Granite Construction Incorporated (GVA) Q4 2013 Earnings Report, Transcript and Summary

Good morning, my name is Kevin, and I'll be your conference facilitator today. At this time, I'd like to welcome everyone to the Granite Construction Investor Relations Fourth Quarter 2013 Earnings Conference Call. [Operator Instructions] Thank you. It is my pleasure to turn the floor over to your host, Mr. Ron Botoff, Granite Construction Director of Investor Relations. Sir, the floor is yours.

Thank you, Kevin. And welcome to the Granite Construction Fourth Quarter 2013 Earnings Conference Call. I'm here today with our President and CEO, Jim Roberts; and our Senior Vice President and CFO, Laurel Krzeminski. Let me begin today with an overview of the company's Safe Harbor language. Some of the discussion today may include forward-looking statements. Actual results could differ materially from the statements made today, so please refer to Granite's most recent 10-K and 10-Q filings for a more complete description of risk factors that could affect these projections and assumptions. The company assumes no obligation to update forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which apply only to the date they are made and the periods they reference. A reconciliation of non-GAAP measures is part of our fourth quarter and full year 2013 earnings press release and may be discussed during the call from time-to-time by the company's executives. For more information, please visit the company's investor relations website, investor.graniteconstruction.com. Thank you. Now I would like to turn the call over to Granite Construction Chief Executive Officer, Jim Roberts.

