Knife River Aktie

Good morning, everyone, and welcome to the Knife River Corporation First Quarter Results Conference Call. [Operator Instructions] Also, today's call is being recorded.

At this time, I would like to hand things over to Dara Dierks, VP of Investor Relations. Please go ahead, ma'am.

Good morning, everyone, and thank you for joining Knife River Corporation's First Quarter Results Conference Call. With me today are President and Chief Executive Officer, Brian Gray; and Chief Financial Officer, Nathan Ring. A question-and-answer session will follow their prepared remarks.

Today's discussion will contain forward-looking statements about future operational and financial expectations. Actual results may differ materially from those projected in today's forward-looking statements. For further detail, please refer to today's earnings release and the risk factors disclosed in our most recent filings with the SEC, which are available on our website and the SEC website. Except as required by law, we undertake no obligation to update our forward-looking statements.

During this presentation, we will make reference to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in today's earnings release and investor presentation. These materials are also available on our website.

I would now like to turn the call over to Brian.

Thank you, Dara. Good morning, everyone, and thank you for joining us. We had a strong start to the year, and I look forward to discussing our first quarter in more detail. Also today, we'll spend some time highlighting key components of our growth strategy and what we see ahead in 2026.

Starting with our first quarter results. I'm pleased to report we improved revenue by 16% and adjusted EBITDA by 16% year-over-year, while expanding adjusted EBITDA margins by 290 basis points. We saw increased activity in our markets, which helped drive double-digit volume growth across our product lines. Combined with our efforts to lower costs and optimize pricing, we realized margin growth for aggregates, ready-mix and asphalt.

On the contracting services side, revenues were up, and we have secured record quarter backlog of $1.2 billion. We are just now entering the start of our construction season, and we're doing so from a position of strength. Lastly, we completed 3 aggregates-based acquisitions during the quarter. We expanded into Utah with a platform operation in Salt Lake City, and we strengthened our footprint in Montana.

I'll talk more about our acquisition opportunities in a few minutes. We are growing. Our competitive edge initiatives are working, and we believe we are well positioned for another successful year. We're excited about 2026, and we're confident in our ability to deliver continued growth. Supporting that confidence is a clear improvement strategy that we believe makes us the employer, supplier, acquirer and investment of choice.

Turning to Slide 4 in the deck, you can see the 4 pillars of Knife River's growth strategy. First is our midsized higher-growth markets. Second is vertical integration. Third is the opportunity for self-help to improve margins. And fourth is our Life at Knife culture and relentless drive for excellence. We recently conducted a perception survey that provided a lot of encouraging feedback, including that investors value our strategy and want to learn more about it. Today, I will spend more time discussing 2 aspects of our strategy, our markets and vertical integration.

Starting with our unique footprint, we believe our strong position in midsized, higher-growth markets presents a competitive advantage. Over the past decade, population growth in Knife River states has outpaced that of non-Knife River states, and this trend is expected to accelerate. From 2025 through 2050, our states are projected to grow 2x faster than that of non-Knife River states.

More people equates to more demand in our markets on essentials like transportation, housing, water and energy infrastructure. You can see that demand already this year, as our states are investing in road and bridge infrastructure faster than other states. Collectively, DOT budgets in Knife River states increased approximately 15% this year compared to flat in non-Knife River states.

With this strong funding environment and clear need to continue repairing the nation's roads, we expect state and federal infrastructure funding to continue increasing over the long term. This represents a significant opportunity as Knife River states collectively include over 3 million lane miles of roads. That is almost 40% of all U.S. lane miles.

Further, roads in our states are exposed to harsh conditions. As a result, they require routine maintenance, creating ongoing demand. In addition to public infrastructure, heavy materials demand across our markets is supported by a diverse set of structural drivers. Some of these drivers include energy projects, military spending and data center development.

We believe midsized markets like ours present an increasingly attractive opportunity for data center growth. We have some of the lowest cost industrial power in the country, greater availability of land and water and attractive livability and affordability to support an expanding workforce. Over the last 2 decades, GDP in Knife River states has grown at roughly twice the pace of non-Knife River states, highlighting a proven track record of outperformance and a strong foundation for continued growth.

Lastly, an important reason we like our markets is our position within them. Nearly 90% of our aggregates volume comes from markets where we have a leading position. This scale, in addition to our aggregates reserves and vertical integration gives us a competitive advantage and enables better purchasing, pricing and reliable supply chain. To put our unique footprint into context, we thought it would be helpful to take a closer look at our 3 geographic operating segments and how they support our overall strategy.

Starting with the West on Slide 6. This segment includes California, Oregon, Washington, Alaska and Hawaii. Over the next 25 years, this market is expected to grow its population by approximately 12%, which we believe will support sustained infrastructure investment and commercial activity. In 2026, state DOT budgets across the segment are approximately $34 billion, reflecting a 13% year-over-year increase.

In addition to population growth and robust funding for public infrastructure, the West benefits from military spending, the build-out of data centers and other market-specific growth opportunities. We are a preferred materials vendor for a data center and hyperscaler that is active in this region, and we continue to work with them on a number of ongoing developments.

Also throughout the Pacific Northwest, we are a premier supplier of prestressed concrete products, including the data center projects for multiple repeat customers. In Hawaii, we are currently working on a large Navy project at Pearl Harbor, and the state is also seeing increased private investments on Maui and Oahu.

In Alaska, we continue to see elevated levels of military and airport investments. We are supplying materials up to the North Slope, where energy and mining-related projects are driving our optimism for growth in Alaska. Taken together, increased federal spending and improving economic activity across the West underpin our confidence in long-term demand in this segment.

Turning to the Mountain segment. This includes Idaho, Montana, Wyoming and our recently added operations in Utah. This segment benefits from some of the strongest demographic trends in the country with population expected to grow 26% by 2050. These states are among the most desirable places to live in the U.S., supported by strong inbound migration and in the case of Utah, one of the highest growth rates in the nation. This growth drives long-term demand fundamentals.

Mountain has long been a leading asphalt paving market for us, and this segment also represents one of our strongest commercial construction profiles. It benefits from significant investment in wind and solar, data center development and military infrastructure, along with advanced manufacturing growth. In Idaho's Treasure Valley, large-scale semiconductor investments are helping establish Boise as an emerging technology hub. With our strong footprint and local capabilities, we are well positioned to support these growth projects.

Finally, turning to our Central segment. This includes Iowa, Minnesota, North Dakota, South Dakota and Texas. This segment is also benefiting from strong population growth with our states expected to grow 21% over the next 25 years. Texas, North Dakota and South Dakota rank in the top 10 in birth rates in the nation. This sustained expansion is driving broad-based growth across private and public markets.

From an infrastructure standpoint, the Central segment has a large and expanding public funding footprint. For 2026, total state DOT budgets across the region are approximately $31 billion, a 16% increase from last year. In North Dakota, the state's construction budget for 2026 is more than double that it was in 2025. With our strong operating presence, we are well positioned to capture increased opportunities.

Meanwhile, Texas also represents an exciting opportunity within Knife River. Our operations are strategically positioned within the Texas triangle, giving us strong exposure to the high-growth markets between Dallas, Houston and San Antonio. Our triangle within the triangle enables us to serve some of the fastest-growing midsized markets in the nation. Development in these high-growth corridors is accelerating, and infrastructure demand is expanding beyond established urban boundaries.

Overall, the Central segment combines strong demographic tailwinds with a well-funded infrastructure pipeline. It has attractive growth opportunities across energy, commercial and transportation sectors. We expect the region to remain an important contributor to our long-term value creation.

The final point I'll make about our markets today is that we see substantial runway for growth through M&A. These markets are still highly fragmented with vertically integrated family-owned businesses, creating hundreds of potential opportunities at attractive multiples.

Knife River has completed nearly 100 acquisitions. We are well known, well respected and trusted. When a family-owned business decides it wants to sell, they often contact us first. They value our people-first culture and our commitment to the communities where we live and operate. We believe this combination of culture, credibility and capabilities makes us the acquirer of choice. We are well positioned to continue expanding our distinct footprint through disciplined value-accretive acquisitions.

Moving from our markets to vertical integration, this is another part of our strategy that makes Knife River unique. We believe our aggregates-based end-to-end operating model drives value creation. First, it enhances our financial performance by being a profit multiplier. This is achieved in 2 significant ways.

One, we are able to capture higher margins on the pull-through of upstream materials to our construction projects. And two, being vertically integrated creates meaningful synergies across business units, including equipment utilization, overhead absorption and labor efficiencies, all of which contribute to industry-leading margins on our downstream product lines.

Our balanced mix of aggregates, ready-mix, asphalt, liquid asphalt and contracting services also supports resiliency across economic cycles. It enhances our ability to flex between public and private work and gives us more opportunities to provide our products and services. For our customers, vertical integration represents a one-stop shop that translates into greater supply chain reliability, improved coordination at the job site and more consistent execution across multiple projects.

Moving to Slide 11. You can see how vertical integration also gives us more opportunities to win profitable work. On any given construction project, we can have over a dozen distinct pathways to capture profit. This can be as a general contractor or as a subcontractor that performs asphalt paving, site development, grading or other construction services or it can be by supplying materials directly to ourselves, to the project owner, to another prime contractor or to a competing producer of downstream materials. Every one of these entry points gives us another chance to compete and another way to create value.

