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Granite Construction Inc (NYSE:GVA)Q4 2018 Earnings Conference CallFeb. 20, 2019, 11:00 a.m. ET
Contents: Prepared Remarks Questions and Answers Call Participants Prepared Remarks:
Operator
Good day and welcome to the Granite Construction Fourth Quarter 2018 Earnings Conference Call. Today's conference is being recorded. After today's presentation, there will be an opportunity to ask questions. (Operator Instructions)
I would now like to turn the conference over to Mr. Ron Botoff. Please go ahead.
Ronald Botoff -- Vice President, Investor Relations and Government Affairs
Welcome to the Granite Construction Incorporated fourth quarter and fiscal year 2018 earnings conference call. I am very pleased to be here today with President and Chief Executive Officer, Jim Roberts; and Senior Vice President and Chief Financial Officer, Jigisha Desai. We'll begin today with an overview of the Company's safe harbor language. Some of the discussion today may include forward-looking statements. These forward-looking statements are estimates, reflecting the best judgment of Senior Management and current expectations regarding future events, occurrences, circumstances, activities, performance, outcomes and results. Actual results could differ materially from the statements made today. 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. In October 2018, the Company filed an 8-K, which provides a quarterly and annual look back and mapping of our reportable and market focus segments. Our fourth quarter and fiscal year 2017 and 2018 results reflect this report.
Certain non-GAAP measures may be discussed during today's call and from time-to-time by the Company's executives. These include, but are not limited to, adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted earnings per share and backlog. Please note that, as applicable, these metrics exclude non-recurring acquisition-related expenses and one-time integration costs associated with the acquisition and integrations of Layne Christensen Company and LiquiForce. Reconciliations of certain non-GAAP measures are included as part of our earnings press releases, as well as in Company presentations, all of which are available on our Investor Relations website, investor.graniteconstruction.com. Thank you.
Now, I would like to turn the call over to Granite Construction Incorporated, President and Chief Executive Officer, Jim Roberts.
James H. Roberts -- President and Chief Executive Officer
Thank you, Ron, and good morning, everyone. Thank you for joining us to discuss Granite's 2018 performance and our outlook. 2018 was a significant year of growth and evolution for Granite. And today, we are extremely well positioned to execute the next phase of our strategic plan. About this time last year, we took a major step forward with the announcement of the Layne Christensen acquisition. This acquisition highlighted our end market focused path for growth and diversification. And with the subsequent completion of the LiquiForce acquisition, our integrated growth strategy for the water rehabilitation market gained even more traction. By completing these strategic acquisitions, we expanded our sound platform for growth that drives Granite's diverse portfolio as America's Infrastructure Company.
2018 proved to be a year of significant evolution for a company that is nearly a century old. Granite teams proved that they were up for the challenge and successfully integrated our new acquisitions and proudly shared our core values as we united these new businesses into our portfolio. We congratulate our legacy operations for record 2018 safety performance. Our strong safety culture was enthusiastically introduced to and welcomed by our newly acquired businesses. Today we continue to align our new teams with Granite nine core values, defining expectations and prioritizing safe work strategies to ensure all Granite employees return home safely every single day. We continually strive to reach zero incidents in any given year and we are rapidly nearing our zero goal.
Certainly, we are cognizant of the macroeconomic data points that have created global economic growth concerns, but the green shoots across the end markets in which we operate continue to point to steady growth for Granite from healthy public and private market demands. As recently noted, current market conditions remain the best we have seen in more than a decade.
Before I hand the call to Jigisha, I want to spend a few minutes providing a high level view of our 2018 results and our strategic outlook. As we saw throughout much of 2018, operational and financial trends held up until wet weather began impacting our business in late November, notably after mild weather allowed for a particularly strong fourth quarter in 2017, winter rains came much earlier this year. The erratic wet weather for the last six weeks of the year slowed much of our business in the West. Similar to early 2017, Mother Nature's influences carried forward into the first couple of months of 2019, slowing the start of work on our historically high backlog and rapidly accelerating committed materials volumes.
We will continue to emphasize bidding discipline and the critical earnings leverage it creates. Even with the late season weather slow down across much of the West, revenue, profitability and earnings improved significantly in 2018 and we expect 2019 to be another year of significant top and bottom line expansion. Despite the late year negative weather impact, revenue increased 11% in 2018, reflecting the balance of new acquisitions, strong demand environment and a critical focus on improved profitability.
The profit performance of our acquired businesses beat our expectations, generating solid incremental margin contribution. Overall in 2018, Granite achieved a nearly 24% Company gross profit increase, a 144 basis points of adjusted EBITDA margin improvement and 49% adjusted net income growth from the previous year. Granite's strategic plan to concentrate on end markets for growth and diversification is alive and well. Diversification is also a critical driver of recent success and opportunity. Our results illustrate the benefits of four areas of focus, strategic themes that we have discussed for quite some time.
First, diversifying the sources and drivers of our revenue funding. Second, emphasizing new but related end market growth opportunities. Third, diversifying our customer base with private market focus. And fourth, derisking our project portfolio with increased pricing, higher revenue velocity work and lower risk projects with generally shorter durations. As we march into 2019, we will continue to focus on these areas to drive improved results and growth across Granite's broad footprint.
We are actively engaged in enacting our strategic plan. We are reviewing potential bolt-on targets as well as more transformative opportunities for geographic expansion of Granite's vertically integrated model. And we also are continuing to explore diverse targets to grow our end market focused segments. Granite's strategic plan is built upon our belief that a diversified end market focus is the most appropriate way to balance growth and risk opportunities for our business. And we're particularly pleased that this intentional portfolio shift already is producing results and uncovering future opportunities.
Importantly, recent project procurements are decidedly positive, with our procurement strategy and backlog composition becoming more aligned with our strategic plan. Recent Construction Manager/General Contractor or CMGC wins in California and Utah add to a growing roster of best value projects on which we have focused our procurement efforts, emphasizing balanced risk and consistent returns in our Transportation segment and across the Company. This new CMGC negotiated work aligns perfectly with Granite's footprint and with our capabilities. This procurement method allows Granite to win a project based purely on its qualifications and the value we add to the project delivery process.