Thank you, Ron, and good morning, everyone. In a few moments, I will hand the call back over to Laurel to discuss fourth quarter and 2013 financial results. But before I do so, let me first take a couple of moments to review some business highlights from 2013 and how these highlights align with Granite's overall strategic plan and our business opportunities for the year ahead. As we have emphasized for some time, Granite's most significant opportunities are centered on our ability to execute on our strategic plan. And as a reminder, our plan is comprised of 4 themes. The first theme is transform and grow our vertically integrated business. A constant focus on execution is imperative as we drive performance improvement during the 2014 year. Our second theme is grow our Large Project business. Growth will be driven by record year-end backlog in an extremely healthy bidding pipeline, coupled with strong field execution. And our third theme is diversify our business. We expect to grow and benefit further through diversification, including building synergies on the Kenny portfolio of power, underground and tunnel in cooperation with the existing Granite business units throughout the country. And lastly, optimize our business. We have made great strides through Six Sigma training and are now focused on a dedicated, continuous improvement program touching all parts of our company to drive waste elimination, variability reduction and standardization of processes. This effort is empowering the people of Granite to improve each and every day. These opportunities represent exciting drivers of our growth in 2014. In December, we completed our 2010 Enterprise Improvement Plan. As a result, fourth quarter and full year 2013 results included the impact of $52.1 million in restructuring and impairment charges. Excluding the impact of these charges, Granite's diluted earnings per share was $0.02 for the quarter and a loss of $0.17 for the year 2013. This is a modest improvement from what we expected when we reported to you in the third quarter earnings last November. With the majority of the EIP charges related to Granite Land Company, we took significant steps to complete the orderly divestiture of our Real Estate business. The remaining charges were related to our Construction Materials business and reflect a productive step to help optimize our business portfolio. These assets were not accretive on a forward-looking basis and, in some cases, actually provided an operational drag. During 2013, we encountered significant cost issues on a project in the State of Washington. The project is about 90% complete now and we are hopeful that we have mitigated the project execution issues. This project is expected to finish later this summer. And as I said last quarter, we believe we have rights for a significant cost recovery on this project, but we do not accrue for estimated claim recovery. As a reminder, we only book revenue from a claim once it has been agreed to and executed by all parties. Even with the impact of this challenging project in Washington, our Large Project segment had net positive revisions and estimates of more than $25 million for the year 2013. This reflects a very healthy portfolio of projects and an overall solid execution in this segment of our business. Our Large Project's performance in 2013 included the startup on the Tappan Zee Bridge in New York, the IH-35 East in Texas and the I-40/440 in North Carolina. These projects contributed revenue in 2013 but remained less than 25% complete, thus not yet contributing profit. These projects, a significant portion of more than $1.8 billion of year-end Large Project's backlog and the balance of broad portfolio of projects across traditional and new end markets, provide us with the opportunity to benefit from excellence in execution from 2014 and beyond. As we consider the natural evolution of our Large Project cycle, we must be mindful of a few projects that were either completed or are nearing completion. I want to recognize the Granite teams from the Western Wake Freeway in North Carolina, the Queens Bored Tunnels in New York and the Houston Rapid Transit project in Texas on the success of these profitable projects. They were all key contributors to 2013 and early results. Thank you very much for your efforts. In the Construction segment, results were mixed. Strong contributions from diversified end markets, especially underground and power, helped drive strong Construction segment revenue growth and some margin improvement in 2013. Some of our traditional transportation-focused markets produced good performance aligned with economic improvement, while others continued to face competitive and demand-driven headwinds. That said, our focus is on execution. Market conditions aside, improved execution is a necessity to drive incremental margin improvement in our vertically integrated businesses. The Construction Materials segment finished 2013 in line with last year. And once again, improved execution is expected to provide opportunities for margin improvement. Our business leaders are tasked with managing operations in varied cyclical environments. And we are focused on driving the improvements necessary to generate the returns we expect for our shareholders. 2013 was a year of diversification for Granite as we integrated a new business, entered new end markets and new customer base and stronger margin characteristics. Last year, I noted that our teams were pursuing numerous projects that leverage the combined capabilities of the company. I'm pleased to see our teams execute on this combined capability to drive significant revenue synergies in 2013. This emphasizes the opportunities we have to drive incremental growth for all of our segments, including our newly added businesses in power, underground and tunneling, as we are committed to grow these businesses in both scope and geography. Although competitive, the Large Project segment current bidding pipeline is as large and robust as we have ever seen. We expect to bid on more than $13 billion of Large Projects in 2014 with about half of the value of the work representing potential Granite backlog. This includes a robust transportation mark for public-private partnerships, design-build jobs, CM at-risk jobs, CM general contractor jobs, as well as significant power and tunnel work. We believe the current backdrop of stable but short-term public funding and improved execution of the Transportation Infrastructure Financing and Innovation Act, better known as TIFIA, have contributed to many of these significant Large Project bidding opportunities. We have spoken about the positive impact we expected TIFIA to provide and we are extremely pleased that 3 of our projects include TIFIA financing: the Tappan Zee Bridge, IH-35E, as well as Phase 2 of the U.S. 36 project in Colorado. But we believe that without strong attention from Congress to provide the long-term stability of a new expanded Highway Bill, the transportation industry will continue to face short- and long-term funding challenges. Funding stability and financing alternatives are critical to driving progress on infrastructure investment at the federal, state and local levels. Throughout 2013, we also invested in our business to create opportunities to optimize our operations. Our black belts and our green belts and the project teams they led are all focused on driving incremental change through improved processes and improved execution. Our continuous improvement efforts are significant as our center of excellence has been created to help bring together company efforts to reduce waste lean efforts, as well as standardizing processes to reduce overall costs and reduce variability to increase the quality of our finished products. Our team is focused to take advantage of the opportunity to execute on our strategic plan. And our focus on execution will allow us to first transform and grow our vertically integrated business; second, to grow the Large Project business; third, to grow through diversification; and certainly, to optimize our overall business portfolio. With that, I will turn the call over to Laurel.