Vertical integration also gives us flexibility to adapt to our markets and position ourselves where we have the most opportunity for growth, both organic and through M&A. On the organic growth side, we can expand our market position by adding complementary products and services to an existing footprint.

In Texas, for example, we greenfield our Honey Creek quarry near Austin a few years ago as a means of providing high-quality aggregates to our downstream product lines and to third parties. Today, that investment makes it possible for us to support our newly expanded asphalt plant in Bryan, where we have added capacity to serve a large paving job on Highway 6. Honey Creek is also providing materials for our recently acquired Texcrete ready-mix operation in College Station, allowing us to expand our operations in this dynamic market.

On the acquisition side, being vertically integrated also gives us more opportunity as we aren't limited to a single product line to grow. While our M&A strategy will continue to be focused on aggregates-based opportunities, we have a healthy acquisition pipeline that includes all product lines, including aggregates, ready-mix, asphalt, prestressed concrete and contracting businesses that we believe would enhance our portfolio and support long-term growth.

Thank you for letting me provide more detail on our strategy, in particular, why we're confident in the markets where we operate and the advantage of the vertical integration. Next, I'll quickly recap the quarter results for our segments.

Starting with the West, the segment benefited during the quarter from higher private market activity, which drove increased aggregate volumes. For the third straight quarter, Oregon continued its recovery, meeting our expectations for the start of the year. We expect this trend to continue and believe the segment is well positioned for ongoing growth.

Performance in the Mountain segment benefited from higher available backlog, better weather and solid execution. The team delivered improved cost discipline across all product lines while optimizing material pricing. In addition to strong organic performance, the Mountain segment completed 3 acquisitions during the quarter, Morgan Asphalt in the Salt Lake City market and both Sparrow Enterprises and Donaldson Brothers Ready-Mix in Montana.

Performance in the Central segment reflected impacts from acquisitions completed in 2025. The addition of Texcrete helped the region nearly double its ready-mix volumes. These benefits were partially offset by 2 additional months of expected seasonal losses at Strata in January and February. During the quarter, we continue to make meaningful progress on strengthening operational execution, and we ended the second quarter with strong backlog, positioning the business for further growth as the year progresses.

Lastly, turning to Energy Services. Favorable market conditions in our Western states supported higher sales volume and improved fixed cost absorption during the quarter. We also continue to capture synergies by merging our West Coast operations and ended the quarter with a 40% improvement in EBITDA. All in all, we had a strong performance in the first quarter and continue to be well positioned for growth in 2026.

With that, I'll turn the call over to Nathan to walk through our product line financial results.

Thank you, Brian. As mentioned earlier, we are off to a good start and very pleased with the momentum carried forward from last year. That was evident in our product lines as we achieved volume, revenue and gross profit improvement in aggregates, ready-mix and asphalt.

Starting with aggregates, our 26% volume growth, coupled with price increases and cost controls, drove strong margin improvement. Oregon led the way on volumes with an increase in third-party sales related to more commercial, industrial and residential construction. Mountain also positively contributed to our volume increase with continued favorable weather providing the opportunity to work on record backlog, creating pull-through demand of aggregates.

Importantly, we also reduced our per unit production costs by more than 10%, a direct result of process improvements and last year's investments in our operations. As reported, pricing was up 1% compared to last year due to geographic mix. The Mountain region had nearly 70% higher aggregates revenue than last year, had pricing and costs meaningfully lower than other regions. Normalizing for geographic mix, pricing was up 4.1%. We remain confident in our full year guidance of mid-single-digit pricing improvement on an as-reported basis and at least 200 basis points of aggregate margin expansion.

Ready-mix saw a 33% increase in volumes for the quarter. The acquisition of Texcrete was the largest contributor to this increase with our Texas operations more than doubling their first quarter volumes. Consolidated pricing and margins were up for the quarter as the price/cost spread continues to improve for ready-mix. We see these contributions continuing into this year with expected full year volumes up mid-teens over last year.

Turning to asphalt. Activity levels were positive with volumes increasing 42% year-over-year. As a reminder, the first quarter accounts for less than 5% of full year volumes, so the majority of our work is yet to come. We continue to maintain our guidance of mid-single-digit volume growth.

Contracting services delivered higher revenues during the quarter with contributions coming from all segments. Central saw the largest increase, led by our Texas and North Dakota operations. Margins were down for the quarter, but similar to asphalt, the first quarter historically represents a small portion of annual contracting services revenue. Therefore, project timing, type of work and geographic mix can have a disproportionate impact on first quarter margins.

Turning to backlog. First quarter levels were strong at approximately $1.2 billion, with about 75% expected to be completed in 2026, providing good visibility into future activity. As we work through our backlog, we continue to expect higher gross margins in contracting services in 2026, supported by increased self-performed asphalt paving. This type of work can drive margin gain through successful project execution and the bonuses that get paid to contractors for quality performance.

In addition, the increased asphalt paving in our backlog also provides the benefit of pulling through our higher-margin upstream materials, positively impacting product line gross margins. We are excited about the year ahead, and we'll continue our focus on cost controls across our business.

Regarding energy costs, we are utilizing a number of mitigating activities in our materials and services product lines, including the prepurchase of diesel, energy escalation clauses in construction contracts and fuel surcharge clauses in material deliveries. These efforts, along with dynamic pricing, help reduce the potential impact associated with oil prices and position us well to maintain our margins.

Moving to SG&A. We continue to expect the full year to be comparable with 2025 as a percent of revenue and then begin trending lower in future years as we scale and fully capture synergies from recent acquisitions.

Switching to capital allocation. We are committed to our disciplined approach, including maintaining fixed assets, improving operations and growing the business. In the first quarter, we spent $42 million on maintenance and improvement CapEx, largely on the replacement of construction equipment and plant improvements. Additionally, we spent $209 million on growth initiatives, including $174 million on the 3 acquisitions mentioned earlier and $35 million on aggregate expansions and greenfield projects.

We continue to maintain our focus on having a strong balance sheet with capacity available to support these growth initiatives and future investments. Keep in mind that as we enter the second quarter, we will reach the peak of our annual borrowing needs as we build working capital for the construction season. As we look to the full year, we expect to end 2026 with no borrowing on our revolving credit facility of $500 million and have cash on hand, resulting in an anticipated net leverage near our long-term target of 2.5x.

Turning to our guidance. As we have indicated in the past, we generally do not make revisions until the construction season gets into full swing. Therefore, we are reaffirming the guidance we presented in February. Based on our good start to 2026 as well as the addition of 3 aggregates-based acquisitions, we are confident in our guidance and currently expect 2026 to trend toward the upper half of our revenue and adjusted EBITDA ranges for the year.

With that, I'll now turn the call over to Brian for closing remarks.

Thank you, Nathan. We are off to a strong start this year, building on the momentum we established in the second half of 2025. We are just now entering the construction season, and we are doing so with record backlog and a proven growth strategy. We are meeting increased demand across our unique growing markets with disciplined cost control, pricing optimization and the benefits of vertical integration.

Our competitive edge initiatives are driving real improvements. Our acquisition strategy continues to enhance our results, and our teams are performing at a high level. I'd like to thank our 7,400 team members for their commitment to working safely and advancing our growth efforts. We believe the progress we're making today positions Knife River to generate profitable growth in 2026 and well beyond. We are excited about the opportunities ahead, and we are focused on creating value for our shareholders.

Thank you for your time today, and we'll now open the call for questions.

[Operator Instructions] We'll take the first question from Trey Grooms, Stephens.

Congrats on a great start to the year. So I guess, Brian, maybe to begin, can you talk about some of the puts and takes around the aggregates pricing in the quarter? You mentioned some pretty significant mix headwinds there. But if you could maybe go into a little more detail, is it geographic, product? Is it both?

And then kind of reiterating that mid-single-digit pricing guide for the year on reported ASP. Can you talk about maybe the trajectory there and how we should be thinking about how you kind of get to that mid-singles for the year given the tougher start out of the gate?

No, I'd be happy to, Trey. I'm actually very pleased at where we're at and what I'm seeing with pricing and the impact it's having on our overall margins in the aggregates group. So we reported just slightly 1% -- prices were up about 1% for the quarter. And as you know, our average selling price, it includes freight, it includes delivery and includes other revenues.

And so if you just normalize just for one thing, which is the segment mix, our average selling price would be up 4.1%. So when I talk about geographic mix, I mean, we have 3 geographic regions that sell aggregates, the West, the Mountain and the Central.

In the Mountain region, because it was favorable weather and the amount of backlog they've got there, aggregate revenues for the quarter in the Mountain region were up 70 -- almost 70%, 69%. And in the Mountain region, their cost structure is much lower than it is in the other regions, therefore, has a much lower pricing structure as well. And the reason that is, is that the downstream operations, the ready-mix plants, the asphalt plants, they are sitting on our aggregate reserves, and we have very little to -- practically no materials transfer in that mountain region compared to other regions like the Central, we're railing materials to aggregate yards and to downstream product lines.

We're doing that in North Dakota. We do that some in Oregon by barge and rail. And so the cost structure in those other regions is bigger than it is in the mountain. And so because they have such a lower cost structure, their prices are also lower. And when you sell 70% more in the quarter, that alone would bring our average selling price up if you just make that one adjustment to 4.1%.

The other thing that we do in the Mountain region is the type of work that we do there, they consume and utilize a lot more unprocessed materials. They literally -- they use about 2x annually the amount of pit run or bar run for large heavy civil fill type of projects. That also has an impact in product mix.

