Core Natural Resources, Inc. (CNR) Q1 2013 Earnings Report, Transcript and Summary

Good afternoon, everyone, and welcome to the NCI Building Systems First Quarter 2013 Earnings Conference Call. [Operator Instructions] Please note today's event is being recorded. This time, I'd like to turn the conference call over to Mr. Todd Moore. Sir, please go ahead.

Thank you. Good afternoon, and welcome to NCI Building Systems call to review the company's results for the first quarter of fiscal 2013. To access a taped replay of this call, please dial (877) 344-7529 and enter the passcode 10025274 and the pound sign when prompted. The replay will be available approximately 2 hours after this call and will remain accessible through March 12. The replay will also be available at the company's website at ncigroup.com. The company's first quarter results were issued earlier today in a press release that was covered by the financial media. A separate release was also issued advising of the accessibility of this call on a listen-only basis over the Internet. Some statements made on the call may be forward-looking statements within the meaning of applicable securities laws. These statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995 and generally include words, such as potential, expect, should, will and similar expressions. These statements reflect the company's current expectations and/or beliefs concerning future events. The company has made every reasonable effort to ensure that the information, estimates, forecast and assumptions, upon which these statements are based, are current, reasonable and complete. However, forward-looking statements may be subject to a number of risks and uncertainties that may cause the company's actual performance to differ materially from that projected in such statements. Investors should refer to reports filed by the company with the Securities and Exchange Commission and in today's news release for a discussion of factors that could cause actual results to differ. To the extent any non-GAAP financial measures are discussed, you may also find a reconciliation of that measure to the most directly comparable financial measure calculated according to GAAP in today's press release, which can be located on the company's website by following the media link. Information being provided today is as of this date only, and NCI expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements, whether as a result of new information, future events or otherwise. At this time, I would like to turn the call over to NCI's Chairman, President and Chief Executive Officer, Norm Chambers.

Thank you, Todd. Good evening, everyone, and welcome to our first quarter 2013 conference call. Joining me this evening are Mark Johnson, our Chief Financial Officer; Todd Moore, our General Counsel; and Linda [ph] Alvarez, our Director of Investor Relations. I will provide an overview and review our operations, followed by Mark Johnson, who'll review our financial results. Then we'll be happy to take your questions. First quarter results were mixed, which is not unusual, given that it is traditionally our seasonally slowest of period. On the macro side, the economy in non-residential demand slowed in the last 2 months of calendar 2012. Still we were able to report 22% revenue growth over the comparable period last year, thanks to our Metl-Span acquisition and modest organic growth in our Buildings and Components group. While we expected that first quarter revenue would reflect Hurricane Sandy's negative impact on shipments to the Northeast, in fact, we estimate that we lost about $7.5 million of sales and $1.5 million in gross profit as a result of 9 additional weather-related events compared to 0 in the same period last year. Still we believe this was reasonable performance for the period, and reflected our continuing ability to outperform, in terms of volume and revenue, the low-rise, non-residential, construction market, which, according to McGraw-Hill data, increased in our first quarter by 4.4% in square footage. Our gross margin, however, was lower than last year due in part to factors that we anticipated, such as the ramp-up of production in our new coating plant in Middletown, Ohio, the higher portion of low-margin structural projects shipped by our Buildings group and the likelihood that weather, on a year-over-year comparison would be negative. Our margins were also negatively impacted by decisions we took to retain skilled workers in our Buildings group during our seasonally slower first and second quarter and to invest in production training with an emphasis on welding. As we move into the seasonally stronger second half of fiscal year, we see the need for multiple plant shifts to accommodate increased production volumes. But demand is not yet strong enough to efficiently support those shifts during the seasonally weaker quarters. Going forward, as the economy recovers, our first and second quarters will -- while remaining our seasonally slowest, will produce greater volumes with better utilization, and the impact of this type of investment will be negligible. We estimate that the additional training that we are doing, combined with the higher volumes that we project, will result in the year-over-year gross margin improvements of 100 to 200 basis points in both the third and fourth quarters of this fiscal year. Importantly, we believe this action will result in quality and efficiency improvements, shorter lead times and increased profitability in the Buildings group over the longer period as well. Additionally, the Buildings group continues to see more opportunities to bid on design build of projects, where we can add value to our sophisticated engineering and drafting capabilities, and we are seeing the benefits of that trend in our current quoting activity. In the Components group, the addition of Metl-Span has provided NCI with a significant opportunity to take advantage of the growing demand for insulated metal panels in both the well-established cold storage market as well as our fast-growing commercial, industrial and architectural markets. We expect our insulated metal panel product lines to generate over $215 million in revenue for the Components group this year, up from $90 million in fiscal 2012. In fact, their current level of open orders is similar to the top of the last non-residential cycle in 2007, reflecting the strong demand for this product. Additionally, we continue to see traction for the products that serve the roll-up metal doors, agriculture and retail depot markets, each of which should continue to post profitable growth as we move forward. But we have been challenged by weaker market recovery and excessive pricing pressures in the very fragmented core roofing, sidewall and secondary structural steel product categories. Finally, our Coatings group operating income increased on flat sales, thanks in part to higher internal revenue that baseloaded their plants. The group is very efficiently ramping up the new Middletown, Ohio light-gauge paint line, which, we expect, will be incremental to our profits in the fourth quarter of this fiscal year. Looking ahead, we expect our second quarter adjusted EBITDA to show sequential improvement, driven by a more favorable project mix in our Buildings group and to be in line with the $15.3 million we reported in last year's second quarter, which included a $1.9 million non-recurring benefit from an actuarial reserve adjustment. Indicators are positive. Quoting is good. Our customer sentiment is quite positive across all of our businesses. Of course, no one knows what sequestration will bring. But our backlog is up 17% year-over-year, and commercial demand is slowly improving, showing a pickup in retail for the first time in a while. Therefore, our outlook for 2013 remains positive. As we see improving market conditions and our operating leverage resulting in second half performance that is significantly ahead of last year. Now I would like to hand over the call to Mark Johnson, who will review our 2013 first quarter financial results in more detail.