Thank you, Jim, and good morning, everyone. Fourth quarter 2013 revenues were $598 million, up 18.5% from last year. Full year revenues increased 8.8% in 2013 to nearly $2.3 billion, driven primarily by Kenny. Fourth quarter loss per share was $0.74 compared to earnings per share of $0.46 in the prior year. For the year, loss per share was $0.94 compared to earnings per share of $1.15 in 2012. These results include the impact of $52.1 million in restructuring and impairment charges related to the completion of our 2010 EIP. Excluding the impact of these charges, we earned $0.02 per share for the quarter and we posted a loss of $0.17 per share for 2013. For reference, we included a reconciliation of the charges in this morning's earnings press release. Gross profit margin was 8.3% and 8.2%, respectively, for the fourth quarter and year, but down from 11.3% in both the prior periods of 2012. Large Project profit performance was the largest driver of gross profit margin contraction in the quarter and for the year. Total contract backlog at the end of 2013 was $2.5 billion compared with $1.7 billion last year. More than $1.8 billion is associated with our Large Projects business with less than $60 million or only about 3% associated with noncontrolling interests. For comparison, in 2012, more than 11% or $113 million of the nearly $1.1 billion in Large Projects backlog was associated with noncontrolling interests. So why is this important? It reflects a nearly 85% increase in the Granite-only value of our Large Projects backlog since 2012. We are executing on our strategic plan to methodically grow and evolve this important segment of our business. Looking at the segment detail. Construction segment revenues in the fourth quarter of 2013 increased 25.3% to $295 million compared with last year. Gross margin declined nearly 150 basis points to 6.2% from 7.7% last year. Revenue and margin contribution from Kenny was outweighed by weakness in some Western markets. For 2013, Construction revenues increased 27.1% to $1.25 billion with gross margin increasing about 60 basis points year-over-year to 8.5%. Kenny again was the largest driver of last year's Construction segment revenue and margin improvement. Large Project segment revenue increased 11.2% in the quarter to $239 million. But for the year, revenues declined about 10% from 2012 to $778 million. Fourth quarter and full year 2013 segment margins of 12.4% and 9.2%, respectively, continued to be impacted by timing of project progression and the mix of projects in our portfolio. Revenues for the Construction Materials segment increased 17.8% to $65 million in the fourth quarter and increased 3.1% to $238 million for the year. Despite an increase in the fourth quarter to a materials gross margin of 2.6% from a 2.7% operating loss last year, materials gross margin for 2013 declined slightly year-over-year to 2.9%. In 2013, SG&A expenses totaled $199.9 million, an 8% increase from a year ago with all increases coming from the Kenny acquisition. This is a slight improvement over what we expected in early November. Once again, we finished the year with a strong balance sheet as cash and marketable securities totaled nearly $350 million at year end, including consolidated Construction joint venture cash of $38.8 million. As we begin to gain better line of sight on the upcoming construction season, we will provide you with specific guidance metrics in about 60 days when we speak with you about our first quarter 2014 results. In the meantime, for your modeling purposes, we can offer you a few of the assumptions we've built into our plan for 2014. We currently expect the tax rate to be in the high 20s to low 30% range with CapEx spending in line with recent years at about 2% of consolidated revenues. And we currently expect SG&A in line with, to slightly down from, the past couple of years on a percentage of revenue basis. And finally, although we announced in December that we had obtained temporary waivers of certain other financial covenants in our debt agreement, we were in compliance with all of our financial covenants at December 31 without regard to the waivers. We expect to finalize the debt amendments in the next few days. Now before we open it up for your questions, let me turn the call back to Jim.

Thank you, Laurel. We entered 2014 as a stronger company. We are focused on execution of our strategic plan to drive significant improvements this year. In addition, the investments we have made in continuous improvement are beginning to take hold, and they ultimately are expected to create significant tangible benefits across businesses and geographies. Finally, strong backlog trends and an extremely robust bidding environment provide us with opportunities to execute, diversify and grow our company. And with that, we will take your questions.

[Operator Instructions] Our first question comes from Jack Kasprzak with BB&T. John F. Kasprzak - BB&T Capital Markets, Research Division: Can you -- I got on the call a little late, so if you mentioned it, I'm sorry. But can you update us on the Washington State project and where you think you stand with regard to clawing back a portion or a significant portion of those funds?