And so, I look at our sales dashboards frequently, and I can tell you and reassure you that what I see for the same product coming out of the same plant that I'm very comfortable guiding to mid-single digits. Frankly, we saw mid-single digits this quarter if you make those adjustments.

Yes. Okay. Got it. That's all very helpful. As my follow-up, with the 200 basis points of margin improvement in ags that you're targeting, especially with the diesel headwinds is particularly impressive. So any additional color on how you're kind of navigating these higher costs? And what gives you the confidence to reiterate that 200 basis points of margin improvement, especially given how much diesel inflation we've seen?

Yes. It's really the continuation of the good work that our PIT Crews are doing and some of the benefits that we're now beginning to realize weighs into this initiative with our PIT Crews. We enjoyed -- our gross profit margins in aggregates was up 390 basis points for the quarter. And we didn't really begin to see those energy headwinds until later in the quarter, really in March.

But as Nathan mentioned in his prepared remarks, I mean, we have had existing mitigation practices in place for years, and those practices are working. The fuel surcharges that we charge on materials delivery, we've got the escalation clauses in construction contracts, which also can come back and help us on aggregates. And so where we don't have protection, Trey, we do a good job at doing some fixed forward contracts on diesel.

And probably the most important tool that we've got in our toolbox, and this is relatively new for a big part of our company, that's dynamic pricing. And so we are able -- we don't need to wait for a midyear increase to come out. We are literally pricing diesel costs, current diesel costs into our current bids going out on a daily basis. And so -- we do feel comfortable.

To put it all into perspective, the amount of diesel that we use in a year, a full year is about 20 million to 25 million gallons of diesel. And that diesel is used primarily in 2 different ways. One is for on-road vehicle deliveries or vehicles. That's about 50% of that. And the other 50% is used in the yellow iron, either at the aggregate sites or out on construction projects.

And if you take a look at all of that, we feel like we are protected through one of our mitigation practices on about 80% of that diesel. And so that kind of maybe helps you put it into context of the potential exposure we have on a full year.

The next question today comes from Kathryn Thompson, Thompson Research Group.

I wanted to shift gears and focus on M&A. And if you could clarify the -- how we should think about the contribution and cadence of the recently acquired companies that you've announced?

Yes, Kathryn, we're very excited about the 3 acquisitions we completed in the first quarter. They were all aggregates-based operations. They had downstream materials. And in the case of Morgan Asphalt, it came with the services downstream opportunities as well. All 3 of those deals are very -- they look very similar to how we've done deals in the past. They were negotiated deals directly with the owners and that we were able to negotiate high single-digit multiples on those 3 acquisitions.

And so, if you look at that contribution on a full year, that would suggest it was towards the upper half of our current guidance. I want to just touch a little bit on the importance and how excited we are on the Morgan Asphalt operation in Salt Lake City, Utah. This is not a new market for us. We've done work in Utah out of our Boise, Idaho group for years.

We've been looking very closely for an opportunity to enter that market with an aggregates-based platform operation that we can continue to build from. And Morgan Asphalt fit that bill through a key, very good cultural fit, very strong reserve position, with a team that is very good at asphalt paving. And so, very excited about all 3 acquisitions. Really the most meaningful, the largest of the 3 would be the Morgan Asphalt opportunity in Salt Lake City.

Okay. And then following up on that, maybe [indiscernible] about how these play into your kind of the profit multiplier thesis that you discussed and how this -- how we should think about that going forward? And also what reasonably should we expect in terms of synergies, either be from cost or from revenue?

Yes. So I mentioned the profit multiplier in my prepared remarks as it relates to vertical integration. And so I'll use 2 examples on that. Texcrete, the operations that we bought late last year, down in College Station, Texas and in that area, more than doubled our ready-mix volumes for the quarter out of Texas.

They were purchasing a lot of third-party aggregates before we purchased -- acquired that company. And because we're vertically integrated in Texas, we now are able to rail materials into College Station and self-supply that, which is just an opportunity to, again, earn more profit on that acquisition through the profit multiplier by being vertically integrated.

Morgan is probably even a better example of that. Morgan comes with a very high-quality, strategically positioned reserve. We will bid materials on any kind of DOT type of project. We'll bid aggregates to subcontractors. We will self-perform and use those own aggregates. We'll sell aggregates to other non -- to other producing competitors downstream. And so we have an opportunity to win work on the aggregate side.

But most likely, we're going to sell those aggregates to ourselves and to another profit center, which is our asphalt -- our hot mix asphalt plant. And then we will sell that hot mix asphalt to, again, either ourselves or to a competitor on the job and allow them to go do the paving themselves. But likely, we would self-perform that work as a subcontractor or as a prime contractor. And so that being vertically integrated really does allow us to have multiple opportunities to earn profit.

On the synergies, I'll let Nathan touch on the synergies from the acquisitions.

Kathryn, good to hear from you. We've probably talked about this a little bit in the past as we bring in these operations, and there's multiple ways in which we can get synergies as they become a part of Knife River.

First, we've talked about purchase price power, and that can relate to cement, oil, equipment. And so as they become part of Knife River, become part of a larger organization, they get to take a part of that or advantage of that. The other is on the operational side. These are good companies. We're proud to bring them into Knife River, exciting for us. But just like with Knife River, we have PIT Crew out there that are looking to make Knife River better.

And as these acquisitions come in, there's an opportunity for us to share the Knife River PIT Crew, the EDGE initiatives with them and improve their operational efficiencies as well. And then the last thing I did mention it in my prepared remarks, as they come on board and bring their SG&A, I talked about us last year building our SG&A to grow the company. And as we grow, as we build the scale, we see an opportunity for synergies combining the 2 companies on the back office side of the equation as well. So I think there's a number of things we look at when they come in throughout the first year, sometimes within the first week as they become part of Knife River that we can capture some of these synergies.

Up next is Garik Shmois from Loop Capital.

I was hoping you could provide an update on where you stand on dynamic pricing, where you think you are within your different regions. And I asked that just because of the higher oil-based costs that are coming through and certainly one of the levers that you have to offset. Just curious as to the ability to push through additional pricing in some of the regions that have lagged in the past?

Yes, Garik, our commercial excellence teams have done a fantastic job of training and implementing dynamic pricing through all of our legacy operations. And so we are in the later innings at this point in time, which is coming to be a very good benefit with the current energy situation that we're able to price not just aggregates, but also ready-mix and asphalt at current cost structures and provide daily pricing out for those materials.

And so we have a number of different dashboards that we're currently using and technology that helps our sales teams manage through that process. Where we don't have full implementation of dynamic pricing would be in our recently acquired companies. And as we've talked about in the past, we honor their current quotes. And in anything that's new, we quickly get them on track to start utilizing the dynamic pricing. And we're currently doing the training as it relates to dynamic pricing with those recently acquired companies. But that would be the only place right now that we have some limited exposure.

Great. That's helpful. Follow-up question is just on the comment you made that you expect to be at the upper half of revenue and EBITDA guidance for the year. I just want to clarify, is that solely because of the acquisitions that you spoke to earlier? Or is there anything organically that you're pointing to that's tracking towards the mid-to-upper end of the range that's giving you confidence right now?

Yes, there's a number of things that give me confidence in that upper half of the range. I mean -- and the acquisitions certainly are part of that. But our volumes and our backlog right now, I really like the position that we're in. The record backlog of $1.2 billion, up 25% from last year, and that backlog has a lot of asphalt paving in it. And with that comes the ability to pull through higher-margin upstream materials. So, that gives me a lot of -- good confidence.

That's a very visible contracted work that we've got that we'll be outperforming that work this summer. And so that gives me good confidence. And then frankly, I just -- I continue to see traction that we're getting with our PIT Crew. You saw some of that early in this first quarter, even though our volumes are very low relative to the full year. We can't dismiss the work that the PIT Crews are having in all of our product lines. So that gives me good confidence on that upper half of our current range.

Your next question is from Timna Tanners, Wells Fargo.

I wanted to follow up on the discussion just now of the dynamic pricing and also the ability to have energy escalation. Do you have a sense of -- in your discussions with customers that how this compares with some of the competitors and how they're handling energy costs? Just curious if there'll be any challenges if some of the peers are taking a different tactic?

Yes, Timna, as you know, a lot of our competitors and our unique markets are some of -- more family-owned operations. We have some overlap with some of the larger national peers. But a lot of our competitors are local, regional-based family-owned operations that also have margin expectations. And I can tell you that I believe that we've pre-purchased and managed our energy costs better than our local competitors and that they, too, are going to need to do something. And so, I think most of them are passing along their fuel costs through similar fuel surcharges on delivered materials. And so I think it's -- I don't think we are out of the norm when it comes to fuel surcharges and collecting that compared to our competitors.

Okay. Helpful. And then if I could follow up on the M&A strategy, clearly off to a strong start and in line with the comments on not expecting an extended revolver by the end of the year. What does that mean for further M&A this year? What do you think you have the bandwidth for as we look out for the rest of the year?

I'll let Nathan take that. I'll just preface it with, our pipeline is strong. And we mentioned the pipeline 3 months ago that it looks to be similar to last year's type of pipeline. And so we're off to a good start this year and we feel like we certainly have opportunities in the pipeline and that Nathan has a balance sheet that also allows us to continue to grow. So, I'll let you talk about that, Nathan.