Thank you, Norm. The Metl-Span acquisition and mid-single-digit organic growth in our Components and Buildings groups drove a 22.2% year-over-year increase in first quarter revenues to $297.6 million, up from $243.6 million in last year's first quarter. This was solid performance for our seasonally slower first quarter, when volumes across the company were down 18% sequentially. But it was below our expectations due to the impact of weather-related delays beyond Hurricane Sandy and the post-election market pause, resulting from fiscal uncertainties. Each of our business segments contributed to a 12% year-over-year increase in ton shipped in the first quarter. But mix issues and the expansion of manufacturing capabilities in our Buildings group, especially in a period of relatively low volume, impacted profitability. The Components group was the strongest revenue performer in the quarter, mainly due to the acquisition of Metl-Span, posting a 45.5% increase in sales. On a pro forma basis, the group's tonnage increased at 8.6%. However, revenue was up only 5.1% due to lower material costs, which resulted in a 7% year-over-year decline in unit sales prices. During the period, we incurred an incremental $1 million for our Mattoon, Illinois insulated metal panel plant, which was temporarily closed to facilitate the conversion of the manufacturing process to the Metl-Span process. Similarly, we will convert our Jackson plant in the second quarter, taking advantage of the seasonally slow period to accomplish this important integration step. As we have mentioned before, the group's core Components business, which serves the commercial and industrial markets, continues to face pricing pressures in this low demand environment. We are working on a number of initiatives here to improve performance in advance of a significant economic recovery. The seasonal pickup in volume in the second half of the year will help, as will insulated metal panels becoming an increasingly greater percentage of revenues. The Coatings group posted a 4.5% year-over-year improvement in operating income on a 1.8% volume increase in flat sales in the first quarter. External sales were 5% lower due to some weather-related processing interruptions and decisions to cut back on certain lower-margin activities. The lower external sales were offset by higher internal sales to the Components and Buildings segments in support of their volume growth. The group's solid operating performance was achieved after absorbing an additional $860,000 in startup cost at the Middletown, Ohio plant, which became operational in the first quarter and is on track to begin contributing to earnings in our fiscal fourth quarter. The Buildings group's results were mixed. Its 9% increase in volume only resulted in a revenue increase of 5.2% due to a less favorable sales mix and lower material costs, which combined to reduce sales prices in the first quarter. Operating income was $4 million, almost 1/2 of what we earned in last year's first quarter as a result of 3 issues. First, our sales mix was less favorable due to a high proportion of low-priced structural work that we shipped in the first quarter. Second, we had higher manufacturing costs related to the retention and training of skilled workers in order to optimize our performance in the seasonally stronger second half of 2013. Specifically, the volume we expect to achieve in the last half of 2013 will require our buildings plants to operate additional shifts, and we are training and retaining the skilled labor to ensure that we will optimize our margins in the third and fourth quarters, consistent with our long-term growth plans throughout the economic recovery. And third, we incurred higher marketing and increased our bad debt reserves, which I will speak to in a moment. We expect to continue the investment in expanding our manufacturing capabilities in the second quarter. But the effect on our results for the period will be reduced, as the Buildings group, pricing and margins improved, thanks to the more favorable underlying