Sure, Jack. No, I did not mention any details on it prior to you getting on, so this will be relevant for everybody. The project, I did mention, it was about 90% complete as we speak. We have gone through several processes with the State of Washington DOT. And where we're at today is that we are waiting for a response from them by March 31. And at that point in time, we'll understand the next steps. But one of the things to remember is that, that project is being completed as we speak, and we'll be done with the project by late summer, as anticipated. So we're hoping we'll get a response in March 31, not sure where that's going to be. And we're completing the project in the next several months. John F. Kasprzak - BB&T Capital Markets, Research Division: Is it still your expectation that there's a chance to, by the end of this year, claw back some of those funds?

Yes. John F. Kasprzak - BB&T Capital Markets, Research Division: Okay. On the Construction Materials segment, are you guys -- and specifically in California, are you guys seeing any price increases? Have you announced price increases? Do you expect price increases in aggregates?

Yes. Actually, we did on January 1 announce price increases, and we are expecting them to hold. John F. Kasprzak - BB&T Capital Markets, Research Division: Can you offer or share an order of magnitude?

Well, they vary from location to location. So I really probably don't have an accurate number for you of across-the-board percentage increase. But it's pretty -- it's in the 3% to 5% range probably, if you were to average it, with some areas being higher than that. John F. Kasprzak - BB&T Capital Markets, Research Division: Okay. And then with regard to guidance, when will -- what is the plan to offer any guidance for the year in terms of how you've done it with, by segment and maybe margin and/or sales? Is that something we'll see in -- with the May release, perhaps?

Well, it is. Our anticipation was to provide guidance on the first quarter results, Jack. And I think it's still yet to be determined as to what level of detail and exactly how we provide them. But we want to get a comfort level, as always, before we provide. We probably will stay in a similar fashion as we have historically. But if we do change something, we'll let you know in advance of what we're trying to accomplish.

Our next question comes from Alex Rygiel with FBR. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: Could you talk a little bit about the timing of some of these very large bidding opportunities that you've got over the remainder of this year? Are we thinking sort of late first half, late second half? And then how does the outlook for 2015 look at this time?

Okay. So that's an open-ended question that I could talk, Alex, for a long, long time about, which is -- because I'm very excited about it. The projects that we're looking at, which are -- again, are just numerous, and I actually pulled the entire list of work that we're bidding and put it in front of me for this discussion. There's a lot of work bidding in the first quarter, second quarter, third quarter, fourth quarter, so it's pretty equally spread. Probably, the more important issue is the timing of the awards of the projects. So sometimes, we'll bid a 3P project, let's say, in February or March and the owner may take -- some owners may take 60 days, Alex, to determine the apparent winner. Some agencies may take 90 or 120 days. So the $13 billion that I laid out in the discussion was work that we know we're going to bid this year. And a lot of it -- and actually, some of it we're turning in this week and next week. But it's probably going to be a couple-of-month delay before we find out the results. And then the second half of your question was 2015. 2015 right now is looking to be even stronger than 2014 in terms of the amount of work on the Large Project's bidding list. And one of the things that we -- that's probably really important to talk about is that although we talk about Large Projects, I've got the bid list in front of me for the work under $75 million. And just for the month of March, it is over $300 million. So that's really healthy as well. So that's kind of nice to see, not only the Large Project robust bidding pipeline, but the smaller $75-million-and-less work is filling up as well. Alexander J. Rygiel - FBR Capital Markets & Co., Research Division: That's great. And then can you sort of provide some description sort of on this opportunity? Are you seeing sort of bridge opportunities increase, road opportunities increase, PPPs increase, tunnel projects? Just give a little bit of more detail on the description.

Well, okay. So the answer is pretty much yes to every one of those items. Highways -- I'll give you a list here. I mean, I'm looking at a large job in Florida we're turning in this week. It's a big highway job. And we're bidding a large -- and that's a $2 billion-plus project. We're bidding close to $1 million job in Texas. It's another highway job, close to $1 billion. Some more highway work in Colorado, $400 million. High-speed rail in California is out to bid. That's $1 billion. We're doing some more highway corridor work in Southern California. That's another $1 billion. There's actually a $1 billion rapid bridge replacement project that we're bidding in Pennsylvania. More highway work in Illinois, Washington, D.C., big bridge projects. So I would say most of this is highway, bridge work. And a big chunk of it, Alex, is 3P. We do have concessionaires that we are teamed up with in a lot of these projects, so there's a combination of public-private partnerships and design-build projects.