Yes. Thanks, Brian. Timna, just as he said, I mean, we do focus on maintaining that strong balance sheet so that we do have the bandwidth and the cash flows coming from our operations, which are strong as well. So, first, just what I'll reiterate here is that we have about $190 million, almost $200 million of available liquidity when you look at our revolver. That's important from the standpoint that allows us to react quickly if an opportunity does come up.

The other thing is not to forget the cash flows that we get from our operations. We have about a 2/3 conversion rate, which means from EBITDA to cash flow from operations, we convert about 2/3 of that to cash flows from operations, which we put to work in the company.

The thing that I stated in the prepared remarks that's probably important for your bandwidth question is our balance sheet capacity or net leverage. I indicated on the call there that as we get towards the end of the year and pay down that revolver, have those cash flows comes in, we think we're going to be at or below that net leverage of 2.5x.

That creates bandwidth for us because as I talked about before, Timna, for a short duration for the right deal, we'd be willing to be close to near 3x for a while. And so we do have the liquidity, the cash coming in from operations and the bandwidth on the balance sheet to continue to support the -- our growth program that Brian talked about. So I think we're in a good position.

Your next question is from Ivan Yi, Wolfe Research.

First, what was the organic or mix-adjusted aggregates volume growth in 1Q? And I get that you don't normally adjust guidance after the first quarter. But after such a strong growth in 1Q, why not raise the full year aggregates volume guidance at all? Are you sensing any weakness at all or is it just conservatism?

No, I think we're being prudent. We still have 90% of our construction season in front of us. And so it's very early. And so, unless we saw something just jump off of the page, Ivan, I mean, you're going to see us most likely after the first quarter continue to reaffirm that guidance.

I like where we're at with the volumes and what we're seeing in the markets. And that volume increase, in particular, on aggregates, over 1 million tons of aggregate volumes, which is up 26% for the quarter. Half of that came from legacy and the other half came from operations that we acquired in the last -- since this time last year.

In other words, Texcrete and Strata's 2 months of operations that were new to us, 2 months of Strata and then the Texcrete acquisition, which is ready-mix, but because we're self-supplying those aggregates, that was very positive for us. And so, about half of that increase is coming from legacy operations, the other half from Texcrete and Strata specifically. And we'll continue to update you as the year progresses on that -- on the volumes.

Great. Very helpful. And then my follow-up, we've seen several states declared gas tax holidays and there's proposed legislation for federal suspension of the gas tax through October. What impact would this have on future infrastructure spending? And how material would this be to you all?

Ivan, you broke up a little bit at the very beginning of that question, and it was pretty low. I couldn't hear it exactly. So could you repeat the beginning of that?

Yes. Just on the gas tax holidays that have been mentioned about, how material of a headwind would that be if the reduction in infrastructure spending that would come with that?

Yes. I think with -- I would say that's immaterial, and that's not something that we're concerned about. We've got record backlog, $1.2 billion, 25% up over last year. We continue to look at the strong DOT budgets, up 15% year-over-year in our markets. And with that comes the bid letting schedules, and what I'm seeing at the local state level, really no concerns around the gas tax holidays.

[Operator Instructions] Up next is Garrett Greenblatt from JPMorgan.

I was wondering if we could just dive a little more into the regional disparity between aggregates, how aggregate margins in each region trend or if you rather grow in gross profit per ton? And then maybe the organic pricing growth per region that got you to the underlying 4.1% consolidated?

Yes. I'll start with -- at a high level, and I'll let Nathan add if there's any other additional detail. But, Garrett, what I'd tell you is that if you -- I talked about the differences in our cost structure and our pricing structure as it relates to transferring materials around and having rail yards, redistribution aggregate sales yards, having downstream plants sitting either on the site or off-site where you have to rail or barge. That does change our cost structure, therefore, creating a different pricing structure as well.

But if you actually look at the margins over the last 2 years for each one of those regions, they're very similar. They're not that different. And so they're doing a good job. Even though they may have lower pricing, what we look at, obviously, is the price/cost spread. And I think that we're pretty close in each region.

Now each state is different, and that's going to depend on the market positions that we've got, the type of materials that we're selling and the amount of market share that we have, just different things have changed there by each state. But generally speaking, if you look at the last 2 or 3 years, for aggregate margins specifically, they're very similar in all 3 different states.

Nathan, is there anything that you want to add to that?

You mentioned the most important thing, Brian, is that over the course of the year, they're comparable. I would just remind folks that at the beginning of the year, there can be some differences in margin: West, you have more activity; Mountains had a good first quarter here, so that's improved their margins; Central is still in the early season and not getting started.

So if you were looking at just the first quarter here, you might see some differences, but it's more important to look at it the way that Brian shared from that full year margin perspective.

Great. And then can you talk a little bit more of the margin contraction in contracting services and how we should think about that trending for the rest of the year?

Yes. Nathan, do you want to take that one?

Yes, there is a couple of things with that. I mean, first of all, just for the first quarter and I'm starting to sound too similar here, but I mean, it is just similar. I mean, for contracting services margin in the first quarter, it's about 10% of our full year revenue. So you can have some -- like I said in my prepared remarks, you can have some geographic mix. You can have, for example, this year, we did do some more revenue in the Central, but that is the first part of the year, like as it pertains to Strata, where that revenue is not enough to cover some of the overhead or indirect costs.

So that's what you've got going on in the first quarter. As you look to the full year, it's just important to remember that we are saying that our contracting services margins will be higher. And we talked about this back in February that a lot of that has to do with -- we're anticipating more paving work in 2026 than we had in 2025.

Now that can start off at the beginning of the year that you're getting moved, you're getting ready. But as that work progresses through the year, we start to see improvement in margins related to our performance, very good at paving. Two, we see it in terms of incentives that come along with the project and bonuses.

So, as we do more paving work in the year than we did last year, we anticipate those margins to increase because of that. And then like we talked about, the add-on benefit that Brian talked about in our prepared remarks with the profit multiplier that, that has pull-through demand to have liquid asphalt, asphalt, aggregates. And so we look forward to what it will also do for the upstream product lines as well.

The next question is from Rohit Seth from B. Riley Securities.

Can you provide us an update on the Oregon DOT issue?

Yes. Fortunately, Rohit, that situation, I believe, is stable. So we have baked into our current guidance that the measure that's being voted on in Oregon on May 19, most likely is going to fail. I think everyone is expecting that. And -- but the good thing is the DOT already has an existing budget, and it's 2% lower than it was year-over-year, but that's the total budget. The construction budget is actually up a little bit. And so we have taken all those things into consideration into our current guidance that Oregon stabilize and looks to be broadly in line with last year's results.

Okay. Great. And then on the EBITDA guidance, could you maybe provide a cadence for the year, second quarter, third quarter, fourth quarter, given what's going on with the energy shock, I just want to understand your expectation for 2Q.

Yes, I'll let Nathan take that one.

Yes. I can give you an idea of, from a seasonality perspective, how we look at each quarter from a revenue basis, which I think will help you with your modeling. And so like we've talked about a few times this morning, the first quarter, generally around 10% of revenues. Second quarter, we get into maybe about 25%. And then as we all know, the third quarter is where we see a higher amount of our revenues and then fourth quarter, depending on how long fourth quarter goes, that will be the higher part. So the latter half of the year would be where we see the higher portion of revenues. So that's kind of the breakout or anything else with seasonality.

Rohit, does that help kind of give you an idea of how -- the cadence of the year?

That was on revenue, but does EBITDA follow the same sort of...

Yes. For the most part, other than -- I mean, the first -- there are some peculiarities, right? In the first quarter, we do experience a seasonal loss. And so then you would anticipate as you get to that third quarter, you would anticipate a higher amount of EBITDA coming as that's the main part of the season for us.

Yes. Because a lot of our backlog is asphalt paving, that work is typically done in the summer months. And when you start to close out those jobs is when you would get paid those job site incentives and quality bonuses, which often would come late in the third quarter or the fourth quarter. So that would impact EBITDA positively without necessarily the revenue to go in line with that later in the year. So I can -- that would be the only nuance as it relates to EBITDA, I think, for contracting services.

And everyone, at this time, there are no further questions. I'd like to hand the call back to Mr. Brian Gray for any additional or closing remarks.

I appreciate everyone joining us today. We're very excited about the year ahead, and we look forward to speaking with you guys again in the next quarter. Thank you.

Once again, everyone, that does conclude today's conference. We would like to thank you all for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Knife River Corporation Fourth Quarter and Full Year 2025 Results Conference Call. [Operator Instructions] This call is being recorded on Tuesday, February 17, 2026. I would now like to turn the conference over to Dara Dierks, VP of Investor Relations. Please go ahead.

Thank you, and welcome to everyone joining us for the Knife River Corporation Fourth Quarter and Full Year Results Conference Call. My name is Dara Dierks, VP of IR at Knife River, I'm joined by our President and Chief Executive Officer, Brian Gray; and Chief Financial Officer, Nathan Ring. Today's discussion will contain forward-looking statements about future operational and financial expectations. Actual results may differ materially from those projected in today's forward-looking statements. For further detail, please refer to today's earnings release and the risk factors disclosed in our most recent filings with the SEC which are available on our website and the SEC website.

