Granite Construction Inc (GVA) 2014 Q3 法說會逐字稿

Good morning. My name is Amanda and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Granite Construction investor relations third-quarter 2014 earnings conference call. (Operator Instructions).

It is now my pleasure to turn the floor over to your host, Granite Construction Director of Investor Relations, Ron Botoff. Sir, the floor is yours.

Thank you. Welcome to the Granite Construction Incorporated third-quarter 2014 earnings conference call. I am here today with our President and CEO, Jim Roberts, and our Senior Vice President and CFO, Laurel Krzeminski.

We begin today with an overview of the Company's Safe Harbor language. Some of the discussion today may include forward-looking statements. Actual results could differ materially from the statements made today, so please refer to Granite's most recent 10-Q and 10-K 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.

A reconciliation of non-GAAP results is included as part of our third-quarter earnings press release. Certain non-GAAP measures may be discussed during the call and from time to time by the Company's executives. For more information, please visit our investor relations website at investor.graniteconstruction.com. Thank you.

Now, I would like to turn the call over to Granite Construction Incorporated Chief Executive Officer Jim Roberts.

Thank you, Ron, and good morning, everyone.

Before I hand it over to Laurel for her detailed results review, I want to start with a heartfelt thank you to all of our people, who are working harder and safer than ever before in the history of our Company to improve execution, to drive financial results, and to build America's infrastructure.

When we last spoke with you at the beginning of August, we were encouraged by a solid overall start to the year. We were encouraged by improved private-market activity. We were encouraged by the strong bidding and backlog trends in our business, especially in large projects. But we were frustrated by the continued inaction by Congress to commit to long-term funding solutions for pressing near- and long-term infrastructure needs.

Fast forward to today. The solid first-half start materialized into a third quarter of modest overall margin and profit improvement. Private-market activity remains a key driver of improved performance in our construction materials business. Backlog trends continue to strengthen, reflected by current record backlog of $3 billion. And the large project market remains robust, providing Granite with opportunities for profitable growth.

In the third quarter, the construction materials segment again posted improved results. We are focused on driving even better returns in this business and I am confident that our emphasis on efficiency and cost management, coupled with pricing improvements, will continue to provide overall improved results.

Our construction business performance was largely in line with last year's third quarter. We are benefiting this year from customer and end-market diversification, as private-market activity continues to bolster broader improvement. But the weaker-than-anticipated pace of public spending has been a headwind in the second half of 2014, as ample sector capacity continues to keep the competitive bidding environment tight across geographies, as it has been for more than a year.

Overall, positive backlog trends in the business, paired with on balance stable markets, should help us grow this part of our business. And we expect positive profit impacts in 2015 from continuous improvement efforts on both a cost and an efficiency basis.

In large projects, progress continues on the Tappan Zee Bridge in New York, the IH-35E project in Texas, on I-40/440 in North Carolina, both the San Clemente dam and the Folsom dam in California, as well as a large power project in the Midwest. We also were pleased to book the I-4 Ultimate project in Florida into backlog in the third quarter, as expected. These projects are progressing solidly, albeit collectively at a modestly slower pace than we anticipated earlier in the year.

As has been the case since last year, a number of projects again contributed revenue in the third quarter, but have not yet recognized profit. We continue to expect profit recognition, along with associated revenue, on a substantial amount of this work in the fourth quarter.

Market conditions continue to vary widely by geography and end market. While patchwork federal funding covers spending obligations into May 2015, this only stabilized current projects and select highway and public transportation programs in the procurement phase. Given a lack of long-term visibility, state and local government letting programs may prioritize maintenance projects over the letting of major capital projects. State and local agencies have delayed projects, pushing bidding opportunities out from one to three quarters.

Despite project bidding delays in some western markets, the good news is that these projects are moving forward, just at a slower pace than we anticipated earlier in the year. Notably, this has not had an impact on the market for large projects, especially those that involve alternative procurement methods. A good example is Granite's public-private partnership team that was notified recently of our successful bid on the Pennsylvania Rapid Bridge replacement project.