We expect to pursue more than $4 billion in CMGC type negotiated work in 2019 across the nation, including nearly $1 billion in California alone. This work provides critical new balance to our Transportation segment portfolio as we work to complete and mitigate the impact of three legacy unconsolidated joint venture projects, two of these three mega projects are nearly complete. We only have one challenged legacy project below 90% complete today and we remain steadfast in proactively limiting risk and improving performance wherever possible.
The bidding environments in Granite's Water and Specialty segments also were healthy, supported by steady public and private market demand. The environment is expected to allow teams to continue to build backlog, pointing to meaningful segment growth in 2019. We are focused on winning work that we are well positioned to efficiently execute, targeting local, regional, national and international opportunities, including work and operations in Guam, Canada and Mexico.
Both moving parts in mind, our core legacy operations, especially our vertically integrated construction and construction materials operations continue to plan for growth and to raise the bar on execution and profitability in what we view as a healthy growth environment for the foreseeable future. We took strategic actions last year that drove results of 2018, but more importantly positioned Granite for success in 2019 and well beyond. Increased bidding discipline and an emphasis on alternative procurement negotiated work within our healthy and growing segments of Transportation, Water and Specialty have provided a backlog of improved margins coupled with lower associated risk.
The activity level across end markets and geographies remains buoyant and supportive of our top and bottom line growth expectations. Today, our bookings and project pursuits reflect an intentional strategic shift in end market diversification, portfolio derisking and portfolio mix with improved returns tied to a better balance of project duration, pricing, location, project burn and procurement type considerations. With our emphasis on disciplined pricing and profitability, our win rates have declined modestly as anticipated. But we are bidding considerably more work and our project, revenue and profit outlook continues to improve. Granite is extremely well positioned to continue to flourish and to grow, delivering on our vision as America's Infrastructure Company.
And with that, I hand it over to Jigisha with details on our results and our 2018 outlook. Jigisha?
Jigisha Desai -- Senior Vice President and Chief Financial Officer
Thank you, Jim, and good morning, everyone. Today, let's start with 2018's fourth quarter, where revenue totaled $892 million, up 11.4% from last year with gross profit of 7.3% to $108 million. Excluding the impact of acquisition-related expenses, fourth quarter 2018 adjusted net income totaled $23.6 million or $0.50 per diluted share. For 2018, revenue was $3.32 billion, up 11% year-over-year with gross profit up 23.6% to $389 million and with consolidated gross profit margin improved by nearly 120 basis points.
Excluding the impact of acquisition-related expenses, 2018 adjusted EBITDA increased 39% year-over-year to $236.5 million with adjusted EBITDA margin of 7.1%, a more than 140 basis point improvement from last year. And 2018 adjusted net income increased nearly 49% year-over-year to $102.8 million or an adjusted $2.32 -- $2.34 per diluted share.
Our scalable cost structure continues to produce results. While second half in fiscal 2018 SG&A increased year-over-year, the increase was driven almost solely by the impact of higher overhead costs from our recently acquired businesses. Excluding the impact of acquisition-related expenses, legacy SG&A expenses were in line with 2017. SG&A expenses were $79.4 million or 8.9% of revenue. Fiscal year SG&A expenses totaled $272.8 million or 8.2% of revenue compared to 7.4% of revenue a year ago. As noted, this increase is attributable to the acquired businesses.
Granite's balance sheet remained strong with more than $300 million in cash and marketable securities at the end of 2018. We continue to target improved working capital and cash flow trends, which allows us to maintain our strong capital structure and execute our strategic plans. In addition to our regular quarterly dividends, Granite also returned value to shareholders through the repurchase of more than a $0.25 million -- 0.25 million GVA shares in the fourth quarter, investing $10 million as part of $200 million stock repurchase authorization.
Integration of both the LiquiForce and Layne business is progressing very well, as we anticipate material completion by the end of second quarter. I'm pleased to report that our deal date announced annual run rate synergy estimates are tracking better than our original $20 million estimate. Our teams has come together very well and implemented best practices across integrated operations and enhanced efficiency and our functional support areas.
A key component to our plan involves rationalization and investment in both core and non-core assets. As part of our portfolio management and capital allocation planning, Granite divested the former Layne Water Midstream business in the fourth quarter. Our M&A activity in 2018 has enabled Granite to align our strategic outlook with our end market focus on growth, profitability and risk-weighted returns. Wrapping up the consolidated results discussion, total contract backlog was $3.69 billion at the end of 2018, down slightly year-over-year, but this figure does not include approximately $700 million of previously disclosed CMGC projects, which will enter Transportation segment backlog as task orders are approved.
Next, let's move to our segment performance. We began today in the Transportation segment, where markets are stable and improving, fueled by strengthening long-term public funding trends and by consistent private, commercial and industrial demand. Wet winter weather had a significant impact on our year-end operations. In the fourth quarter, Transportation segment revenue decreased 3.8% year-over-year to $504 million. In-spite of the late year drag, full year segment revenue increased to $1.98 billion, up 1.5% from last year.
Quarterly gross profit increased 2.8% year-over-year with a gross profit margin of 10.2%, up 66 basis points from last year. We created solid leverage in the segment with the gross profit increasing 11.7% in 2018 and the gross profit margin up 88 basis points year-over-year to 9.6%. Both fourth quarter and 2018 results include negative forecast adjustments, uncertain legacy unconsolidated large projects attributable to increased visibility into costs as these projects near completion. As we began 2019, only one of our three challenged legacy projects is less than 90% complete.
Transportation segment backlog decreased 1.9% year-over-year to $2.82 billion, not including the $700 million of CMGC projects we have discussed. Market opportunities remained robust as we patiently reshape our Transportation project portfolio, while pursuing disciplined strategies that balance project risk dynamics reflected in our improved fourth quarter and annual segment results.
Let's move now to the Water segment. Here, we're expanding Granite's leading expert growth, further developing our presence in attractive water and wastewater market. And our newly acquired businesses are delivering promising incremental revenue and profit performance. Water segment revenue increased significantly year-over-year with the inclusion of acquisitions both on a quarterly and on an annual basis.