Except as required by law, we undertake no obligation to update our forward-looking statements. During this presentation, we will make reference to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in today's earnings release and investor presentation. These materials are also available on our website. For today's call, first, Brian will begin with an overview of our 2025 results, followed by a segment recap and areas of focus for 2026 and beyond. After that, Nathan will provide quarterly details, a capital update and our 2026 guidance. At the conclusion of our prepared remarks, we will open the line for a question-and-answer session. With that, I'll turn the call over to Brian.

Thank you, Dara. Good morning, everyone, and thank you for joining us. 2025 was a year of meaningful strategic progress. At the start of the year, I mentioned 3 focus areas. And today, I'm pleased to report strong progress in all of them. First, we said that we are in a position to have our most profitable year ever, and we did growing adjusted EBITDA 7% to $497 million. Second, we highlighted that our acquisition program was ramping into full swing. We completed 5 deals in 2025 and expect to have another busy year in 2026. And third, that we will continue to invest in our competitive EDGE initiatives to support long-term growth. We have, and our results reinforce that this strategy is working.

There's no question we are a better company today than we were a year ago. While 2025 started slower than anticipated, we finished strong. Our team advanced our EDGE initiatives throughout the year, building momentum in the second half that resulted in a very good fourth quarter. We entered 2026 with confidence and clear sense of momentum. We believe we are well positioned to continue growing our business. We have built the right team. We operate in the right markets, and we're executing the right strategy. There are 4 components to our growth strategy that we believe differentiate Knife River as the employer, supplier, acquirer and investment of choice. First is our markets. Second is vertical integration. Third is the opportunity for self-help to improve margins. And fourth is our Life at Knife culture and relentless drive for excellence. These factors are key to growing our business and creating long-term shareholder value. Let me tell you how.

First, our markets. Knife River states are forecasted to grow twice as fast as non-Knife River states over the next 20 years. Our strong position in these higher-growth areas present many opportunities for expansion, whether as through the organic growth as people migrate to our states or grow through M&A. There are literally hundreds of opportunities to expand within our territory as family-owned vertically integrated companies look to sell. Often, Knife River is the first call as they want to work with the company they know and they trust. 2025 was an active year for acquisitions, and we expect an equally busy year in 2026. We've completed 1 bolt-on deal already in Montana and expect they will be announcing more deals before the busy construction season starts.

We will maintain a disciplined focus on aggregates-based, vertically integrated opportunities in midsized higher-growth markets. Knife River is truly the acquirer of choice in our expanding markets. Moving from markets to vertical integration. We believe our strategy to be an aggregates-based end-to-end provider enhances our value. Our balanced mix of aggregates, ready-mix, asphalt and contracting services supports resiliency through economic cycles. In addition, being vertically integrated gives us multiple opportunities to win work, either as a general contractor, subcontractor or materials provider. For our customers, being vertically integrated means greater supply chain reliability and improved job site coordination. For us, it enhances our financial performance by generating more gross profit and capturing higher margins on the pull-through of upstream materials.

Vertical integration also provides more acquisition opportunities as we look to add aggregates, ready-mix and asphalt companies to our integrated portfolio. Our next focus area is self-help. We believe in continuous improvement all aspects of our business. We are taking actions intended to drive EBITDA growth and margin expansion for all of our product lines. We are standardizing best practices, optimizing prices and controlling costs. Our commercial excellence teams are utilizing our pricing and quoting tools to get the most value for our materials.

Our dynamic pricing strategy helped drive 9% improvements in aggregates in 2025, and we'll continue to focus on optimizing pricing in 2026. At the same time, we are intent on managing our costs. In the West and Mountain segments, our aggregates cost per ton were down in the second half of 2025 compared to the same period last year. We continue to find opportunities to lower variable operating costs in aggregates and this is a major focus of our PIT Crews and production teams in 2026. Finally, what differentiates Knife River and makes this company so special to me is our Life at Knife culture. We believe that putting people first will retain and attract team members who are driven to win and who are committed to helping us be excellent in everything we do.

We believe an engaged team is a safer team and a more profitable team. We just had our safest year ever, and I look forward to the ideas, improvements and growth opportunities that our engaged team will help us achieve in 2026 and beyond. Combined, we believe these factors will help us generate unprecedented growth for Knife River. Moving from our strategy to our markets, we continue to enjoy a favorable backdrop. In addition to population growth, we stand to benefit from increased federal, state and local funding to maintain and rebuild America's infrastructure. Our states are investing in infrastructure at record levels. DOT budgets across our segments are very healthy. And in our 14 states, approximately 46% of IIJA funding remains to be dispersed.

Strong public budgets provide multiyear visibility, and we fully expect Congress to reauthorize another long-term infrastructure bill. Because of these strong budgets, we entered 2026 with record backlog of $1 billion, a 38% increase from this time last year. While approximately 90% of our backlog is public work, we're beginning to see more private opportunities. This includes data centers as well as distribution and manufacturing facilities. But again, the bulk of our backlog is lower risk public paving projects with contract values of less than $5 million.

Next, I'll discuss what we see ahead in each of our segments. Starting with the West, we're excited with the progress we made in 2025. Record profitability in our Legacy Pacific operations more than offset a softer economy in Oregon. We continue to view the West as being well positioned for growth in 2026. In California, Alaska and Hawaii, we are seeing elevated levels of public activity including heightened military spending. An example of this is the P209 dry dock project in Hawaii, where the Navy is investing approximately $3 billion on much needed infrastructure improvements. We began supplying cement and ready-mix to this project in the fourth quarter and anticipate strong volumes in 2026.

We're also seeing opportunities on the private side, including residential in California and work on the North Slope in Alaska. Moving to Oregon, I'm happy to report that our financial results were once again better this quarter than a year ago, and EBITDA margins for the year remained above 20%. The DOT funding landscape continues to be fluid, but Oregon's approved construction budget for 2026 is comparable to 2025 and the state forecast is similar amounts of asphalt paving this year. The legislature is currently discussing the future of infrastructure funding. And although there are differences of opinion on the next steps, they agree on one thing. Oregon needs funding to fix its deteriorating roads and bridges. Meanwhile, we are seeing encouraging signs in the private market including increased activity in data centers, warehouses and pockets of residential development. We will continue monitoring conditions closely. But based on what we know today, we expect Oregon's performance in 2026 to be broadly in line with 2025 results, while the remainder of the West segment continues to grow.

In the Mountain segment, we closed out 2025 with a strong fourth quarter. This was driven largely by good weather, which allowed us to work late into December. Construction revenue was up almost 20% for the quarter, compared to the same time last year. The work performed include asphalt paving, which positively impacted our Upstream Materials division. Asphalt margins for the quarter improved 400 basis points, and we stand to benefit from record backlog entering 2026 which contains more asphalt paving than we performed in all of 2025. We also had a strong quarter in ready-mix. Pricing outpaced costs, resulting in margin improvement of 400 basis points. We continue to strengthen our leadership team with more materials focused talent, and we believe these actions have put the region in an even better position to perform work on a growing list of private projects.

In particular, data center work in Wyoming and semiconductor construction in Idaho by creating significant new bidding opportunities for the Mountain region. Turning to the Central segment, 2025 was a pivotal year. We completed 3 acquisitions, combined the legacy North Central and South regions and made important progress on several competitive EDGE initiatives. These efforts are enhancing operational success and setting the stage for improved performance this year. The addition of Strata was Knife River's largest acquisition ever and we are pleased with the integration. We expect Strata to continue performing well in 2026 as we fully leverage our synergies and take advantage of North Dakota's record DOT budget. We're also expecting meaningful volume growth from the addition of Texcrete, our new ready-mix operations in Central Texas.

The central region continues to see improved public infrastructure spending, is expected to have its busiest contracting services a year ever, as our teams start construction on the $112 million Highway 6 project in Texas and the $62 million Highway 85 project in North Dakota. Lastly, turning to Energy Services, this segment remains margin accretive and an important component of our vertically integrated business model. We look forward to the second full year of operations at Albina Asphalt as we begin to fully implement and realize the operational improvements we've been making. Also in 2026, we'll continue targeting the sale of higher-margin value-added products, which we manufacture through 1 of our 9 terminals. All in all, we are well positioned for growth in 2026. With that, I'll turn the call over to Nathan to walk through our financial results for the fourth quarter.

Thank you, and good morning, everyone. As Brian mentioned, we finished 2025 with an impressive fourth quarter that produced 47% higher adjusted EBITDA and a 340 basis point improvement in adjusted EBITDA margin. Across our product lines, gross profit was up 27% for the quarter, and we achieved a record gross margin of nearly 19%. These positive results were driven by a combination of our cost controls, acquisition contributions and more favorable weather. The quarter was especially strong for aggregates, with volumes increasing by 17% partly related to our recent acquisitions, along with improved market conditions in the West. Aggregates pricing increased by 8%, supported by the Strata acquisition. Even without Strata, prices at our legacy operations would have had a solid increase of mid-single digits and aggregates gross margins increased by 200 basis points related to our ongoing PIT crew improvements and recouping preproduction costs incurred earlier in the year.

For 2026, we expect our aggregates volumes to grow mid-single digits as market demand continues to improve and the amount of our internal paving work increases. We also expect that pricing will increase mid-single digits as we continue our dynamic pricing discipline. With this backdrop and the continued focus on cost control and operational efficiencies, we anticipate continued aggregates margin expansion in 2026 of approximately 200 basis points. Moving to ready-mix. We saw strong volume increases in the quarter of 20% in gross margin lift of 230 basis points. Similar to aggregates, the volume increase was supported by improved market conditions in the West as well as the acquisitions of Strata and Texcrete in the central. We see these contributions continuing into this year with volumes improving in the mid-teens.