Our next question comes from John Rogers of D.A. Davidson. John B. Rogers - D.A. Davidson & Co., Research Division: Jim, just a little bit of clarification on the Large Project work. In the release, I mean, you highlighted growth in the Construction and Construction Materials in 2014. Are you expecting, given your schedules, the margins to be better for Large Project work this year?

Well, let's put it this way. We're not in the guidance projection at this time. But yes, you can think about what we've been mentioning, John, is that we've got several of these large projects we started towards the tail end of 2013, and we expect them to hit profit recognition in the tail end of 2014. So yes, you can assume from that, that when they hit profit recognition, there'll be a big push towards overall margin improvement. John B. Rogers - D.A. Davidson & Co., Research Division: But there's still -- I mean, I'm thinking of like Tappan Zee and some of these others that you don't hit -- I don't think you hit 25% levels until 2015. Is that correct?

No, we've actually suggested and announced, I think, in the fourth -- in the third quarter earnings that we would -- our anticipation is in the fourth quarter of 2014. John B. Rogers - D.A. Davidson & Co., Research Division: Okay. And then the other thing is the weather, any impact on you? I mean, it's normally seasonally weak, but...

I would just say I really -- personally, I don't like weather as a positive or a negative discussion point. We expect weather through the winter, and we got better -- some better weather in the West and some worse weather in East. So it all tends to offset one another. And so if there was something significant with weather, I would've let you know, John. But no, it's not a big issue. John B. Rogers - D.A. Davidson & Co., Research Division: Okay, great. And then maybe, I guess, for Laurel, in terms of the covenant, are there any significant charges associated with that? And what are you expecting for interest costs this year?

No significant charges, some small dollar charge but not significant in total. And interest should be similar to what we have paid. No change to the interest rate, so interest should be similar to what we had in 2013.

Our next question comes from Jerry Revich with Goldman Sachs.

It's Matt on the call for Jerry. If you guys could just talk a little bit more about the cadence of orders in 2014. And I know it sounded like there was pretty even distribution of the bidding activity. But from an award standpoint, is there any quarter that we would look to see more awards come through both on the large construction and Construction side?

Well, let's put it this way, that again the owners definitely have their own assumption of schedules. And although what we would expect on a lot of these larger projects is probably a 60- to 90-day delay from the day we bid to the day we award, sometimes, especially with the TIFIA financing alternatives, it could be delayed. So I would say, historically, the smaller work, the second and third quarter tend to be our biggest award quarters. And that's when most of the bidding heats up. I would suggest in Large Projects, it varies quarter-to-quarter. Every year, it's different. But I do think that you'll see most of the heating-up in the smaller work in the second and third quarter.

Got it. And Jim, if you could just touch a little bit more on the marginality for the large construction business? I don't know if you quantify in the K at all what the headwind was for the full year from the Washington State project.

Well, I think we've been talking about it over the last several quarters. And the overall write-down for the year was somewhere in the $25 million to $30 million range. And so that was part of the gross profit deterioration of Large Projects.

And our portion of that is 60%.

Got it. And so is it fair to assume that -- obviously, you've touched on the fact that a number of projects will reach profit recognition in '14. But also fair to assume that margins should improve just through working through the remaining 10% of the Washington State project?

Yes.

Our next question comes from Sameer Rathod with Macquarie.

I know in the last housing cycle, Granite benefited quite a bit from building infrastructure for new subdivisions. I think there's been a lot of talk about declines in vacant lots. But could you comment if you're seeing any additional work on these new subdivisions or any comments around that?