Looking ahead, we expect to bid on more than $11 billion of large projects through the end of 2015, with about one-half of the value representing potential Granite backlog. Notably, more than $7 billion of this total is currently scheduled to bid over the next six months.

I know I sound like a broken record, but let me repeat myself. Long-term planning and long-term funding solutions are a necessity to ensure America's infrastructure does not become a headwind to broader economic development.

As we approach the end of the year, there will be four drivers of our fourth-quarter results. First, project execution, emphasizing safety, quality, and production efficiencies. Second, large project profit recognition, coupled with overall job progression.

Third is weather. Typically, I try to avoid the weather issue, but this year we have a very large backlog of work across the country. We will be able to build as long as Mother Nature allows us to work. The longer we work this year, the better our operating results will be. The month of October generally treated us very well in that regard.

And fourth, we have near-term opportunities to settle substantial outstanding claims in change orders. The total estimated range of claims and change orders attributable to our current portfolio has created significant revenue and profit timing variability in both the large project and the construction segments.

Typically in most contracts, while there is a formal process or mechanism for change orders and claims, we are required to continue to perform the work as directed by the owner. Granite recognizes zero offsetting revenue until formal resolution occurs, and this nearly always is not aligned to the project progress. So we assume all costs, we collect no revenue, and we receive no profits. Upon formal resolution, revenues and associated profits are booked at once.

We anticipate resolution of a number of these outstanding issues by year's end. While this is not a new phenomenon, the timing and volume of near-term outstanding issues has impacted our results significantly to date in 2014. Our focus has not strayed from improved execution and, in turn, on improved financial performance across the enterprise. Our continuous-improvement investments remain on track and we continue to balance and leverage opportunities across segments, geographies, and end markets to execute on our long-term strategic plan in 2014 and well beyond.

With that, I will turn the call over to Laurel.

Thank you, Jim, and good morning, everyone.

Revenues in the third quarter of 2014 totaled $720 million, a 2.7% decrease from last year. Diluted earnings per share in the quarter were $0.38 compared to a revised $0.33 last year. Gross profit margin in the third quarter was 9.3%, up more than 170 basis points from 2013. Construction materials and large projects segment profit were drivers of the improvement.

Contract backlog totaled a record of $3 billion at the end of September, up about 8% year over year. Construction segment backlog of $817 million increased nearly 16% from last year. Our large project backlog increased 5.1% year over year to $2.2 billion. This total does not include the recently announced successful bid on the Pennsylvania Rapid Bridge replacement project, which is expected to add about $360 million to backlog in the fourth quarter. As expected, backlog continues to trend positively, which gives us the opportunity to get off to an excellent start for 2015.

Looking at the segment detail, construction segment revenues in the third quarter decreased 5% to $447 million, with gross margin slightly better than last year at 10.9%. As we experienced last quarter, construction revenue again was impacted by weaker-than-expected public-market conditions in the northwest and timing of some of our power work. Profit performance was driven by improved performance in certain western markets and by stronger power and underground profit margin contributions.

Large project construction segment third-quarter revenue decreased 3.5% to $179 million, driven by job progression. Gross profit margin improved more than 430 basis points to 3.2% from a loss in 2013. Project profit recognition and dispute resolution continued to be major drivers of overall 2014 margin performance. In fact, year to date in 2014, segment revenue on which we have not yet recognized profit totaled $111 million, up $60 million from last year.

Construction materials segment revenue increased 12.1% year over year to $93 million in the third quarter. Segment gross profit margin increased more than 430 basis points to 13.1% from 8.8% last year.

We are focused on maintaining this positive momentum as volume and profit growth in 2014 has been driven by improved -- by market conditions, project-specific sales, and improved pricing and operating efficiency.