Margin improvement was balanced across all geographic segments with Mountain showing the strongest gains driven by the implementation of operational efficiencies identified by our PIT crews. Asphalt benefited from more paving work in the quarter, producing an increase in internal sales volumes of more than 8%. Lower input costs of liquid asphalt put downward pressure on pricing. However, we manage the price cost spread effectively and maintain margins comparable to the prior year. Looking ahead, we anticipate volumes will increase mid-single digits as we expect more paving work in 2026 than we performed last year. In contracting services, revenue grew 15%, with many locations enjoying favorable weather and availability of work. Mountain had the largest upside related to this extended season with almost 20% more contracting services revenue.

Overall, we did experience an anticipated decline in contracting services gross margin, largely related to lower margin on backlog as well as the timing of project completion and job performance incentives compared to last year. Looking forward, backlog increased 38% to approximately $1 billion, with 75% expected to be completed in 2026. While expected backlog margins are lower than a year ago, we anticipate higher gross margin in contracting services in 2026 as we expect to self-perform more asphalt paving, which typically results in project performance gains and the opportunity for quality incentives. The increased paving in our backlog also provides the benefit of pulling through our higher-margin upstream materials, positively impacting product line gross margins.

Switching to SG&A. The increase over fourth quarter last year was in line with our expectations and primarily related to business development costs associated with acquiring companies and the administrative costs that came with those acquisitions. In 2026, we expect SG&A to be in line with 2025 as a percentage of revenue and then begin trending lower in future years as we scale and fully capture synergies from acquisitions. Continuing with our growth strategy and capital deployment, we had a very productive year as we invested $789 million across our growth initiatives, including 5 acquisitions, 4 aggregates reserve expansions and multiple organic projects. We expect these investments to be accretive to our margin profile and help us achieve our EBITDA targets for 2026 and beyond.

We also allocated capital to maintain our rolling stock and plants as well as invest in improvements to increase production and efficiency. Our maintenance capital expenditures of $170 million or 6% of revenue were in line with our range of 5% to 7%, given earlier in the year. For the full year 2026, the company expects capital expenditures for maintenance and improvement to remain between 5% and 7% of revenue and organic growth projects and reserve additions to be approximately $131 million. Capital expenditures for future acquisitions and new organic growth opportunities would be incremental to the outline capital program. Because of our disciplined capital management, we are in a strong position to continue our strategic growth program. We ended the year with almost $75 million of unrestricted cash, approximately $475 million available on our revolving credit facility and a net leverage position of 2.2x, which is below our long-term target of 2.5x.

Looking at 2026, we have solid cash flow, balance sheet capacity and liquidity to support our growth strategy. Turning to our guidance. As Brian mentioned, we have a lot to be excited about for this year. With a strong infrastructure backdrop, ongoing self-help initiatives and the continued growth of the company. For 2026, we expect consolidated revenue between $3.3 billion and $3.5 billion. and adjusted EBITDA between $520 million and $560 million, which implies an adjusted EBITDA margin of approximately 16% at the midpoint. As usual, this guidance assumes normal weather, economic and operating conditions. With that, I'll turn the call over to Brian to share his closing comments.

Thank you, Nathan. Knife River enjoyed considerable growth over the last 3 years with revenue improving by 24%, adjusted EBITDA by 58% and adjusted EBITDA margin by 340 basis points. Our growth strategy has been working, and we believe we are just getting started. We like our growing markets, which present both organic and acquisition opportunities. We believe vertical integration enhances our value by supporting resiliency and being a profit multiplier. We have opportunities to keep improving our operations and our laser focus on controlling costs and optimizing prices, and we have a skilled team dedicated to making it all happen.

We have built good momentum, and we are well positioned to deliver solid growth in 2026 and beyond. I am very excited about our future. We'll now open the call for questions.

[Operator Instructions] Your first question comes from Brent Thielman with D.A. Davidson.

Congrats on a great finish to the year. Brian, I guess first question was just on -- I mean, look, you've got a great backlog here entering 2026. But the West does carry the highest margins for you and was a bit lower. Maybe you could just talk about the opportunities to build on that backlog for that particular region just given its relevance to margins.

Yes, Brent. We like the position we're in right now, record backlog, up 38% at $1 billion, but you're right. We definitely have seen a shift, a geographic shift of that work more in Mountain with a record backlog and Central with a record backlog, but we have very solid funding in California, Hawaii and Alaska. Now we don't perform per se, contracting services in Hawaii and Alaska, but we definitely supply a lot of contracting materials to subcontractors and suppliers -- contractors up in those states in Hawaii, Alaska. California, we benefited from a great year in California, and that momentum and funding is continuing in our markets. Oregon was down and it continues -- our backlog is down. But like I mentioned in my prepared remarks, the fortunate thing is the DOT budget in Oregon is about flat, slightly up a little bit and the asphalt paving tonnage is also slightly up for this year in 2026 versus '25. And we're out looking for work. And our crews have shown this last year to be nimble and pursue work that fits them.

And you can see that in the strong second half that Oregon had. And so I'm not worried, Brent, about the backlog in the West, but there definitely is a geographic shift of that backlog to states in the Mountain and the Central region.

Okay. Understood. And I guess my follow-up, Brian and Nathan, I mean this is the second year in a row, you've been able to drive aggregates average pricing at 9%. I know there's M&A sprinkled in there and yours and the industry expectations in the mid-single-digit range here for 2026. But maybe if you could just talk about the potential levers to outperform that, just given what you've been able to do here in the last couple of years on the pricing front?

Brent, this is Nathan. I'll take the first part of that question with the increase that we've seen here in 2025 on the aggregate pricing and then turn to Brian for the levers that we see going forward. You're right, very strong year for us in terms of aggregate pricing, high single digits. And as you may be heard in the prepared remarks, part of that has to do with Strata. Strata does have higher pricing. Now part of that does relate to the way which we account for delivery revenue. So they do have areas that they reach and there's revenue included in their average selling price. So it is higher as Strata laps itself here year-over-year, that's what I mentioned in the prepared remarks, we see that still continuing mid-single digits so very strong core ongoing operations, but you're at high single digits this year, mid-single digits next year, part of that just has to do with Strata overlapping or lapping itself year-over-year.

As far as the levers that we'll pull on, I'll turn that over to Brian.

Brent, our commercial excellence teams have been very active, implementing the new dashboards and bidding tools to support our dynamic pricing. And we spent a fair amount of time in the classrooms this year going through a lot of training focused on commercial excellence. So as you know, our dynamic pricing allows us to bid work throughout the year, and so we don't have a single letter that goes out in November, December or second ones midyear. We'll do that throughout the year and continue to optimize prices. And so that rollout has been very successful. All of our legacy sites now have fully implemented dynamic pricing as we bring on acquisitions roll that out into those new sites. But right now, very good traction on our dynamic pricing going into 2026.

[Operator Instructions] The next question comes from Trey Grooms with Stephens Inc.

Brian, Nathan, this is Ethan on for Trey. I wanted to dive further into the puts and takes on the margin outlook that's baked into the guidance because the full year guidance seems to imply relatively modest EBITDA margin improvement. I know you mentioned that there's a geographic mix shift within the backlog, but it sounds like materials margins will be strong and services margins will also see a step up. And then of course, we know weather was a pretty large headwind to 2025. So any more color on the puts and takes on the margin guidance for 2026 would be helpful.

Yes. I'll take that one. And so good talking to you. Yes, our EBITDA mid-margin for the midpoint is going up 10 to 20 basis points from last year. And so if you look at our individual product lines, gross profit, as Nathan mentioned, we're expecting to see somewhere in that 200 basis point margin improvement in aggregates. And frankly, we're seeing margin improvements in our budgets in all of our product lines. And that really is coming from our dynamic pricing model and our PIT crew initiatives fitting into that. Because of the shift, we've mentioned Oregon being flat this year, Energy Services being flat, we're definitely shifting more of our EBITDA contribution as a percent of total contribution to the Mountain and the Central regions. And those have slightly lower EBITDA margins, even though they too are seeing a good traction and good movement in margin expansion in those regions, they are at a lower margin than the West. And so that's what's going on with that. But good traction, good movement on all of our product lines for gross profit improvements.

Got it. That's super helpful. And for the follow-up, quickly, just a question on Oregon. So at what point could we return to year-over-year growth in Oregon? And how important is funding clarity to achieving this sort of leveling out given that the easy comps, especially in the 2Q and the 3Q of 2025. And also considering the private side in Oregon seems to be doing pretty well. So any more color there would be helpful.

Yes. The private side definitely rebounded well in the late third quarter and benefited us well into the fourth quarter and was a big part of the success that we had in Oregon quarter-over-quarter improvements in the fourth quarter and the third quarter. Public funding is a big part of our success also in Oregon and clarity on that will be important. I think, relatively safely say that we don't expect any major shifts at all at this point in time for 2026 and a stable budget in Oregon with the tons that have already either been let or in the bidding schedule to be relatively flat to last year. And so I feel comfortable saying that the results for Oregon in 2026 should be in line with what we had in 2025. And so yes, we're very hopeful the legislature is currently discussing infrastructure funding, literally in their short session, it's in session now and expect that, that conversation will really build into next year's longer session where we anticipate they would have a robust conversation and pass a longer term, much larger build than the $4.3 billion stop gap that they passed earlier that should happen in 2027 if you talk to the legislatures in the state of Oregon.