project mix in the backlog. Moving down the P&L, you can see that our consolidated gross margin was 20.5%, compared to 22% in last year's first quarter, as a result of the items I just noted in the Buildings group, the integration cost in the Components group and the startup cost at the Middletown, Ohio coating plant. In the second quarter, we expect to see a significant sequential increase in gross margin. But it will likely be below last year's second quarter due to the lingering impacts of these factors. However, in each of the third and fourth quarter, as Norm mentioned, we expect gross margin to be ahead of 2012 levels. Engineering, selling and G&A costs were $60.5 million compared to $48.9 million in last year's first quarter. As a percentage of revenue, ESG&A remained relatively constant at 20.3% in the first quarter compared to 20.1% in last year's first quarter. The acquisition of Metl-Span is the primary driver of the increased cost. Our costs also include $1.5 million higher, non-cash stock compensation charges as we have now reached the mature annual run rate for our plan. Also, we took a $1.3 million charge for bad debt expense this quarter compared to 0 in last year's first quarter. This change relates to increases in our reserves as our customers face working capital constraints now that they are beginning to grow after several years of decline. Our DSOs increased from 33.7 days last year to 38.2 days in this year's first quarter, partially as a result of including Metl-Span and partially due to incremental aging. And while we have had no increase in actual bad debt write-offs, we have increased our reserves in relation to the aging. We expect ESG&A as a percentage of revenues to remain relatively constant in the second quarter but are projecting it to be significantly lower in the third and fourth quarters of the year. Operating income was $398,000 compared to $4.3 million in last year's first quarter, and we reported a net loss applicable to common shares for the period of $3.6 million or $0.19 per diluted common share, which compares to a net loss applicable to common shares of $10 million in last year's first quarter, equivalent to a diluted loss per share of $0.54. Excluding the effect of the prior year beneficial conversion feature charge of $4 million, the comparable adjusted loss per common share would have been $0.31. Now a few comments on our balance sheet. We ended the period with cash and cash equivalents of $25.8 million compared to $55.2 million at the end of our 2012 fourth quarter, consistent with working capital needs ahead of our seasonally stronger second half. Our ABL credit facility remains undrawn, and we have paid down our outstanding term loan by nearly $9 million. Our inventory balance was $113.8 million, an 11.5% increase over the same period of the prior year due to the inclusion of Metl-Span. Annualized inventory turnover improved to 8.5 turns for the quarter compared to 7.9 turns in last year's first quarter and 10.1 turns in our 2012 fourth quarter. First quarter capital expenditures were $6.1 million. As previously announced, our 2013 full year capital expenditures are expected to be between $27 million and $30 million, which will include the integration, enhancement and expansion of our product line in operations across all 3 of our business segments. As you can see from today's release, our outlook for 2013 remains the same. Approximately $6 million of the incremental first quarter expenses that I have discussed, including the manufacturing labor investment, bad debt expense, plant integration and startup costs, et cetera, will continue in the second quarter but will dissipate in the third and fourth quarter. Therefore, we expect second quarter adjusted EBITDA to be similar to what we reported in the comparable year ago period. And second half performance, which will additionally benefit from improving market conditions and our strong operating leverage, is expected to be substantially ahead of the comparable 2012 period. With that, I'll now turn the call back over to Norm.