In the fourth quarter, revenue increased more than 270% to $122.3 million. Water segment revenue increased 153% to $338.3 million in 2018. Quarterly gross profit increased to $18.5 million from only $2.5 million last year, with gross profit margin up 15.1%, up nearly 750 basis points from last year. Full year gross profit increased to $59.6 million from $12.3 million last year with gross profit margin of 17.6%, up nearly 850 basis points from 2017. Year-over-year profit improvement is tied to solid execution on projects in the healthy market we target in the Water segment. Recent acquisitions contributed to a significant backlog increase year-over-year to $329 million. The segment's bidding environment remains robust against a backdrop of steadily increasing Water infrastructure funding at the state and local level.
Let's move now to the Specialty segment. As you all are aware, Specialty is Granite's incubator of source, including tunnel, renewable energy and site development in addition to logistics, transmission and distribution of power, materials management and a broadening portfolio of mining activities. In the fourth quarter, Specialty segment revenue increased 1.2% year-over-year to $165.5 million. On a full year basis, segment revenue increased 1.8% to $626.6 million. Quarterly gross profit decreased 16.7% year-over-year to $25.6 million, resulting in gross profit margin of 15.5% as fourth quarter wet weather negatively impacted both site development and mining work. Full year gross profit increased 3.9% year-over-year to $90.9 million with gross profit margin up 14.5%, up about 30 basis points.
Both revenue and profit growth were driven by solid execution on a diverse portfolio of work. In 2018, tunnel, site work and mining drove improved results, while power and renewable energy delivered less contribution on a year-over-year basis. Specialty segment backlog ended 2018 at a healthy $545.6 million.
Moving now to our Materials segment. In the fourth quarter, Materials segment revenue increased 24.2% year-over-year to $100.5 million and a full year revenue increased 28.7% to $376.8 million. Revenue growth was driven by healthy external demand related to stepped-up external sales efforts and from the mid-2018 addition of the acquired Layne Christensen subsidiary line of products, which represents about 10% of overall segment revenue. Quarterly gross profit totaled $12.4 million with gross profit margin of 12.3%. Fiscal year gross profit increased 8% to $48.7 million as segment gross profit margin finished at 12.9%, down about 250 basis points from last year.
Performance was driven by improved external market demand throughout 2018. Late 2018 weather impact slowed segment performance as internal and external sales were delayed due to ongoing wet weather in the West. With committed materials volume well above last year's level, sales and business performance will accelerate and begin correcting as weather improves. Increased demand and volume will contribute to consistent improving margin performance that will help us achieve our target returns in this segment.
With that let's discuss our outlook and some additional assumptions that guide our view. We continue to focus on opportunities for efficiencies and reductions in higher overhead levels of our recent acquisitions. We will continue to rationalize targeting current portfolio SG&A as a percentage of revenue back to our stated target of 7.5% over the next couple of years.
We anticipate capital expenditure of between $110 million and $125 million or approximately 2% of revenue in 2019 and depreciation and amortization is expected to total between $130 million and $150 million, including the amortization of intangibles related to our recent acquisitions. Our effective tax rate in 2018 was 16.2%, driven by a decrease in the tax rate due to the impact of tax reform enacted in December 2017. The rate also includes impact from adjustments to the tax reform provisional amounts recorded in 2017, which was partially offset by one-time non-deductible acquisition and integration expenses incurred in 2018. In 2019, the tax rate is expected to normalize to a low to mid 20s percentage range. Our annual expectations for 2019, including the full year contribution of 2018 acquisitions are, low teens consolidated revenue growth and adjusted EBITDA margin of 8.5% to 9.5%.
Now, before we take your questions, let me turn the call back to Jim.
James H. Roberts -- President and Chief Executive Officer
Thank you very much, Jigisha. As a note, the guidance that Jigisha just provided anticipates a second consecutive year of better than 30% improved operating performance as we see strong growth opportunities both in top and bottom line performance for 2019. Growth opportunities that for year were on the horizon are now at our doorsteps across the end markets and geographies that we serve. The defeat of the Proposition 6 ballot measure in last November's California election marked an improvement point in infrastructure investment. This was something of an inflection point for public spending, beginning to spur significant growth opportunities in our Transportation segment.
Preservation of the 10-year $52.4 billion Senate Bill 1, the Road Repair and Accountability Act of 2017 better known as SB 1 funds critical repairs, maintenance and improvement of California's transportation system providing improved safety and quality of life across the state. Notably SB 1 is just one of more than two dozen state and local transportation and infrastructure measures passed since 2015 across the country, including Utah, Washington State, California, Illinois and Indiana, with these public spending commitments serving as significant resources for Granite's growth and profitability for years to come.
It's worth noting that SB 1's more than $5 billion of incremental annual funding does not sunset. We anticipate significant stepped-up funding in 2019. Measure M in Los Angeles along with other local measures passed in California in 2016 now are providing at least $3.5 billion in incremental annual infrastructure investment at the local level. The Sound Transit measure in Washington State is another $50 billion long-term infrastructure program for the Puget Sound area. And Sound Transit program is incremental to the State's 16-year $16 billion Connecting Washington transportation plan passed in 2015 and funded primarily by a gas tax increase.
Our procurement strategy is taking hold as we continue to emphasize pricing discipline in a market that we believe is full of pent-up demand as we continue to build backlog across the Company. Strong demand trends also are evidence of growth opportunities for our growing Water segment. Water segment backlog increased significantly in 2018 and the bidding environment remains healthy against the backdrop of steadily improving state and local water infrastructure funding. We do not see the dynamics of this robust market slowing down for Granite in the foreseeable future.
At the Federal level, programs such as America's Water Infrastructure Act and state revolving funds for clean water and drinking water are in place, but today they only provide a framework. Now, funding must expand significantly to meet the seemingly endless demand that A's crumbling infrastructure provides. It may surprise some, but our optimism is growing that our country is poised to invest significantly in domestic infrastructure. At the state and local levels, funding trends are improving and now we are increasingly optimistic that infrastructure investment is an opportunity for elusive political agreement that will produce significant incremental and long-term funding solutions.
Discussions and conjecture point to infrastructure as the most logical area of agreement in Washington in 2019. We anticipate that a deal will be struck. Our growth outlook for 2019 does not include a Federal Infrastructure Bill, which if passed, immediately would enhance long-term stability in the overall market, while adding to additional growth prospects beginning as early as late 2020. Our teams are prepared for a strong recovery. And we expect this solid demand will accelerate activity in 2019. This year's outlook includes the impact of current winter weather, which along with strong backlog, has created a springboard for strong growth when incumbent weather finally subsides. As America's Infrastructure Company, Granite is extremely well positioned to be opportunistic, even while emphasizing discipline of what we view as early to mid-cycle growth end markets. This balance will produce top and bottom line growth in 2019 and well beyond, delivering exceptional value for our key stakeholders.