SG&A increased 4.1% in the third quarter to $47 million, driven again by increased pre-bid selling costs and by our ongoing investments in continuous improvement. And the balance sheet remained strong, with more than $269 million in cash and marketable securities at quarter-end.

As noted in our earnings press release, long-term funding solutions are critical to meet the increasing demand for infrastructure projects across the US. We recently experienced some delays in project awards and lettings. The delays, which were unanticipated in 2014, and a potential benefit to our business in 2015 highlight how swiftly current federal funding uncertainty impacts the timing of public-sector work.

In light of this, we have updated our guidance for 2014. We continue to expect significantly improved gross profit in 2014 and consolidated EBITDA margin of 5% to 7%, and we now expect consolidated 2014 revenues to finish at or near the bottom of the previously announced $2.4 billion to $2.8 billion range.

Now before we take your questions, let me turn the call back to Jim.

Thank you, Laurel. We are encouraged by improved results in many areas of the business, especially in light of mixed market conditions, driven by ongoing static public infrastructure funding trends. Growth and efficiency opportunities continue to present themselves as we began to drive some early benefits and focus our direction for current and coming waves of continuous improvement activities throughout the Company.

And with that, we will now take your questions.

(Operator Instructions). John Rogers, D.A. Davidson.

First thing, Laurel, just a little clarification. You said $111 million of revenue was unrecognized profit. Was that the quarter or was that year to date?

That is year to date.

Okay. And then, my next question or follow-up on that is with the margin range that you have given us, you have got a 2% delta in there -- on $2.4 billion is $48 million in swing in revenue -- or in profit in the fourth quarter. Is that the right way to think about how much is potentially out there for some of these project adjustments or catch-ups, if you will?

Well, let me help out a little bit here.

I mean, (multiple speakers) the 25% and the claims. Thanks, Jim.

Because -- so yes. There is a -- there's two things -- well, there's three or four things that will really drive that relative range of 5% to 7%.

And as I mentioned in my discussion points there, number one is how much we progress on these projects as we go forward through the rest of the year. And these are large projects with progression that will make a big difference in both revenue and earnings.

Number two is the fact that we have some that are going to reach profit recognition in the fourth quarter. Several jobs will reach profit recognition, which will take them -- provide profits, along with associated additional revenue.

And number three, and I will pull number four up to number three, is this claims and outstanding conflicts resolution, which are substantial right now. And that is not really quantified in any of the discussion points that Laurel and I brought forward there, but except to say that we have more outstanding today than we have had in a long time and we expect a lot of these conflicts to be resolved in the fourth quarter.

And what happens is -- and you know our business well, John, is that we have to book all the costs associated with these outstanding issues in advance. And then, once we get resolution, we book the revenue, which the majority of the revenue typically goes into gross profit as well. So that is a big turning event for the fourth quarter and early 2015, as well.

And then, lastly, is weather. We have got really healthy backlog right now. We are running on all cylinders across the country. And if we can get good weather, we can really have an outstanding fourth quarter, and the first part of the quarter was good. We had good weather, so we are really looking forward to some nice weather over the next few months, which will drive really nice results for the business.

Yes, and we expect three projects to reach profit recognition threshold in the fourth quarter as well.

And what are those projects? Can you say?

I-40/440, IH-35E, and US 36 Phase 2.

Correct. Yes.

Jerry Revich, Goldman Sachs.

Can you please just parse out some of the pieces of the sales performance in the quarter? Within large construction, the typical seasonality is for a 20% increase, and this quarter, sales were down 27% sequentially. I'm wondering if you could just quantify how much of that was delay in work due to delay on the highway funding side versus how much of that is variance on the change orders that weren't approved, weather. Any sense around the sizes of those three pieces within the segment would be helpful.

Okay, Jerry. Yes, thanks.

So the three segments -- and I want to focus a little on materials when I get a chance here as well, which would be nice. Both construction and large projects, as you noted, were down slightly from the previous year.