The answer is it kind of goes up and down on the residential side. But let me talk in general about the private side, Sameer, because I think that really is an important sector for the company. And we're starting to see larger opportunities in the overall private sector. But I would not suggest to you that the residential is really the strong driver of our private work today. Yes, you're starting to see some infrastructure, some lots become all taken up for buildings and you're starting to see a little backbone being built now, which is nice. But I don't think that's the driver. Where we're seeing drivers on the private side for us are on the power side. We're seeing it not only from the large power but the smaller power as well. We're seeing solar fields still in the southern part of the country being built. We're seeing oil and gas refinery work is -- we've got a lot of that going on. We're actually seeing some commercial work, private commercial work take off now, which is really nice to see. And usually, that really follows residential. So what it means is that, that infrastructure in residential that was built previously is starting to fill up, which is now driving new commercial work. So overall, it's a stronger part of our portfolio today than it has been. But I don't think I would suggest to you, Sameer, that residential is driving it.

Right. Right. I guess, could you talk a little bit about the competition on the private side? I know in the downturn, a lot of people had entered doing public work, I guess. Are you seeing people going back to their core if nonres is picking up, helping potential margins in incoming quarters?

Yes, I think we are, Sameer. We're seeing a lot of the contractors wanting to go back to the private side. And they are, which is creating a smaller bid list on the reasonably-sized, I'm going to say, $20 million to $50 million, public works. It's still competitive, though. So I don't want to suggest that, that market has reached just a rapid inflection point. It's getting better, but they're not moving over to the private side as fast as I would've liked. But at the same time, it's definitely increasing the opportunities for us. Every quarter it's getting better. Then the overall private side, we're actually seeing on the larger private work, the competitive level is not as great. And we're seeing some good margin opportunities for us on the larger private work.

[Operator Instructions] Our next question comes from Brian Rafn with Morgan Dempsey Capital Management.

Question for you, Jim, relative to the -- you talked a little bit about the private side with utility power, solar field, some oil and gas refinery. Is that ability, coupled with some resurgence in residential at some point, 2, 3, 4 years out, going to resuscitate that old -- kind of the old turn Branch business in total volume in margin?

I think, actually, the answer to that is yes, Brian. But I think there's one more thing that is going to happen there to help bring that back part of the business back again. And I think you're going to see more transportation-related projects, as well, over the next couple of years because, again, we've been in a very depressed environment for the transportation projects. So what we've been doing is diversifying into a lot of those private sectors, which is creating value for us now. And at the same time, we are in a position that when there is transportation infrastructure investment, I think that's going to move itself up over the next couple of years. Much better position, hitting more diversification in our VI business, or what we call the VI today, the old Branch business, as you know, Brian, much more diversified, which creates, I think, a real upside going forward.

Okay. I missed -- I had about 25 minutes of violin music, so I was late getting on. Did you put a number on kind of the total kind of bid universe for the large, heavy civil -- the big design-build project? What's kind of your universe for 2014?

Yes, I did, Brian. And right now, I've got a list that we're committed to of over $13 billion for 2013. And then on the tail end of that...

2014.

2014. Then on the tail end of that, we have another $20 billion that we are looking to bid in that market beyond 2014.

Okay. And you talked about bid day and kind of bid list. Where would on -- maybe on some of that heavy Large Project, the heavy civil, what on bid day -- are you 5 or 6 competitors? Is it dozens? Where are you? And how has it maybe gotten a little better relative to the competitive makeup?

Okay. So on the Large Projects, what we're seeing is -- and what we're seeing overall in Large Projects, Brian, is that the value of them is increasing. So in the old days, we thought a big project was $200 million. Today, a big project is $2 billion. So what that's doing is it is providing a qualification environment, where the owner will short-list the amount of bidders prior to all of us going and doing our hard due diligence, putting our bids together. So what we're looking at now on every one of these, I call megaprojects, is no more than 4 bidders typically. It's usually 3 to 4 bidders on these projects that have been prequalified by the owner.

Okay. And then just one more on the materials side. When you look at -- again maybe kind of a large picture, 50,000-foot view. What, from the standpoint of aggregate, would you guys be using internally in your operations versus what you're saying externally? And maybe across the whole network, kind of where is the high and low capacity utilization?