Thank you, Mark. Before opening the call to questions, I just wanted to say a few words about our strategy. This is the foundation of our stated objective that 2013 will be another solid step along the path of generating over $200 million in EBITDA when the non-residential new construction starts measured in square feet return to 1 billion square feet and that our strategy will propel NCI to even higher levels of performance as the recovery takes hold and volume moves to a more normalized demand levels of 1.2 billion to 1.4 billion square feet. Our strategy is not only based on capturing our share of an improving non-residential market and leveraging the advantage from all the operational efficiencies we continue to work on in the Buildings group, marketing and sales, engineering and drafting and manufacturing. It is also based on the growth of new markets, products and distribution channels in our Coating and Components group. Markets like appliances enhance distribution of commercial and industrial insulated metal panels and high-end architectural panels and new expanded retail depots for our very local markets throughout the U.S. and Canada. In other words, future potential above and beyond our intermediate goal of $200 million by $1 billion will be driven by our growth strategy for our Coating and Components groups and the leverage strategy for our Buildings group. We are committed and focused on the next 5 years, and we realize that every quarter matters in getting there. Operator, we're ready to take your questions.

[Operator Instructions] Our first question comes from Bob Kelly from Sidoti. Robert J. Kelly - Sidoti & Company, LLC: Just a question on the $6 million in incremental expenses, do those drop to 0 by the time we hit 3Q F '13?

No, they don't drop to 0. When we get to Q3, the only item that would be continuing is the $1.5 million of incremental stock compensation charges. And that is a function of reaching the maturity of that plan, and that plan is now at its annual run rate that it should continue at. Robert J. Kelly - Sidoti & Company, LLC: So it drops by $4.5 million?

Yes. Robert J. Kelly - Sidoti & Company, LLC: Okay. And then as far as -- you called out the 9 days of weather, $7.5 million of, sounds like, revenue shift, does that come back to you in the second quarter? Or is that lost for good?

We think that part of that will come back in our second and third quarters. Part of that will result from insurance monies and government monies going back into the Northeast to actually fund some of the recovery. So that may be in our third and fourth periods. Robert J. Kelly - Sidoti & Company, LLC: All right. And then as far as the -- some of the costs weren't a surprise. The hiring of labor in the -- or the retention of labor in engineered buildings kind of came as a surprise. Does that -- did that exceed your internal goal because of the way backlog trended, because of the -- how did that come to pass during 1Q,o the decision to keep the extra people?

Right. So we continue to analyze our decline in gross profit margins in Q3 and Q4 of last year in our Buildings group. And you may recall that we pointed out that we had some issues with our welding crews then. When we really looked at and started to think about how we were going to make sure that we were able to see the increase in operating leverage and margins, it became clear that we really had to take advantage of these first 2 quarters to both make sure that we had adequate training across all of our production people and welders, in particular, and recruited sufficient welders to actually be able to perform the work that we have in Q3 and Q4. The issue really is that we're on the cusp of needing additional shifts, which will then be part of our leverage in the following years. And it's kind of that awkward period that we could've made the decision not to do this and play it long . But once we reviewed, I mean, the Buildings group, which was done really in December, in particular, it became clear that this was a step that we needed to take and I back that step. Robert J. Kelly - Sidoti & Company, LLC: So let me just try it one more way. Did something transpire during 1Q that gave you more confidence now is the time to ramp people?