And with that everyone, we'll be happy to take your questions.
Questions and Answers:
Operator
Thank you. We will now begin the question-and-answer session. (Operator Instructions) We will take our first question from Alex Rygiel, B. Riley FBR. Please go ahead.
Alex Rygiel -- B. Riley FBR -- Analyst
Thank you and good morning, everyone.
James H. Roberts -- President and Chief Executive Officer
Hey. Good morning, Alex.
Alex Rygiel -- B. Riley FBR -- Analyst
Jigisha or Jim, when do you expect the last project that's below 90% complete to be finished?
James H. Roberts -- President and Chief Executive Officer
That project will probably take two to three more years.
Alex Rygiel -- B. Riley FBR -- Analyst
Okay. And then, could you possibly quantify the fourth quarter adjustments from all of the legacy projects?
James H. Roberts -- President and Chief Executive Officer
Well, I don't have it just as just the legacy projects. I will tell you this that the large projects themselves, the bottom line performance of large project improved from Q3 to Q4. As we have stated, the impact is starting to be reduced on a quarter-to-quarter basis. And so therefore, as the Transportation segment produces results going forward, we're looking at it getting better and better over the next several years as these projects start reducing in size.
Alex Rygiel -- B. Riley FBR -- Analyst
And is there any way you could attempt to quantify the impact from weather across your business, either from days lost or revenue basis or impact to EBITDA?
James H. Roberts -- President and Chief Executive Officer
Yeah. That's an interesting one, Alex. That certainly depends on what it could have been in -- during the best situation, if we had had no weather impact in the last six weeks versus by being impacted. If substantial, we've talked about somewhere on the bottom line, it could have been even $0.15, $0.20 a share at the end of the day on the bottom line adjustment. And it could have been more or less kind of depending on the weather in general. If it's dry all the way through Christmas, we tend to just keep moving along and it could be substantially different than what it was.
Alex Rygiel -- B. Riley FBR -- Analyst
And lastly, in your third initiative, could you expand upon the opportunities and what you're looking at in the private sector?
James H. Roberts -- President and Chief Executive Officer
Well, OK, so the private sector we've built up a lot of activity in the commercial and the industrial sectors. We really never found a lot of rebound in the residential sector. So from a private market demand, we've highlighted a lot of high-tech companies that we are working directly with all over the Western US today. On the industrial side, we're working on the rail side with the major rail companies. We're working into the refining businesses. So both of those sectors are quite healthy and we have quite a nice backlog going into 2019 in both those areas.
Alex Rygiel -- B. Riley FBR -- Analyst
Very helpful. Thank you very much.
James H. Roberts -- President and Chief Executive Officer
Thanks, Alex.
Operator
We will take our next question from Michael Dudas from Vertical Research. Please go ahead.
Michael Dudas -- Vertical Research -- Analyst
Good morning, gentlemen, Jigisha.
Jigisha Desai -- Senior Vice President and Chief Financial Officer
Hey. Good morning.
James H. Roberts -- President and Chief Executive Officer
Good morning, Mike.
Michael Dudas -- Vertical Research -- Analyst
Jim, let me share some thoughts on backlog. Year end 2018 in your backlog segments, how does the current in backlog margins look relative to what you had ending 2017 and 2016? And maybe, how you look at Layne and LiquiForce relative to your due diligence back in 2016-'17 to where they are with the potentials going forward? And on that, how much -- are we going to see -- it sounds like shorter duration more booking burn type business, will we see that as we move into the mean part of the revenues and the business activities, I mean, for this middle part of the year? And is that across the board in the segments or just primarily in the transport side?
James H. Roberts -- President and Chief Executive Officer
Okay, Mike. I'm going to slow down there on three different areas. And if I miss something, please just me remind me. Okay?
Michael Dudas -- Vertical Research -- Analyst
Thank you.
James H. Roberts -- President and Chief Executive Officer
Relative to backlog, the backlog, there is no doubt Mike that the backlog is healthier than it was in '17 and '16. That's getting better and better. Certainly by burning off some of the large project issues that we've had, we're having a smaller portion of the backlog in those projects automatically makes it better. But adding to that, as we've increased our margin expectation certainly on the work that we procured over the last 12 months, that margin has increased. And adding the Water segment in as you can tell from the results stated in the release, the Water segment continues to operate at a higher gross margin than any other segment. So our backlog that we have today is with a much healthier margin than in previous recent years. So I hope that answers that question.
Layne and LiquiForce are absolutely progressing as planned, very well. I'm going to let Jigisha talk a little bit about the integration, but I will tell you out in the field, Mike, the -- from an earnings perspective, I can't tell you how excited I am. I look at the lining business and you'll see we had a press release yesterday, we're getting not only main line work, we're getting lateral work, we're bidding work all over the country. On the mineral services side, the mining -- precious metal pricing has stayed stable and we're seeing quite a nice backlog of work in the mining area. And then in the drilling business, that goes up and down and the industrial municipality environments are strong on the drilling side. So I think you're going to see Layne and we call it now water and mineral services in Granite that's going to be a very healthy environment on margins.
And then maybe Jigisha you can add a little bit about the...
Jigisha Desai -- Senior Vice President and Chief Financial Officer
Yeah. I think the integration of both companies is going extremely well. Lot of the -- some of the short-term issues related to personnel and -- all had been addressed in 2018. And then we're really focused now on integrating the kind of the back-office system integrations and we expect the majority of that will be done by the second quarter of 2019. We are reinvesting in the business. It was somewhat capital starved and we're definitely reinvesting in the business. And as Jim pointed out, the gross profit -- the profile with they do a lot of small jobs, so it's a quick burn type of work. So from a portfolio diversification, it's really been a positive contribution to...
James H. Roberts -- President and Chief Executive Officer
Yeah. And the margins are actually helping the overall margins of the Company.
Jigisha Desai -- Senior Vice President and Chief Financial Officer
Exactly. Yeah.
James H. Roberts -- President and Chief Executive Officer
There are many things there that we're working on Mike that we noted a little bit in the script was that we are starting to work hard on their SG&A.