Well, let me put it on average. So that's something we look at every quarter and we try to really gauge -- historically, I try to gauge on internal and external sales. And right now, about 2/3 of our sales are to the external market and about 1/3 of them are within Granite. Typically, that's a good sign that when we go to the external market, that means that typically that's our higher-margin products. Now I would normally say that's very good, but I would also say that in this environment, the internal should be greater because of the fact that when we do a lot of work, we like to use our own materials on our projects. So historically, over the last 3 or 4 years, it's been about a 50-50. Prior to that, when we were really hitting the private sector, we were probably 65-35 to the external world because that's the higher-margin product. But where I'd like to see it today is closer to the 50-50 and increase the amount of work and the materials we provide to our own products. Simultaneously, obviously I'd love to increase our external environment and build the whole business. But 65-35 today is where it's at.

Yes. On capacity utilization, Jim, I know that's a difficult question, but I guess it's more asking how much potential do you have in the system before you got to put in CapEx for crushers and that type of thing?

We've got a long way to go, Brian, before we get any capacity issues. There is no problem with capacity at this time.

Our next question comes from Michael Dudas with Sterne Agee. Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: Following up on that aggregate discussion, regionally in the markets that you are buying aggregates, are there any regions that are a bit more pricy or more active or more tightness in the marketplace than others?

Wow. Mike, I would probably not be able to give you the right answer for that. So I'm going to kind of hold off on that. I do think that there are consolidated markets in some parts of the country and more fragmented than others. But most of our materials businesses are focused in the Western U.S. And it's a little more fragmented than the Eastern part of the country. So in general, I would say the East is more consolidated, which would provide a tighter market than the West, which is fragmented. Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: That's great. Appreciate that, Jim. Two other just quick follow-ups. One, your own internal access to labor, how's the turnover been? Are you pleased with where you are on a manpower basis? And on a follow-up to that, do we expect in the next 12 months more tuck-in? Or is there an opportunity for acquisitions that might look attractive for Granite, given where you're in the ramp-up, especially in the Large Project cycle?

Okay. So first of all, labor. We've heard a lot of people talk over the last 12 months about labor shortages. We have not seen that. And I say that as a general statement. I would say, certainly, there's pockets where it might be an issue. I don't think labor for Granite is going to be a huge driver of any critical issues in our business in 2014. And I think that's a positive. The Granite people, when we get work, people like working with us, so we attract a very strong supply of labor as we build our projects. What was that -- let's go back, Mike, to the second question. Michael S. Dudas - Sterne Agee & Leach Inc., Research Division: Acquisitions.

Yes. So on the acquisition side, we are constantly looking at opportunities to diversify or grow our business. And I would suggest to you this, that yes, we have some opportunities out in front of us, but we're going to focus for the first half of the year, for sure, on the core execution, as I mentioned in the actual script, and focus heavily on getting the execution where we want it to be. And then on the back half of the year, you could see the acquisition and the opportunities that come to play.

Our next question comes from John Rogers with D.A. Davidson. John B. Rogers - D.A. Davidson & Co., Research Division: Jim, just a follow-up, I guess, to Mike's question as well. In terms of your -- you've talked in the past about trying to do more private sector work. And with Kenny and what you have now, how much of your business over the next couple of years do you expect to be in the private versus public sector?

Well, let me put it this way, John, because it's actually working as we had hoped. We're up to, now, 15% of our overall volume coming from the private sector, which -- historically, John, you know Granite well. I mean, we've been up in the range of 95% public work. So we're starting slowly to see that part of the business grow. And I could easily see it into the 25% range in the next couple of years as we continue to grow that part of our business. John B. Rogers - D.A. Davidson & Co., Research Division: But with your current mix of assets and before additional acquisitions, is that...

That's correct. In fact, I'd love to see us continue to expand the private side of the business.

Our next question comes from Brian Rafn with Morgan Dempsey Capital Management.

Again, I apologize if you said it in your opening comments. Did you give a kind of a focused highlight on Kenny specifically, their kind of outlook forecast specific to their business?