The next question comes from Kathryn Thompson at Thompson Research Group.

You had in your prepared commentary, talked a bit about self-help versus pricing and transitioning from not just focusing on pricing, but also acute focus on cost controls to drive margins. When you look at a regional standpoint for both your West and your Mountain divisions, which showed barely outsized performance in the quarter. What drove these outside gains? And how much was self-help versus pricing?

I appreciate that, Kathryn. Yes, we had a fantastic fourth quarter. It was up 47% over last year. And I would say, Kathryn, I think you could just put that in 3 big buckets that variance year-over-year. The first one is we certainly had favorable weather. And in particular, in the Mountain region, which allowed us to do more asphalt paving. We also -- it benefited really a lot of our regions as it relates to just staying out and working aggregate sales, ready-mix sales were solid. We were able to utilize our equipment pool more efficiently in that fourth quarter. And so one of those large benefits and variances for the fourth quarter was definitely favorable weather.

The second one was we had good contributions from our acquisitions, led by Strata, but we also had another -- 4 other very nice acquisitions last year. Texcrete came in mid-December and very excited about that acquisition and the other contributions from the acquisitions. That was part of our positive variance for the fourth quarter. And the last one was you mentioned just the operational execution and implementing EDGE initiatives. Now, we obviously had a partial benefit of recouping some of those preproduction costs that we incurred earlier in the year, those came back to benefit us in the fourth quarter. But more importantly, it was our teams executing on our EDGE initiatives and really looking at their cost and controlling our costs very tightly and very proud of the team and the work they did and the focus on cost controls that really are going to bleed into this year is a big part of our focus in 2026 to continue those cost control measures. And looking at KPIs and just really focus specifically on aggregates, but frankly, all the product lines will benefit from that this year.

Okay. Great. I also talked about getting called capital allocation or capital planning capital to deploy into calendar 2026. Could you just tell us a little bit more or give some broader stroke color on what you're seeing in your pipeline for M&A so inorganic. And then other organic initiatives that you're hoping to execute and to share.

Yes. We're very excited about our growth strategy, and I'll start off talking about the pipeline and the organic opportunities then turn it over to Nathan to talk about our strong balance sheet and capacity to go out and continue our growth strategy. So we have a very disciplined approach, and we're looking for strategic fits that fit both our cultural fit and a financial expectation that we'd have all the deals we did last year, Kathryn and the deals we're looking at our pipeline. In our pipeline, when I say it looks very similar to last year. I'm talking about the types of deals in there, the size of the deals and the location of the deals. They're aggregates-based many of them are vertically integrated. Most of them are infill bolt-ons to our existing operations.

We certainly will look at states adjacent to our current footprint or current states or regions that we do business in. They're in these midsized higher-growth markets, and we are looking to continue to balance our portfolio. And the nice thing about this is it all starts at the local level with local relationships. And just like all of the deals we did last year, they are negotiated deals directly with the sellers at those high single-digit multiples, very attractive multiples. So the pipeline is robust. The pipeline is full. I've talked about the hundreds of opportunities in our states that we do business in and because we're vertically integrated where we will look at aggregates, ready-mix, asphalt and contracting services opportunities as long as we can continue to focus on the supply of aggregates to those operations, either from new resources or from our existing resources.

I would say that the last thing before I turn it over to Nathan, that is a very important part of this process. is just a playbook that is proven and one that we've been using for over 30 years. We continue to refine it. We've done almost 100 deals now since the early '90s.

And really, it's just very focused on getting the right deals in the pipeline being very disciplined at the deals we put in the pipeline and going out and courting those relationships. The second part of that is doing a very thorough job, disciplined job of due diligence. And both of those activities are led by our local regional teams, which then feeds into the third phase, which is integration. And that is also heavy influence with the local team at the regional level with oversight and support from corporate. And so very proud of our M&A program, our growth strategy, what we've done in the last 2 years since the spin. Organically, we have identified a number of very exciting projects that have, frankly, higher returns than even our M&A opportunity and continue to go out and execute on the organic growth. We are entering new markets in Idaho. We've expanded our capacity as we see more asphalt paving coming on. We've added capacity to Texas, in South Dakota. So it's certainly spending some money organically as well. So with that, maybe, I'll just let you talk a little bit about the capacity.

So good news here is that to support the capital deployment, all the good things we've got going on that Brian talked about. We've been disciplined in how we've maintained our balance sheet and we have solid cash flow. So Kathryn, I'll put it into 3 buckets for you that give me confidence in what we've got from a balance sheet or a support perspective for this growth that we've talked about. First, we have the liquidity to act quickly. As I mentioned, we've got -- ended the year with $75 million of cash on hand, $475 million available on our revolver.

So as deals come up, we have the ability to move quickly on them. Secondly, we expect solid cash flows from our operations. In fact, for this year, 2026, we expect our cash flow from operations to be about closer to the historical average of 2/3 of EBITDA. And so we've got cash flow coming from operations. And then the third part is the balance sheet itself, the net leverage position. We ended the year at 2.2x net leverage. As I share before, our target is 2.5x so we're below that. And I think for the right deal, fits our strategy, has the right financial metrics with it, we'd be willing to go higher than that, maybe closer to 3 for a short duration and then see that long term go back to 2.5. So we got the liquidity, the cash flows and the balance sheet, all the support deals, and that's where we want to put our capital to work is growing this company that Brian outlined for us.

The next question comes from Garik Shmois at Loop Capital.

Congrats on the quarter. First off, just on SG&A, just to piggyback off on the last set of questions. How should we think about SG&A inflation this year, both from an underlying standpoint plus any incremental that you have with respect to the inorganic growth plan?

Yes, I'll take that one. Garik, good to hear from you. So SG&A, the first part here is we take a look at 2025 and the increase that we had this year. I'll just identify the key buckets there, and we talked about them in a fair amount throughout the year. And kind of back to the last question. They all relate to growing this company, which is the exciting part of it. So the largest increase that we had, the largest bucket for the increase we had in SG&A was really related to the administrative costs that came with our acquisitions, did 5 acquisitions last year, and they brought some SG&A with them. So that was the largest piece.

The second largest also relates to growth, and we talked about this throughout the year, that onetime step-up related to our business development team and getting them in place to pursue acquisitions as well as our EDGE teams to pursue like the PIT crew and the opportunities they're going after. So the 2 largest components really of our SG&A increase relate to growing the company. The next piece really is, as I shared before, the ongoing costs, I'll call it of the operations or the SG&A grew mid-single digits, which is what I shared at the beginning of the year.

So Garik, '24 to '25, those are the 3 buckets that cause the increases. As we look forward, I mentioned earlier that we expect SG&A as a percent of revenue to be in line year-over-year. If you look closer at that, again, similarly, the ongoing costs in there, we see growing mid-single digits, very comparable to what we see throughout the organization, a mid-single-digit increase in cost, maybe towards the lower end of that range. And if you're wondering well, what else could be impacting that. One thing that I'd add to it is that in '25, we did have higher gains on the sale of assets, most notably that East Texas sale that we started a few years ago, we finished that. So that's a gain that we don't obviously anticipate for '26 that would be part of the increase you see going from '25 to '26 but outside of that, the underlying costs increasing mid or maybe on the low end of that mid-range single digits. Hopefully, that's helpful.

No, that is. My follow-up question is on volumes. Your guidance is considerably stronger than other public peers. I was wondering if you can unpack that a little bit more. You talked a little bit about the regions, a little bit about some of the infrastructure projects and the pull-through from contracting services. Wondering if there's anything else maybe on the private side? And then also, is there any weather catch-up considering there was such a headwind, particularly through the first 3 quarters of '25.

Garik, we had that benefit a little bit in the fourth quarter with positive -- favorable weather in the fourth quarter. And so I would say that the backlog that we've got going into next year would not be a lot of delayed work. It certainly impacted at the beginning of the year and caused us some challenges at the beginning of the year, but we had a strong fourth quarter and have good backlog going into next year. The volumes being up mid-single digits for aggregates. I'll start with that one. Really is also related to ready-mix volumes being up mid-teens. The addition of Texcrete more than doubles our supply in the Texas Triangle. And so that would be a large part of our mid-teen increase and being supplying aggregates to that operation would also be part of the mid-single-digit increase on aggregates. But it's not just Texcrete, Nathan and I talked about the additional asphalt paving that we have in our backlog as we see strong pull-through of aggregates going into our asphalt plants and then the aggregate sales are just -- are becoming stronger in markets like Oregon.

And you saw that again in the fourth quarter results those higher-margin third-party aggregate sales in the metropolitan market in Portland certainly benefited us. So we continue to focus additional third-party sales in Central region. So I would say all of those factors gives me good confidence in our volume projections of mid-single digits for aggregates and the mid-teens on ready-mix.

The next question comes from Ian Zaffino at Oppenheimer.

Why don't you just kind of drill in on the comment about data centers, can you give us a little bit more color there, be it growth rates that you're seeing kind of portion of the backlog you're seeing or maybe how quickly these jobs convert? So what's happening as far as backlog into conversion? And then any other kind of margins? And any other type of color you could give us on that mix.