Jigisha Desai -- Senior Vice President and Chief Financial Officer
Yeah.
James H. Roberts -- President and Chief Executive Officer
Which is probably the one area that will move past the middle of the year as we continue to migrate the way that we manage our businesses from an SG&A perspective into the Water segment and the Specialty segment of WMS. But overall, I'm just really happy. We beat expectations going into the year and we're excited about where it's going.
Now, the last thing you mentioned was the project burn. So smaller work, quicker burn, that is one of the things I've mentioned over the last three or four quarters Mike that has basically lowered the overall backlog. Although, I will say that obviously we had a nice fourth quarter and where we have a very healthy backlog despite the fact that the smaller work doesn't necessarily show up in backlog because it gets burnt so fast. So what you'll see coming out of the gate here in the spring and hopefully soon will be that we will be hitting it hard on a lot of our local water smaller burn work and the intent there would be to ramp up faster than we have historically on the revenue side because of the fact that this stuff is shorter duration and we literally calculate revenue per day, margin per day on these jobs to try to optimize a quicker burn and higher margins on a per day basis. So we'd still come out of the gate pretty strong.
Michael Dudas -- Vertical Research -- Analyst
That's very helpful. My follow-up Jim is two-fold. One, with all the expected SB 1 revenues funding projects local state and counties willing to spend the money, how's counties and other local area officials able to like kind of get through these projects, get the bids out and lets out, is there going to be any issues with that over the next coming years? Is -- are the states prepared to get the work that's required? And then on top of that, any implications or thoughts relative to high-speed rail cancellation that was just announced and any direct impact or indirect impact because of that toward the California civil construction market? Thank you.
James H. Roberts -- President and Chief Executive Officer
Sure. Sure. Let me go high-speed rail first and let me get into it. Then let me talk about the broader procurement strategy, I would say, of the states -- the state and the local entities. High-speed rail is something that, as you may know, we have not been a participant directly in high-speed rail. We bid the very first project out about four, five years ago, when we were not close on, went far below our number. And so we've stayed away from high-speed rail. Now, with that said, most of the major general contractors that are building high-speed rail are not people that we compete with on a day-to-day base in the Transportation segment in the State of California, so I don't see whether or not high-speed rail gets canceled or slowed down, delayed, first of all I anticipate the contracts that are under way will be completed. And therefore, those contractors, and most of them are from -- I think there's one that's an in-state contractor that doesn't really follow in the Transportation segment and all the rest of them are somewhat international or out-of-state contractors. I think what you're going to see is they're going to pack their bags and go somewhere else, where they can go do some large design build work, if the high-speed rail slows down. So I don't see it having an impact on Granite at all. I don't see the competitors in the Transportation segment changing their strategy. They really have not been a strong part of high-speed rail to-date. So we'll see what happens politically. Whether or not California refunds money or they build the next phase or not, I think that's all you have left to conjecture at this point.
Now, back to the overall state lettings, Mike, it's a really good point. There was a lot of concern originally when SB 1 hit The Street that the State of California could not design the work fast enough to put on The Street. And as we know, most of the design work done in the State of California is done by the professional engineers group of the State of California. They do their own in-house designs. So with that said, what they did was they targeted maintenance work first, so which is really good for Granite. So they took a big chunk of the monies that were -- that they would be employing in 2018, 2019 and maybe even 2020 to start upgrading the maintenance, which is the large asphalt overlays, the concrete work, the rehabilitation jobs, while their design folks could get design on large capital projects under way and completed. So with that in mind at the state level, I think you're going to see more maintenance work out bidding in 2019, which we already are seeing, by the way, and slight widenings and overlays and things of that nature, while they do the big design work.
At the local level, interestingly enough, they've had a pent-up demand for a lot of these improvement projects for many years. And what they do is they go to the external market to do their design work. So they will be able to move a little faster to get their capital improvement projects out on The Street. We've never seen a problem at the local level. When they pass a local measure of them getting the money out on The Street within the next six to nine months. They've always figured out a way to do that and they're already doing that as well. So I don't see the local monies being an issue at all. And then I see the -- there will be maybe a little delay in capital projects, which will be offset by maintenance projects at the state level.
Michael Dudas -- Vertical Research -- Analyst
Jim, these are very helpful. Thank you very much.
James H. Roberts -- President and Chief Executive Officer
Okay.
Jigisha Desai -- Senior Vice President and Chief Financial Officer
You're welcome.
Operator
We will take our next question from Steven Ramsey from Thompson Research Group. Please go ahead.
Brian Biros -- Thompson Research Group -- Analyst
Hey. Good morning. This is actually Brian Biros on for Steven. Thanks for taking my questions.
James H. Roberts -- President and Chief Executive Officer
Hey, Brian.
Brian Biros -- Thompson Research Group -- Analyst
I wanted to ask about SB 1 funding in fiscal year '19. I believe it's kind of the first full year for the funding. I think you provided some color on how soon you think those dollars will actually flow into lettings and any color on the type of projects that might come from those would be helpful.
James H. Roberts -- President and Chief Executive Officer
Okay. First of all that this fiscal year, it's ramped up to well over $4 billion, where last year it was $2.5 billion. So first of all, there's a significant ramp up in the SB 1 monies in 2018-2019 fiscal year compared to the 2017-2018 year. And interestingly enough, Brian, as I mentioned to Mike a few minutes ago, the work is hitting The Street. It hit The Street pretty nicely in January and now in February. We saw somewhat of a delay up until the Prop 6 vote on November 6 last year and then after that a little slow down during the holidays with everybody knowing that the work was going to hit The Street. And what is happening is, as I explained, is maintenance projects. And these are projects that use Granite materials. So it's the asphalts, the concretes, it's the widenings and it's the work that the State of California can show that they are spending the monies, the gas tax monies in a proficient manner and they're getting the work on The Street now, January and February were both very nice bidding months for the State of California. I don't see it slowing down at all as we move into the spring months and into the summer. I will say this, I think as we end 2019, you're going to see more of the capital improvement projects starting to hit The Street, the big intersections, the interchanges, some of the larger work.