A combination of events. Literally on the construction side, a little slow start, actually. We did not do as much work over the third quarter as we typically would have liked, and then we really started hitting -- on a lot of these, project awards got delayed and we really started hitting the ground running in September and we anticipate running hard in the construction business through the remainder of the year. As we have really nice backlog and we are full of business, we just have to get a little Mother Nature to help here. So that one, construction, was mostly just delays in the work.

On the large projects side, again, really lumpy as to how we progress with that work. A little slower progression on some of the larger projects, which will provide less revenue in the short term, plus some pretty sizable one-time outstanding conflict resolutions, Jerry, in that business, which, again, we don't get the revenue on our books until we get to resolution.

So you couple a little slower start on some of these large projects, even some projects that we have awarded, but we haven't started yet, which means no revenue, those coupled with the fact that we have some large outstanding conflicts really are the difference there. And they are pretty sizable differences.

And then on the positive side, as you can see in the materials business, it is actually up and it is up sizably, both on the top end and on the bottom end. And the nice part about that business is that it has really started to come back strong and we are -- have a very nice backlog of work for that to carry us through the fourth quarter and the early part of next year as well. Does that provide a little color, Jerry?

Sure. Thank you. And then, maybe you could just comment on sequential performance within large projects, specifically because it sounds like you are ramping on a couple of projects. So I guess I was surprised revenue wasn't up sequentially in Q3 versus Q2, which would be the typical seasonality.

So I am wondering if you could just provide a little more quantitative color within that segment. Out of the $60 million or so sequential decline, how much of it was project delays versus the change order piece, just because of the deviation versus normal seasonality there?

Yes. So again, those large projects are really difficult to look at any seasonality on because they progress at their own pace. And based on the type of work that we are performing, it really isn't as seasonal as the construction work.

But, slower start. Did not get as much done in the third quarter maybe as we would have thought, but I say that. At the same time, we had some delays on some change orders. We had some delays on resolutions. And it is really -- I would say the project progression has the ability to make itself up in the fourth quarter, if we have a good fourth quarter, again, though, a little bit from one quarter to the other. $60 million on the size of that work can move itself from one quarter to another quarter quite easily, Jerry.

Okay. Thank you. And then, lastly, can you just talk about the overall prospects that you are looking at over the next 12 months? Quantify what amount of work you are bidding on and how do you expect the cadence of awards for some of the larger jobs to play out within that timeframe.

Sure, you bet. In fact, one thing I didn't mention is that we are also -- as we approach this larger work, there is a lot of different procurement methods that are out there today.

And we have actually been selected in a couple of these procurement methods to negotiate large projects with owners and we are in the negotiating stage phase on several of them right now.

So when you look at large project lettings out in front of you, some of them are really not procurement. They are more pricing and negotiations. And we have two large ones that we are working on right now with revenues in excess of $300 million that we are hoping to book in the fourth and first quarter of next year.

In addition, we have got another about $11 billion of projects all over the country. These are large projects only that are bidding in the next 12 months. We have got about $7 billion that will bid in the next six months. So it has not slowed down, and I said this before -- I think the last quarter call, Jerry -- what we are really looking at today is increasing our win rate and being very selective on the work that we bid so that we have a better opportunity to procure the work and bring it home, with less upfront cost in terms of our overall cost estimate and bid this work.

Very healthy pipeline. It is full. We are turning work away that we don't think has the best chance for opportunity. And actually, down the road here, we are tracking in excess of $60 billion of large projects going forward as well. So we are monitoring it on a six-month, a 12-month, and then a go-forward basis from there as well.

Alex Rygiel, FBR.

Jim, any chance you could quantify these claims and change orders? It sounds like it's a big number. It sounds like a lot of it could hit in the fourth quarter and/or first quarter. Is there any way you could bracket the range?

You know, Alex, I'd really prefer not to, relative to the fact that we are in negotiations with a lot of our owners and, therefore, it is important that we really hold to our confidentiality on them.