I did not, Brian. But I would -- let me suggest this at a high very level. They did what we wanted them to do in 2013, met our expectations. We're very happy with the acquisition. And they have a very nice backlog going into 2014. And we think that it's going to be a nice growth pattern for them in 2014 and 2015. And I think things are working really well.

Okay. As you guys -- as kind of construction issues -- or any issues with the Highway Bill and just the tepid economy, the fall-off of the old Branch turn business with residential and that type of thing, as you look at your business going forward, what changes do you see strategically, maybe from the procurement of equipment, maybe using more part-time, more kind of third-party contract people? You've talked in the past about the mobility of shifting crews around. How -- if you look maybe 3, 4 years in the future versus maybe back your history, how has that changed?

Yes. That's right in line with our strategic plan, Brian. And what I did focus on, on the first part of the call was really the job of Granite is to stay focused on our plan, and it's a long-term plan. And one of the first initiatives is transform and grow the vertically integrated business. And one of the things that is very important in that, as you know following Granite as long as you have, that's the old Branch business, is to be much more asset-light so that we don't overinvest in a certain geographic location but become more mobile and nimble. And I continually talk about that with instead of building a huge aggregate plant, maybe we take a portable plant into a reserve. So that's a different philosophical approach towards that part of the business. I also see the geographic expansion is huge. And we've been talking about this as part of our overall plan is that we geographically expand our business to all parts of the U.S. and up into Canada. And we have work in Canada today, several jobs up there that we expanded both the tunneling business and the power business into. And then the other thing is really looking at that private sector, getting ourselves focused on not relying on federally funded transportation work, but creating a diversified business that has all these different funding streams available to us. And we've historically talked, Brian, and you've seen this in our strategic plan, about expanding into power, water, oil, gas, all these different end market funding streams, which you've seen us do over the last 12 to 18 months now. We're going to continue to do that so that we don't get stuck in one marketplace if there's a downturn that it affects the company negatively.

Yes, okay. And let me just ask one more. As you look at your entrance into some of these, you talk about solar fields, oil and gas, the water, power, utility, how is the risk transfer of the risk sharing that you might have historically had in your legacy road construction, construction and engineering business? You've always got that kind of horsetrading and you've got bidding and you've got risk. And the owners want you to assume more liability and you're trying to protect yourself and getting it -- getting the right margin on bid day and all the things you've talked about. As you enter some of those other industries, those other areas of the private sector, what are the dynamics between you as the builder and the project owner? And are there any differences? Or are they the same?

Well, I think that everyone's different, Brian. But it brings up a really good business model question because when you go into the private sector, it depends on what your intentions are. If you go into an EPC market, an engineer, procure and construct market, then you have the potential to take on more liability because you have some performance expectations. We're not in that position today. We are entering the private market and using the skill sets that we have in our company to continue to build the work that we know we're good at. So I'm very comfortable with the contractual arrangements. I'm very comfortable with the offset for the potential downside and the margin expectations. And in fact, I would suggest that if you really put the ratios together, the private sector has a higher opportunity relative to risk than the public sector today. But as we go forward, and we're starting to build these larger projects, we need to consistently and continuously analyze that risk portfolio and how it affects our overall company. And we do that all the time. We'll take -- we'll look at one job that may be in a new market and consider it a risk and say, "Okay, well, let's limit the amount of work we do in this environment until we're comfortable. And we'll move over here and try to build some of our traditional work." So as we going to new markets, we'll do 2 things: look at the risk-reward on that individual job, and then look and see how it affects our overall portfolio.

This is the end of the Q&A. And I would now like to turn the call back over to our host.

Okay, everyone. Well, thank you for your questions. And certainly, we hope to see many of you on the road this year, as Laurel, Ron and I hit a lot of geographies throughout the entire year. We will get out on the road for just a couple of days on the West Coast in March. But in the second quarter, we expect to make multiple trips east to the Midwest, Mid-Atlantic and the Northeast. So of course, Laurel, Ron and I always are available for follow-up if you have any further questions. And thank you again for your time today.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.