Now, the other thing that's happening is that they are obligating monies into some of their CMGC projects, which is certainly a nice alternative as I mentioned and Jigisha mentioned earlier. And we have been quite successful on those as we've stated. And so they are allocating money to the CMGC jobs. And the way the CMGC jobs work is that we were in the process today of negotiating some of that work with the State of California that we've been selected to build and it will come out in task orders. So if it's a $100 million job, they might come out in $30 million task orders. It will probably be built in the same kind of burn as you might expect a $100 million that it will be awarded in the $30 million to $40 million task orders. That's happening already as well. So those CMGC jobs will start burning here by mid-year, let's say, and then the maintenance work is bidding today. And you'll see the capital improvement projects probably starting in a strong sense and I'm going to just roll off the end of the year knowing that the engineering and design work has to be completed.
Brian Biros -- Thompson Research Group -- Analyst
Thank you. And a quick follow up. I guess, regionally in the past I believe you talked about strengths coming out of the Southeast. If you can share any specific states you're seeing increased work there and specifically the type of projects in those states that are kind of driving the strength?
James H. Roberts -- President and Chief Executive Officer
Yeah. I mean, the Southeast as we mentioned has always been a strong corridor. We've seen Florida, North Carolina, Georgia really have healthy transportation programs as they go forward. We're in that market in a little different program than we are in the West. Obviously, we are in bidding larger projects in the $100 million plus projects in those states, but all three of those states and then as we've said for quite some time now, we believe the Southeast including South Carolina and some of the other adjacent states will produce long-term benefits and higher transportation programs. But today, Florida, North Carolina and Georgia are three of the strongest states in the Southeast.
Brian Biros -- Thompson Research Group -- Analyst
Got you. Thank you.
James H. Roberts -- President and Chief Executive Officer
Thank you.
Operator
We will take our next question from Bill Newby from DA Davidson. Please go ahead.
Bill Newby -- DA Davidson -- Analyst
Good morning, guys, and thanks for taking my questions.
James H. Roberts -- President and Chief Executive Officer
Sure, Bill.
Jigisha Desai -- Senior Vice President and Chief Financial Officer
Sure.
Ronald Botoff -- Vice President, Investor Relations and Government Affairs
Good morning, Bill.
Bill Newby -- DA Davidson -- Analyst
Just a couple of loose ends on the problem projects. I guess, on the two that are over 90% complete, when do you -- when are you expecting to completely hand those off? And I guess, what exactly is left to do and how are you thinking about the risk associated with what you have left?
James H. Roberts -- President and Chief Executive Officer
Yeah. Good question, Bill. So when they get to this point, really what you're doing is you're kind of closing out the jobs and selling them to the owners. We have a little bit of work to do on both jobs, not much. Most of that work should be completed in the first six months of '19. And then we're in a process that we call it a punch list process, where we literally go through items that the owner asked us to complete before we hand them the keys, so to speak. Now, in most of these larger projects, we've already handed them the keys in a lot of respects, where they were -- they are now operating and required to maintain sections of the roads and the environments that are already open. So work will probably go on, let's say, from the middle of the year, but the key after that will be to really focus on dispute settlement. In both of these two jobs, we have some significant disputes with the owners. And even as we hand the keys and physically move away from the job, it will take some time to settle the outstanding disputes and that will be the lingering event that will hang on with those two projects for a while. We are very comfortable that we will end up in an environment that is in line with our anticipated recovery, and -- but the physical work is short-lived, I'd say six months.
Bill Newby -- DA Davidson -- Analyst
Okay. And I guess, that dispute settlement process, I guess, expect that to, I guess, get started in the second half of this year and then timeline, who knows?
James H. Roberts -- President and Chief Executive Officer
Well, it's interesting, Bill. It's already started. So in a lot of these larger, we call -- I call these mega jobs, there are somewhat ongoing disputes. But how you build the job, how you end up on the job, a lot of times we fold it all into a major discussion at the end to come up with what we call the global settlement or we will pick and choose certain issues and try to settle them outside of the global issue. So in both of these cases, the disputes have already been really worked on from both sides and we're really just dialing in to what will not be settled by the time we physically leave the job and then that's the amount that may take -- could take years, I hope it doesn't. And so we'll see. But in a lot of cases, a lot of the disputes are being resolved as move along.
Bill Newby -- DA Davidson -- Analyst
Okay. That's helpful. And then I guess on the last one, that's going to drag on for a bit here. Is there any way you could give us, I guess, a little bit of guidance on what's expected from that project in 2019? If you look at the guide for '19, are you -- is that project going to be less than 5% of revs, less than 10%, is there any guidance you can give us there?
James H. Roberts -- President and Chief Executive Officer
Well, certainly, it's less than 10% and less than 5% of our revenue. I mean, it's a -- it's not a big overall part of the Company, but it's all -- it's baked into the guidance. I mean, our anticipated revenue and earnings from that one job is incorporated into the guidance that Jigisha provided to you in both the script and we provided in the press release. So whether we progress a little faster or a little slower, do a little better or a little worse, it's inside of that -- of the revenue and the EBITDA guidance already provided.
Bill Newby -- DA Davidson -- Analyst
Okay. Very helpful. Thanks guys. Appreciate it.
James H. Roberts -- President and Chief Executive Officer
Thank you very much.
Jigisha Desai -- Senior Vice President and Chief Financial Officer
Welcome.
Operator
We will take our next question from Jerry Revich from Goldman Sachs. Please go ahead.
Ben Burud -- Goldman Sachs -- Analyst
Hi. Good morning, everyone. This is Ben Burud on for Jerry.
James H. Roberts -- President and Chief Executive Officer
Hello. Good morning.
Ronald Botoff -- Vice President, Investor Relations and Government Affairs
Good morning, Ben.
Ben Burud -- Goldman Sachs -- Analyst
Good morning. So your sales guidance implies an acceleration to mid single-digit organic growth from a mid single-digit year-over-year decline in the back half of last year. Can you talk about what the drivers are of the acceleration in 2019 and what you expect the growth cadence to look like?
James H. Roberts -- President and Chief Executive Officer
Okay. So I think you're in the ballpark relative to where we expect organic and acquisition growth to come from. And I think the key ingredient to, and I'm going to focus on organic growth for a minute, really comes from the type of work that we're bidding. Remember, where we're looking at quicker burn work and so we anticipate the type of work that we're bidding will accelerate as soon as Mother Nature allows as we said and it will burn faster generating revenue in a shorter period of time. So that's why we see the organic growth ramping up nicely to the mid single-digits and we'll call it mid-single for the moment.