Yes. So to be sure, when we really look hard at our quoting activity and look at what has occurred in our backlog, and in fact, Bob, you recall that when we started to talk in 2011 and '12, we started to talk about the recovery showing signs that our backlog was much more front-end loaded, which was not typical for us. What we've seen over the last several months is a return to a more normal bell curve. And that's a result of fundamentally more projects that are larger and contribute to us being able to look at our shipping schedules out 5 and 6 or more months. So putting together, the fact that our backlog is up 17%, putting together how the mix of work is with complexity, it became obvious to us. Maybe it should've been more obvious, but it became obvious to us that we were -- that we needed to make the right decision. The right decision was to spend some extra money now in ensuring that in the period that we normally make most of our money which is the third -- I mean, which is the third and fourth quarters, that we were really prepared for that. Robert J. Kelly - Sidoti & Company, LLC: Okay, great. Just as far as the benefits to the second half of the cost and the implementations you've got going on in 1Q and 2Q, that plus 100 to 200 basis points on the gross margin, is that inclusive of the better mix that is held in backlog? Or is that in addition to?

That's probably inclusive. I mean, we -- I think that's reflective of what we see in the work. We can see that our -- that the pricing is improving. We can see that in our backlog. And that's a function of the complexity of work. It's also a function of greater opportunities and design build, which gives us a chance to differentiate ourselves. And it's all a part of that. Robert J. Kelly - Sidoti & Company, LLC: Okay, 2 last ones and then I'll get back in queue. If you could, for the acquisition revenue, $215 million I believe was the number, what is the associated profit contribution you expect there from Metl-Span and then with -- we've been hearing more reports of stickiness as far as steel price increases, has the last couple of weeks been a little bit better on the price competition front within Components?

Yes. So to be sure, as you know and I can tell you -- I mean, I can tell you know by the question, we do benefit in the Coating and the Components group in a rising steel price environment. And frankly, rising steel prices in a gradual and a controlled way reflecting improved -- improvement in demand and construction activity is a positive thing, not a negative thing. We -- we are happy to have told people what our expectations are for revenue in Metl-Span. But we're not going to be breaking out of the bottom line numbers, because that's part of the Components group. And it's so integrated in terms of the amount of sales in addition to the number I mentioned that go, in fact, into our Buildings group. Robert J. Kelly - Sidoti & Company, LLC: Okay. So -- all right. As far as the pricing...

But I said before, Bob, that the margins in the Metl-Span group are historically a little better than the margins that we've historically had in the Components group. Robert J. Kelly - Sidoti & Company, LLC: Right. But you're carrying some, onetime in nature, non-recurring costs due to acquisition-related expense. I mean that's going to depress the margin somewhat in parts of '13. Am I right?

Yes, yes, yes. Just a bit.

Primarily the first half as we outlined it. Just the first half is carrying those additional costs. Robert J. Kelly - Sidoti & Company, LLC: The price competition story in metal components, has it been easing with steel pricing getting better?

Well, the steel price is just getting better. I would say that if -- that we would expect that pricing is going to continue to be competitive. But there's no question about the fact that if costs are going up for folks then those costs have to be reflected. I would say that as we see retail demand improve, which we're beginning to see, that's an altogether good thing for the Components group.

Our next question comes from Lee Jagoda from CJS Securities.

So Norm, now that Metl-Span's existing customer base is selling your full suite of -- or getting your full suite of products, what's the reception been? And are there additional initiatives under way on the sales side on your side to realize additional cost or revenue synergies?

Okay. So we have said, and I probably feel more strongly about this than many, that the opportunity to service the customers that Metl-Span has traditionally had within the builder network that was BlueScopes' and within the cold storage marketplace is just a great opportunity. In addition to that, we certainly have been enhancing our linkage between Metl-Span and our Buildings group in terms of coordinating the sales and the activities to make sure that our Buildings group is able to take full advantage of having the Metl-Span group as part of the family. And that's not at the detriment to other customers that Metl-Span has. It's really just to keep par with that. And that's going along well. We're very pleased with that. We're pleased with the opportunity that we see to sell more of our components with Metl-Span as increasing their offerings. That's continuing as well. I would say that the [indiscernible] team are keenly focused on opportunities to grow and are pursuing those. We have invested in a seventh line, which is an architectural line, which we'll be being -- brought online this year, which will enable them to participate more effectively in the higher-end marketplace. We see that as an altogether good thing to do. And so we're very bullish on the team over there, and we're still going through the integration, which is transferring our plants over and changing the chemicals involved there. That's -- that, as Mark said, -- had been a cost the fourth quarter and the second quarter. But altogether, it's an incredibly powerful move in terms of making our manufacturing plants equally as efficient as theirs with lower scrap, better yield and better products. So we're pleased with how that entire piece of the business is going.