But I would say this, that they are substantial and they are built into our guidance for the year and that is where we think we are going to end up for this year. But also, even noting that, Alex, there are a lot of them that will also carry into 2015 as well.

Okay. And then, were there any specific delays on the large projects in the current quarter that seemed odd to you and/or have continued and could affect revenue in the fourth quarter?

Well, I don't say odd because, obviously, we are so close to this business we know where every step is as it approaches.

But I would say a little slower progression on some work, and I would say that we had anticipated to get a little more revenue on some of the new jobs and they just started off a little slower, which is not odd or totally out of line; it is just pretty standard protocol in a lot of these environments today where it takes a little longer to get the award, a little slower once you get going. But when they start hitting, really into the middle of the job is when the progression really starts picking up.

And then, lastly, it sounds like pricing in the materials business is starting to improve a little bit. Any way to quantify that? Has it continued into the month of October?

Alex, yes. We put out price increases at the beginning of the year and they have stuck, and as you can see in the numbers, that part of the business is performing quite well.

One of the things that is really important in that business is that when the economy picks up, then what happens is some of our higher-priced products start to move out the gate. That is what we are starting to see. And those higher-priced products carry a higher margin with them.

And so, if -- product mix is a real key to the bottom line of the materials business -- and I will say this. October was a good month. We have backlog through the remainder of the year in the materials business and we have a nice backlog carryforward to next year in the materials business already. So that has changed quite a bit over the last 12 months.

And I actually went back and looked, and we are doing as well or better than we have in five years in that business. That is a really nice change and it is a very, very nice business to have to stabilize the overall business as well.

(Operator Instructions). Michael Dudas, Sterne, Agee.

First question, Jim, I don't want to -- not to predict the election on tomorrow, but is an expected Republican win in the Senate, how would that imply what you are feeling or what the industry is feeling about more certainty in 2015 relative to the funding, even if it is a lower, less longer-term basis? But is there some changes there that occur? Is there anything going on in the state houses or governors' races or anything that could be helpful towards breaking some -- get some more visibility on the state and local front?

Let's talk about the feds, first, Michael. Actually, I think that if predictions come true and Republicans take over the Senate, then you are going to have a Republican House and Senate, and leadership -- Republican leadership has made it clear to us as we chat with them that they want to get a long-term highway bill. So that is positive.

And if you can get the Senate and the House working together for a long-term highway bill, that is going to create some really nice stability.

In addition, Republican leadership, along with Democratic leadership, have both agreed that there needs to be an indexed or some type of a long-term bill with increases built into it. So that is good news as well.

I'm actually pretty confident right now that we are going to get a nice highway bill by May 2015. I was not confident we were going to get anything done by September 30, and that obviously occurred. And I am not overwhelmingly confident that we are going to get anything done prior to the changing of the House and Senate members -- in other words, a lame-duck session.

But I tell you, everybody that we have chatted with -- I don't care if it's a Republican or a Democrat -- has made it very clear that they believe a long-term highway bill is very important and they believe it needs to be indexed and it needs to be self funded. You can't continue to borrow from the general fund to create a long-term value proposition in infrastructure improvements. So I'm actually pretty confident about May of next year.

As you go to the governors' races, I actually think the states are stepping up pretty good right now. Most of the states are really looking at balanced budgets. Some of them -- even California has a proposition today to put money away for a rainy-day fund. And we are starting to see local municipalities, several sales tax revenues, gas-tax revenues, issues that are on the ballot to create stabilized local funding. So state and local, I am actually pretty confident about what is going on there.

And I think that if we can get just a House and a Senate to work together, I actually am getting very confident that we are going to get a nice bill in May -- before May, I should say.

Nick Coppola, Thompson Research.

In construction, we talked about expecting a busy second half and so what changed relative to your views last quarter? And then, as a follow-up to that, we have had three quarters of year-over-year declines in construction. And so, why wouldn't we be seeing at least flattish volumes, given a flattish funding environment and an improving economy in California? So just looking for some more puts and takes there.

