume. So these things really can last for a long, long, long time.
· Matt Reustle
[00:00:00] S0: Yes. And I think I'm familiar with quarries, thinking about some of the finished material you might see in a kitchen like granite or quartz, marble. And I'm not as familiar with the quarry market in the U.S. They started in Alabama. Am I right to think that there were a lot of quarry locations there? Is there anything geographically unique? Oil, you think of Texas and certain other areas. When you think of quarries, are there certain geographical spots that these are most dominated in?
· Rob Hansen
[00:00:00] S1: They're pretty much everywhere. The bigger governor is really the cities and towns because no one likes these things. But there is an important fault line, I think it's called the Brevard Fault Line that runs from D.C. down the mid-Atlantic through Texas, where you can't get as much rock. And then you have Florida where there really isn't any rock at all. So all of that has to be shipped in by boat. But everywhere else in the U.S., there are plenty of them. I think in the U.S. in total, there's around 10,000 quarries. Another interesting set was back in 1976, the number of quarries in the United States peaked at 12,600 or something like that. So we don't tend to make a lot more of them. So that's why I mentioned the bigger governor is just cities and towns really not liking these big giant pits. Because Vulcan and there's a couple of other competitors like Martin Marietta and Summit Materials and CRH, these companies are really mining companies. People don't really think about them that way, but they're aboveground mining. They just dig up a giant hole in the earth, and then you have your quarry, and you just keep mining it and mining it and mining it for as long as you can.
· Matt Reustle, Rob Hansen
[00:00:00] S0: It's an interesting, not in my backyard, NIMBY barrier to entry, it seems like in terms of having the quarries today and restricting new folks from coming into the market. Is there a difference in quality between the different locations? You mentioned a little bit before in terms of the cost and the price you might pay and what that looks like. Is that coming down to the specific quality of what's actually being mined? Is there much difference there? [00:00:00] S1: There are some differences, and that's why it's crushed stone, sand and gravel. So there are different types of rock that are used for different things and some of them are more specific. There's the certain sands that are used in oil and gas. But for the most part, a lot of it can be very similar or it just depends on where you are. It's not a ton of differentiation, which is why when I look at this business, like this is a commodity product in a pretty fragmented industry and that's capital intensive, how could it be any good? It's actually kind of the opposite. You can have a great business based on some of these characteristics that you'd otherwise think wouldn't be the case.