Now, on the acquisition side, that again that's a really nice story there because that will get a full year of that business and we've already done some integration work, significant integration work in the first half of -- or the second half of 2018 and we anticipate that to really ramp up nicely as we gain traction with Granite being able to help, as Jigisha said, add to the CapEx, which means we can build more crews and we can provide more equipment to expand that business. That will be a little slower. We are in the hiring mode right now both in the organic and in the acquisition side of the business. In the operations portions of our business, we are hiring people across the country to be able to facilitate the growth that we expect. So both environments, the acquisition and organic, are in a nice healthy growth environment today.
Ben Burud -- Goldman Sachs -- Analyst
Got it. And to get to the 8.5%, 9.5% adjusted EBITDA margin guidance in '19 from 7%-ish in '18, it looks like that's essentially the large construction losses rolling off. Is it as simple as that or do you have other moving pieces we should keep in mind?
James H. Roberts -- President and Chief Executive Officer
Well, certainly that's part of it, but there's a bunch of moving parts here. And let me elaborate a little bit. So first of all, certainly we would expect growth in all of the markets, transportation in general. You roll off some of the large project issues, but you also expand your market on your smaller burn work because of the health of the economic environment that we work in in the West let's say for construction. So we see that part ramping up nicely. On the Water segment, we do see that contributing to EBITDA margin by having a full year of higher margin work on our books. And in the Materials segment, we're still ramping up the margins on the Materials segment. We ended up at a spot this year that is not where we want to be. It is gaining traction. We lost a quarter or part of a quarter due to weather, but the Materials business is going to get stronger too. As we do burn work and burn work more efficiently, we won't be incorporating our materials into the type of work that we're bidding and that will not only help our construction segment and our overall revenue will help our Materials segment as well. So I don't think it's just large projects slowing down with those couple of projects, I think it's the health of the rest of the business that's really driving the growth for -- and the bottom line growth for 2019.
Ben Burud -- Goldman Sachs -- Analyst
Got it. Thank you.
James H. Roberts -- President and Chief Executive Officer
Okay. Thank you.
Operator
Thank you. (Operator Instructions) We will take our next question from Joe Giordano from Cowen. Please go ahead.
Joe Giordano -- Cowen -- Analyst
Hi, everyone. Good morning.
Jigisha Desai -- Senior Vice President and Chief Financial Officer
Good morning, Joe.
James H. Roberts -- President and Chief Executive Officer
Good morning, Joe.
Joe Giordano -- Cowen -- Analyst
So can you maybe talk a little bit about Fast Act and what we should expect about -- what you guys are thinking about that coming next year? I know not a huge dollar amount for you guys relative to what you're seeing in SB 1, but I know from a visibility standpoint and we saw what kind of consternation it caused when there was confusion about what it might look like last time around. So I guess, that expires next year and any color there would be helpful.
James H. Roberts -- President and Chief Executive Officer
Sure, Joe. In fact, that's kind of an interesting thought. I was thinking that might be the first question come out-of-the-box today and we start thinking about the Federal investment program. So there's a lot of things going on here. Reminder that the FAST Act, $305 billion five-year bill, it runs through October of 2020. And the one thing that we always said with the FAST Act that we weren't happy with was that it really didn't shore up the Highway Trust Fund. And we've seen the inadequacy of the solvency of the Highway Trust Fund continue. I -- personally, I'm not worried about the expiration date of the FAST Act because I do believe that if -- worse case scenario, there will be an extension. And -- but I do believe that today, as I mentioned in the discussion earlier, there's a real opportunity to get a longer-term substantially larger infrastructure bill that would incorporate the surface transportation component and have the ability to shore up the Highway Trust Fund. And that's our job. In the next six months through the end of August, our job is to work with Congress and the administration to get a longer-term substantially higher larger program funded by the Feds, not just private sector, in place by the end of August. I think we can do it. And I said that in the discussion earlier. But with that said, we haven't put any of that into our forward-looking guidance at all. And the one thing I have -- I reiterated and I made it clear back in 2015 when the FAST Act got passed Joe was that I consider the Federal Government programs to be the stability. They aren't the drivers of the high earnings and the high revenue growth. What they are typically is the stability of creating a longer-term stable foundation for infrastructure funding. That's what we want out of the Feds. We don't need them to grow the overall size of the pie, so to speak, because we've already got the healthy states, we've got the local, we got the big propositions. Those are all that are going to be the growth environments. All we want out of the Feds is long-term stability. And yes, we want some growth, but it doesn't have to be large growth as well. And as a note, this is an infrastructure bill that we're looking at, not just the transportation bill. So we want water, power and transportation, which is what was discussed that was going to be included in the Infrastructure Bill. So certainly, it falls right in line with our plan. But I'm going to go back and the last thing I will say is that FAST Act does sunset in October. I am not concerned about that at all. They will certainly extend it, if they don't get something done by then. And then the new administration and the new Congress would obviously pass something if it didn't get passed, they will pass something very quickly in 2020-2021. But I believe there's a good shot we will get something done by the end of August.
Joe Giordano -- Cowen -- Analyst
That's helpful. Thanks. I wanted to just touch on margins too. So for 2018, you -- for the first half of the year, you're talking 7%, 8%, you pumped it a little bit in 3Q. Obviously, weather was a tremendous impact at the -- to end your year, but also you guys weren't guiding to zero weather, I assume. So maybe if you can talk about non-weather puts and takes that -- in your EBITDA performance relative to when you guys raise, you said you came in like just above the original -- the low end of the original target?
James H. Roberts -- President and Chief Executive Officer
Yeah. So what happened was you're exactly right, Joe. We had a nice third quarter, we were cranking along and anticipated that that would continue. What happened was that right around Thanksgiving, we started getting rain and -- in the West. And rain is one of those deals where if it dries out quickly and it doesn't rain again, you're fine. What happened to us was that it would rain one day, then it would dry up for three days and it would rain five days later. So really we got put to a skidding halt around the 1st of December. Now, it doesn't change the margin performance on a project, so to speak. But it's the amortizing of some of the fixed costs that doesn't occur when the business slows down. So it's the people who are managing the field operations that now don't get amortized over the entire revenue stream. It's the slowing down of the materials business because the materials really can't play a part of our construction because we've shut that part down. It's our equipment coming to a halt. So we were certainly on a good roll, which means that we will be -- continue to be on a good roll as soon as Mother Nature allows us to be as we come out of the first quarter and really it's a combination of all those events. It doesn't really change the long-term margin performance of the work. It just didn't have a place to amortize some fixed costs in the month of December.