Yes. Good question, Nick. So I think that what happened for us in construction is we got kind of a slow start this year. And you mentioned it. You know, you had a couple of quarters here of lower-than-anticipated revenues. And what happened was a lot of projects got pushed off, got delayed in the awards.

But the nice part -- and I am going to offset that with the fact that our backlog is up in the construction segment and we really started working on all cylinders quite late in the year, and I would say in about September. And that is why I actually think we are going to have a really nice fourth quarter in the construction business, now that the overall backlog is up.

I also think that -- I noted in my script, Nick, that we have outstanding conflict resolution issues in the construction business as well. And so, that has pulled back a little bit on the revenue side because we don't recognize that revenue until those resolutions are executed as well.

So couple it with a slower start, although I think that you are going to see that right now we are working quite in a good pace in the construction business, couple that with more outstanding issues that are revenue and bottom-line driven, a lot of that will take place in the fourth quarter and carry forward to next year.

Okay. That's helpful. And then, I guess you would call this a housekeeping item. But when do we expect San Clemente dam to hit? Is that being pushed out to Q1?

No, no, no. That actually hit in the third quarter and it is ramping up now. It just got over the threshold mark and is starting to really build momentum as we speak.

Okay. Then last one for me, we've talked in the past about PPPs being a key driver of growth in large projects. And just generally, are you seeing any acceleration on that front? Are you seeing more PPP projects getting underway or proceeding?

Well, I will tell you this, Nick. The majority of these jobs -- and I have got a list of them in front of me. There is a big chunk of these now that have P3 components in them. And I just got a list of the TIFIA finance jobs that have actually got TIFIA money in them, and that has picked up its pace. So people are starting to really see the value in 3Ps.

The I-4 that we just got awarded, the Pennsylvania 500 job that we just were notified that we are the successful bidder on that, those are all 3Ps, and so almost every one of these big ones is looking for a component to help finance them. And the 3Ps is picking up pace. In fact, we have got full-time people in Granite working on just creating arrangements with our concessionaires and our partners to make sure we are a solid player in the P3 market.

Brian Rafn, Morgan Dempsey Capital Management.

Give me a sense, Jim, when you talk about these change orders and claims, are these episodic or is this a more of a function of how the owners are operating business going forward?

I think it is both. So they historically -- we have always had contractual obligations in most of our contracts, where if we are directed by an owner to go work on a part of a project or something additional, that we have the right until we put a notice of potential claim out. And until we come to resolution, we have always just gone out and done what the owner asked, and then we come to some overall total amount of value, and then we hand it over to the owner for a change order, so to speak.

The issue today is that the size of these changes is getting substantially larger. They could be episodic relative to individual events, and then an owner comes back and says, okay, just go do it and then we will negotiate the price later. Or it could be just unit by unit by unit that is excessive to what was anticipated.

But as the projects get bigger, the amount of these outstanding issues get bigger. And I actually believe that owners are really moving in the direction of wanting to see the valuation before they give dribs and drabs of revenue. They wait until the end and provide what we call a one lump sum change order.

Okay, all right. That is helpful. You talked about being a little more selective. I think you have been doing that over the years on bid day. Are you still seeing the same -- especially in the large heavy [sila projects], are you still seeing the same number of C&E road builders, competitors, on bid day for a project? Is it expanding or is it decreasing?

I would say that it is actually decreasing. And one of the things we are doing also is that we are selecting projects that are only prequalified three to four bidders. And therefore, that is what we are -- almost a requirement for us to go forward in this large project environment because of the cost of bidding this work.

And most of the owners are beginning to see that. They understand how much it costs to put these bids together. So they are willing to lower it to a very small select group in the bid process, and then they can actually pick the best value, not necessarily the low price. That is the kind of environment we like working in, and I think the owners are getting more sophisticated in actually wanting to see the highest-value bidders versus the lowest-pricing bidders.