Okay, great. And then, Mark, the $27 million to $30 million of CapEx this year, can you break that up between maintenance and growth?

Generally speaking, in broad terms, our maintenance capital in any given year would be between $11 million and $12 million of our current business. And so the amount above that in our $27 million to $30 million would be growth-oriented capital.

And sitting here today, do you see '14 returning to more a maintenance level? Or is there more to do on the growth side?

So one of the things you heard me say is that we're looking at a growth strategy for our coil coating and our Components group. The investment in the coil coating side is about done with the ramp-up. And in the component side, we have, as I said, the seventh line, which is a discontinuous line that is focused on the high-end market, which is architectural. We have, as many will recall, equipment that we had planned to put in a Richmond plant of ours. At some point, we may decide to deploy that to some location in the United States or elsewhere. And I think that the other real growth opportunities comes from our look at our depots and seeing them as an opportunity to enhance our distribution in very local markets. I don't want to say too much about that at this time. But as we go forward with our plans, I'll be happy to share it with you then.

Okay. And do you have a preliminary view on working capital needs for the balance of the year?

Mark?

We would expect to see a cycle that's very similar to what we've seen in the past where working capital is utilized in the first and second quarter, and then working capital or cash flow is generated in the fourth quarter and third quarter. So it would be on a very consistent path to what you've seen in the past.

[Operator Instructions] Our next question comes from Trey Grooms from Stephens.

All right. So looking at backlog, up 17% in the quarter. Is the mix of projects there, is that a pretty normal mix? Or is there still some lower-margin projects embedded there?

So the product mix, certainly, has a different levels of pricing. But we do not have the structural -- the purely structural projects that did have a negative impact on our gross profit levels in Q4 and Q1, even though that project was profitable. It ended up being effectively 1/2 of our volume growth in our Buildings group. And so it was one of those things that we would not run out to replicate.

Got you, okay. And then on SG&A, as a percent of revs, it's been trending pretty flat year-over-year, should we expect that to continue in the back half as well? I know you mentioned that it could be down sequentially. But on a year-over-year basis, kind of as a percent of sales, what should we kind of expect there?

So what we typically will see in our ESG&A, and as I alluded to in my comments, we will see the ESG&A be about the same percentage of revenue in our second quarter. And as you may recall, ESG&A, when you look at us historically, generally is a little bit higher in the second quarter than it is in the first quarter. It has to do primarily with some marketing and engineering activities that occur in the Buildings group in the second quarter in anticipation of the higher seasonal work in the last part of the year.

Which is the builder meetings that we have with our brands.

That's right. And engineering and drafting for work that will actually be produced in the third and fourth quarter.

Yes. I appreciate that. I'm just -- I'm looking more for some color on the second half kind of as we think about -- you've mentioned it was going to be down. If I understood your comments right, you mentioned it was going to be down sequentially. But what do we -- as far as the percent of revs year-over-year for the second half, should we expect some leverage, some improvement there? Or should it be about flat?

Yes, that's why I started with the way I did. Because in the second quarter, what I'm specifically saying is it will be about the same percentage, not down sequentially. Then when you get into the third and fourth quarter, it will be significantly lower sequentially. And it will be at a level that's lower on a percentage basis than the prior year.

Great, okay. That's what I was looking for. And then, Norm, kind of looking at your expectation for an improving back half, is that mostly going to be seasonally driven? Or are you expecting your end markets to kind of shift into another gear here in the back half and kind of pick up off the bottom to a larger degree? Or is it mostly seasonal that we're kind of looking at here?