Joe Giordano -- Cowen -- Analyst
Related that that would have been impacting that number?
James H. Roberts -- President and Chief Executive Officer
I'm sorry, I didn't quite hear the question?
Joe Giordano -- Cowen -- Analyst
There was nothing that you'd call out specifically, that was like non-weather related that kind of changed your -- the progression?
James H. Roberts -- President and Chief Executive Officer
No, the only thing that I would mention separately were a couple of the large legacy projects that had negative adjustments, but the rest of the work, no. No, it was just the fact we didn't get to it.
Joe Giordano -- Cowen -- Analyst
Fair enough. Thanks guys.
James H. Roberts -- President and Chief Executive Officer
Okay. Thanks, Joe.
Operator
We will take our next question from Ryan Hamilton from Morgan Dempsey Capital Management. Please go ahead.
Brian Rafn -- Morgan Dempsey Capital Management -- Analyst
Good morning, everybody. This is Brian Rafn. How are you doing?
James H. Roberts -- President and Chief Executive Officer
Hey, Brian.
Ronald Botoff -- Vice President, Investor Relations and Government Affairs
Hey, Brian.
James H. Roberts -- President and Chief Executive Officer
Good to hear from you.
Brian Rafn -- Morgan Dempsey Capital Management -- Analyst
Yeah. Let me ask on the transit side guys, what -- if you look at your sweet-spot for job size, you've kind of walked away a little from heavy civil and the design build. What type of revenue size and maybe project duration would be in your sweet-spot for the transit side?
James H. Roberts -- President and Chief Executive Officer
You bet, Brian. Well, first of all, there would be few and far between the jobs greater than a $1 billion. Although, I will say this, I don't want to say that we won't build a job over $1 billion, but it has to be something right in our wheelhouse that we have an advantageous position on. So look at jobs less than a $1 billion in general and have quicker burn. And I say, we want jobs that probably last for more than three years, maybe 3.5 years because we really -- as you get into these mega jobs trying to predict the future five years out, it doesn't work. It just doesn't work. You don't know what the markets are going to be like for labor, materials, other resources, the macro environment. So I'll say 3.5 or less, a $1 billion or less.
Design build is OK. Design build is OK, but literally speaking, only under the premise that we take the lead role in the job. So we want to be in control of our own destiny, Brian. So either we do the jobs by ourself or we end up being the lead sponsor on the projects.
Brian Rafn -- Morgan Dempsey Capital Management -- Analyst
Yeah.
James H. Roberts -- President and Chief Executive Officer
We made a strong commitment to ourselves that we are not going to take a non-sponsored joint venture position going forward, unless it's a special job of some nature. But I don't see any on the horizon in our bidding environment, maybe one out of 20 or 30 that might be a non-sponsored and maybe one out of 20 or 30 that would be over a $1 billion. But they got to burn fast, so we get through them and design build is OK, probably less toward the 3P design build would be all right and ideally negotiated type work will be even better. CMGC, CM at Risk, progressive design-build where we literally go in and procure the work based on our qualifications with the owner, not by being the low-cost provider upfront. We believe that there is a way to go approach these more sophisticated jobs and owners, where we can both come out in a better position by negotiating the work upfront, being very open, transparent as to the type of what's in the bid, what's not in the bid. And what we really want to do is build work and not have disputes with the owners, no, we don't want any disputes going forward. That is a goal inside Granite, so that we build a $0.5 billion or $700 million job and we come out of where the owner were shaking hands and there's no disputes and we're going on to the next job. And we believe that different types of procurement methods will allow that to happen.
Brian Rafn -- Morgan Dempsey Capital Management -- Analyst
Got you. What are you seeing on bid day? How competitive between you guys and other contractors? And then, what has kind of evolved relative to your win rates per your bidding quotes today versus where they might have been four, five years ago?
James H. Roberts -- President and Chief Executive Officer
Okay. That's really the genesis of our strategy there, Brian. We have no doubt, and as we've told our investor base, we've raised our prices. And we started doing that 12, 18 months ago. And with that, we saw 2018 had a lower hit rate than we had had previously. But as we progress through the year, we started seeing our hit rate starting to get better and better and better. And that happens from market-to-market, which all the markets are different and it's really interesting to watch when these markets get healthy. When they get healthy, there is somewhat of a saturation point, where the competition realizes that they have the ability to go change their margin structure and potentially get the work as well.
So we started that a year ago. You can see our backlog is healthy, our margins are healthier than they were before. And in the local regional markets, those regional players don't have the large capacity. So they see quickly -- fairly quickly that they are saturated and they change their bidding environment, which 2019 that is happening and will happen. In the larger project environment, there is an insatiable appetite among those competitors, both national, international players. But I believe the market is changing there as well Brian, not because they're saturated or filled up, but because they haven't done well historically. And they are starting to look at the jobs differently. And just as Granite started 12, 18 months ago, I see our competitors following with being more realistic on productions, being understanding what the contractual requirements are, understanding the cash flow, understanding the labor components.
And the opportunity to have higher margins on those projects, I believe the competition is starting to follow our lead. And as it does, I think our win rates will move up. So somebody had to come out of the barrel first, so to speak. And I'm happy to say that it's paying off in the backlog that we have today and it's going to -- our win rates in 2019 just in the first couple months, it's healthy, very healthy. So I do think that the market is changing and the competition would likely get back to the kind of earnings that they were making 10 years ago instead of over the last -- they've got used to over the last five years.
Brian Rafn -- Morgan Dempsey Capital Management -- Analyst
Got you. And then
Proofpoint Inc (NASDAQ:PFPT) EVP Bhagwat Swaroop sold 1,000 shares of Proofpoint stock in a transaction that occurred on Thursday, February 14th. The stock was sold at an average price of $118.09, for a total transaction of $118,090.00. Following the completion of the transaction, the executive vice president now directly owns 3,451 shares in the company, valued at $407,528.59. The transaction was disclosed in a document filed with the Securities & Exchange Commission, which is available through this link. 