Yes, okay. Then, Jim, on the materials side, what is the percentage internal versus external usage? And then, would you say anecdotally that your capacity utilization in the materials side is on a delta basis? Is it higher in 2014 than it was in 2013?

Okay, so a couple questions. I think we have moved a little bit closer to probably a 55%, maybe even 60% external today, which is why you are seeing the margins go up and the revenue go up, because we are really focusing a lot of our materials business on external sales, so it is moving into a higher range.

And interestingly enough, Brian, and you have been around Granite for quite some time, this is kind of how it was in the late, let's say, 2007 and 2008. When the economy picked up, we had more external sales and higher margins, and that is kind of what we are coming back to now, which is a really good thing.

Capacitywise, no issue on capacity at all. We built up our capabilities. We are getting, obviously, more utilization out of our plants that we have the last couple years, but we are nowhere close to having the utilization or the capacity to even consider any kind of lack of capability to provide product to our customers.

(Operator Instructions). John Rogers, D.A. Davidson.

Jim, just wanted to follow up. Now that you have had it over a year, how is Kenny's contribution? Is that hitting expectations?

Well, Kenny's contribution has -- as we discussed, is definitely accretive and operating very close to what our expectations were on the bottom side -- on the bottom line; a little bit less than anticipated on the top side, which is maybe why you can see some of our revenue where it is today. Bottom line is very close to where we anticipated, and they have a tremendous amount of opportunities out in front of them to grow their revenue considerably on the top side. Where we are kind of headed with Kenny is to try to get the revenue up.

Does that give you more confidence or more interest in additional acquisitions and are there opportunities out there?

Yes, I think there are, John, and I think we are definitely beginning to look at additional opportunities as well.

We want opportunities that fit our strategic plan, as we have discussed, diversifying the business into end markets -- additional end markets. We have labeled quite a few of those that we are focusing on and, in addition, expanding our current vertically integrated business geographically as well, and we are looking at opportunities now.

Matthew Dodson, JWest, LLC.

You alluded to, on the aggregate side, that you had seen strength and that you raised prices at the beginning of the year. Several of the other competitors have talked about a second price increase here in the fall. And I hope I didn't miss it, but did you guys allude to that you had a second price increase here in the fall?

Let me put it this way, Matthew, and welcome to the Granite call here. We have had minor price increases through the year as certain products start becoming more prevalent.

But we don't go across the board partway through the year. We go market by market, and so, yes, there have been some price increases during the fall.

The one thing to think about is that we also let our customers know that there will be a price increase at the beginning of the year. But most of the product they are taking between now and the end of the year has already got fixed prices attached to it. So we will see the benefit of the higher prices in the early part of next year.

Okay. And then, may I just follow up? Do you anticipate -- several players have talked about a price increase at the beginning of the year. Is that something you potentially anticipate in the stronger markets or -- I don't know if you want to comment on that.

Well, Matthew, I think the answer to that is yes. And yes, absolutely. We are working towards that as we speak. When we get into the strong markets, of which we have several, we certainly look at getting price increases at the beginning of 2015.

Okay. And I do apologize. Can you just help us understand the markets that you see that are the strongest?

Well, I try not to focus just on individual states or markets. But I would say, in general, all the markets are improving period over period, which means that as the states we work in -- and Matthew, just to note, the majority of the materials products are coming from the western US -- California, Nevada, Arizona, Utah, Washington, and up in Alaska, and all of those markets are improving, which is a nice sign.

Okay, great. I wish you the best of luck and thank you so much for answering my questions.

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

Thank you, everyone, for your questions. And again, I want to thank the Granite team for their focus on safety, quality, and efficiency as we look ahead to closing out a very strong 2014.

We have shareholder visits planned in three of the four corners of the country in the fourth quarter, with travel across the midwest, the southeast, and the northeast. Please do not hesitate to reach out to see if we will be able to make it your way.

And finally, Laurel, Ron, and I are available for follow-up if you have any further questions. Thank you all.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.