Oh, it's definitely that we are seeing quoting activities that are consistent with McGraw-Hill's forecast for a strong second half of the year. And we're seeing that now. So we will have seasonality. And we feel that we will have growth on top of that seasonality, right? Now in recent years -- the past couple of years and, in fact, back in the recovery of 2004 to 2008 -- or '07, I should say, what we have seen is that our backlog number at the end of our second quarter will actually produce revenue that is 130% to 150% higher than that backlog number in the second half, okay? So the -- how things builds in the backlog are important. But in a marketplace that is recovering, even modestly, is a -- there's a very good opportunity for us to take advantage of that. Our expectations are, and that's one of the reasons why when we look at training our people, that it's critically important that we're able to maintain delivery schedules that are consistent with being able to really advantage ourselves in that period. And then as the market continues to recover, even if it stumbles and it staggers a bit, if it's not perfect, we will still likely see more activity in the first and second quarter of next year. And therefore, the staffing levels that we have will be less of a problem for us.

Okay, that's helpful. And then kind of on that point, if you kind of look at your incremental margins, I think they were kind of low to mid-30 range, right in there in 2012. With end markets kind of expected to continue to improve, is that something we can expect to continue kind of going forward? Or is anything changed that would impact that one way or the other, as we look at those incremental margins kind of on the horizon?

Yes, no our view of our incremental margins hasn't changed. We've seen the incremental cost that we discussed in the first half of this year, but that incremental margin should be very evident in the last half of the year.

Our next question comes from Jack Kasprzak from BB&T. John F. Kasprzak - BB&T Capital Markets, Research Division: The press release talks about how your backlog in the Building group is up 17% year-over-year. And then it says overall booking trends were similar to the levels achieved in last year's first quarter. What's the distinction between those 2?

Okay. Well, the booking activity goes to and adds to whatever the ending backlog was at the end of the fourth quarter, less what we shipped, plus what we have actually booked, okay? And at the -- so at the end of the day, one of the things that is clear to us is that the improvement in the backlog is a function of also the complexity and the kind of work we have, which is more of a design build case. And frankly from that standpoint, we're very pleased with that backlog. Mark, do you want to add anything to that?

I was just going to say, one of the things in play here is the velocity of the backlog. So what we're finding is that we're returning to a more normalized environment, where there's opportunities to add value in the more complex and more interesting projects. And those also take a little longer to flow through the backlog. John F. Kasprzak - BB&T Capital Markets, Research Division: Got it, okay. I understand. So they're -- and they're longer. So how should we think about, in the quarter, your bookings similar so -- I mean, essentially you're saying your bookings were basically flat in the quarter.

Yes, we saw a bit of pickup in January. We saw a bit of pickup in January. John F. Kasprzak - BB&T Capital Markets, Research Division: Okay. And how would you compare that to the last couple of quarters? Is it slow a bit? Or I mean, did it slow and now it's picking back up a little and that's kind of what you would've expected or just some framework there?

Sure. So the last couple of years, what we saw, for example, in the first half of -- or the first quarter of 2012, we saw about a 16% growth in booking levels. And then the year before that, we saw about a 40% growth in booking levels. So we -- got some underlying increased volume that is occurring. We didn't see the same rate of growth occur this year, but we did see a stabilization of that level of work. John F. Kasprzak - BB&T Capital Markets, Research Division: Okay, great. And switching gears, stock comp expenses up $1.5 million per quarter this year. You don't necessarily have to give any numbers unless you want to, but looking out to fiscal '14, is there -- how should we think about the behavior of that number?

Sure. And I will give some numbers, the -- we grant stock once a year, and we amortize that or invest over 4 years.

And what I'm going to say, but that those awards will not include myself and the 10 top folks. We gave up those awards in 2012, '13 and '14.

But where I'm going is that we reached the fourth grant this year. The first grant was in 2009. The fourth grant was this year. So we've now reached the mature level of those grants. You won't see anywhere near that level of growth in that cost that we've seen over the last couple of years as each layer was added on, but it's a mature plant now.

And ladies and gentlemen, at this time, we will end today's Q&A session. I'd like to turn the conference call back over to management for any closing remarks.

Again, thank you very much for joining us, and thanks for the good questions. And we will continue to work to deliver the results that we believe we can in 2013, and look forward to reporting on that. Thank you.