Yes. Thanks, Ian. I would say that virtually 0 amount of dollars in our backlog related to data centers. We have a lot of data centers that we're working on right now, but most of that would be on the material supply of the business. Have some very small paving projects, but that would not move the dial at all on our record backlog of $1 billion. We are currently working on 21 data centers. And again, most of that would be through the supply of aggregates or concrete mostly to those projects. And I think that is the tip of the iceberg. If you look at the amount of work that we have out there pending, bids that are out there that we have provided in the last, say, 2 months is significantly more than what we currently have supply contracts for. And so a very big upside. Each one of our states, several of our states are, Wyoming has a lot of opportunities. North Dakota is currently working on some data centers, Oregon is working on data centers. So we're in the heart of our -- some of our home operations where we have local aggregates and ready-mix plants, data centers are being built.

And so we see that as a very bright spot, frankly, all -- anything that we would be securing as new work would be on the upside of our range as a guidance. And so we've not baked in any expectations for our mid point of our guide on data centers. But I can tell you that in my career, I mean, just in the last 2 years, we've never seen this level of pending work and bids that we've got out there and very good negotiations going on right now.

And they're higher-margin upstream materials. For the most part, it's aggregate supply, ready-mix supply with either an on-site batch plant or a local batch plant close by, and then asphalt paving going into some of these new greenfield sites. So very excited about the opportunities in data centers.

Okay. So then how do we then think about just margins going forward, right? So you're getting a favorable mix from this, you're getting your success on the EDGE program. There's a lot of other initiatives that are kind of firing on, call it, all cylinders. And so how do we kind of put this all together as you try to hit your 20% margin target? Is this -- are you accelerating it? Or when do we actually kind of see you achieve those levels?

Yes. I think we are proud of the progress we've made in call it, 2.5 years since we've spun in 3 years, really since we started implementing our EDGE initiatives. And let me just give you the success some numbers here of the progress we've made in those 3 years. For gross profit margins on aggregates, we've improved 450 basis points in 3 years. On ready-mix, we've improved 300 basis points, asphalt 570 basis points, liquid asphalt 450 basis points and contracting services 280 basis points from the end of 2022 to the end of 2025. And so Ian, I mean I think we've been pulling hard on obviously, the pricing dynamic, commercial excellence levers, shifting our attention more focused on the operational excellence and the cost controls and it's not linear. As you know, you pick up some lower-hanging fruits sometimes. And so we do expect margin expansion to continue in all of these product lines. And we're very excited about that. Now yes, I just -- I would leave it at that.

[Operator Instructions] The next question comes from Garrett Greenblatt from JPMorgan.

Just as we think about 2026 and the outlook you provided, I was wondering if you could go into a little more detail or quantification around the impact of acquisitions you did in 2025 and what that organic assumptions look like in 2026?

Yes. So I think the acquisition that we did late in the year, Texcrete, you could look at the contributions from Texcrete in 2026, all of 2026 to offset the seasonal losses that we did not incur earlier in the year last year in the first quarter from the acquisition of Strata that was in March. And so that comes with a headwind in the first 3 months that we will experience this year and the benefits of the full year of Texcrete more than offsets that. And so if you look at our growth year-over-year, really, you could look at all of that growth as being organic at this point in time. I mean we've not included any future acquisitions in our guidance. And our guidance of midpoint of $540 million would imply about a 9% growth rate really on that organic business. And then I've mentioned that Oregon is going to be flat. And you take Oregon being flat, that would imply that we're mid-single -- mid-teens 14%, 15% on the remainder part of that business, which would be Central Mountain, Legacy Pacific.

And so we see solid growth going into this year as it relates to the organic business and the contributions from the acquisitions we did last year.

The next question comes from Ivan Yi at Wolfe Research.

Yes. Now I know you guys don't provide quarterly guidance, but can you give some color on the trajectory of your full year guidance for '26. What should we expect in terms of ag volumes, price or margins in 1Q specifically. Anything outside of normal seasonality? Any additional color would be great.

I'll start with the seasonality piece of that, and then we can get into the ag volumes and the outlook for the maybe quarter and for the year. So we did share last year at this point, Ivan, you might be able to go back and take a look of the seasonality change that we did have coming with Strata. And so that did increase at that time we said 8% would be the seasonal loss that we have for the first quarter now with Strata in place. Now Brian just mentioned 2 pieces that do kind of offset each other. He mentioned Texcrete for the full year. But he had mentioned that we do have that loss with Strata, that was baked in last year. So maybe some of the benefit from Texcrete this year softens that 8%. But that does give you an idea of what the seasonality would be for the first quarter. And then the benefit of that coming later in the year, probably predominantly in the third quarter, maybe a little bit in the fourth.

Yes. As my follow-on. You've got -- you provided guidance on the volumes for ready-mix and asphalt. Can you give more color on our expectations for the pricing for those 2 segments?

Yes. So as you know, the input costs have a pretty big impact on our cost, and therefore, pricing. And so on ready-mix, the 2 biggest factors that really are outside of our control is the cement pricing and then the products that our customers are asking for, which would be mixed design, different mix designs. And so you could look at a job like we have right now, that P209 project that I mentioned in Hawaii. The price of that material is much, much higher than it would be for, let's say, residential, which is a lot of what the Texcrete acquisition does. And so what I can tell you on ready-mix pricing and asphalt pricing because it's a big influence by liquid asphalt is that our commercial excellence initiatives, our teams, our sales teams are totally focused on optimizing prices.

They're continuing to use dynamic pricing and we see that momentum that we've had in the previous years continue forward as we roll out and continue to implement the new dashboards and tools that we've given to our sales team. So solid traction on pricing going forward, but heavily influenced by product mix and by input costs such as cement and liquid asphalt.

We have no further questions. I will turn the call back over to Brian Gray for closing comments.

Well, thank you again for joining us today. Thank you to our Knife River team members, a fantastic job last year. We really appreciate that. We have good momentum going into 2026. I'm excited for what we accomplish in the year ahead. With that, I'll say goodbye. Thank you.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

Good morning, ladies and gentlemen, and welcome to the Knife River Corporation's third quarter results conference call. [Operator Instructions]. This call is being recorded on Tuesday, November 4, 2025.

I would now like to turn the conference over to Nathan Ring. Please go ahead.

Thank you, and welcome to everyone joining us for the Knife River Corporation Third Quarter Results Conference Call. My name is Nathan Ring, Chief Financial Officer of Knife River, and I'm joined by our President and Chief Executive Officer, Brian Gray. Today's discussion will contain forward-looking statements about future operational and financial expectations. Actual results may differ materially from those projected in today's forward-looking statements.

For further detail, please refer to today's earnings release and the risk factors disclosed in our most recent filings with the SEC, which are available on our website and the SEC website. Except as required by law, we undertake no obligation to update our forward looking statements.

During this presentation, we will make references to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in today's earnings release and investor presentation. These materials are also available on our website.

Brian will begin today's call with an overview of our third quarter 2025 results, followed by a segment recap and an update on our competitive EDGE plan. Following his remarks, I will provide a product line summary, a capital update and a review of our 2025 financial guidance. At the conclusion of our prepared remarks, we will open the line for a question-and-answer session.

With that, I'll now turn the call over to Brian.

Thank you, Nathan. Good morning, everyone, and thank you for joining us. The third quarter is typically our most profitable, and we're pleased to report record financial results. Our revenue of $1.2 billion and adjusted EBITDA of $273 million were all-time quarterly highs, thanks to strong contributions from our recent acquisitions. M&A is a core component of our competitive EDGE strategy to drive long-term value.

Another pillar of our EDGE plan is to optimize prices and control costs. I'd like to thank our Knife River team members for making important strides in this area during the quarter. Their efforts helped us grow adjusted EBITDA margin to 22.7% for the quarter. And equally impressive, we also improved gross margins across our aggregate, ready-mix and asphalt product lines.

We did all this while facing headwinds that we didn't have last year, including wet weather, a sluggish Oregon economy and less asphalt paving across our segments. Delivering improved results in adverse conditions points to the fundamental strength of our business. Even without the addition of Strata Corporation, which is our largest acquisition ever, our third quarter revenue and adjusted EBITDA would have been records.

Looking ahead, we're excited about our future. We're still in the early innings of our self-help initiatives, and we certainly expect the organic business to continue to grow as we fully implement dynamic pricing and operational improvements. We also continue to pursue strategic acquisitions, and our team currently has multiple deals in the pipeline.

We have record third quarter backlog with more pull-through of higher-margin asphalt paving materials than we did last year. And our states continue to invest in public infrastructure at record levels. All in all, we expect the combination of our EDGE strategy and market fundamentals will continue to allow us to achieve profitable growth for our shareholders.

As we look more closely at our third quarter results, I'll start with an update on Oregon. We don't typically provide financial results for an individual state, but there's been a lot of attention on Oregon, so I wanted to follow up with some additional detail. During the quarter, I'm pleased to say we saw year-over-year improvements in the state. As previously reported, this market was down in the first half of the year. And during that time, we moved quickly to right-size our team and reposition our crews to where the work is. We continue to optimize pricing to control costs, and we benefited from the financial contributions of recent acquisitions.

In addition, we began to see aggregate volumes improve as third-party sales resumed on several jobs that have been delayed earlier in the year. Finally, our current contracting services backlog in Oregon is approximately 90% of where it was last year at this time. These factors led to third quarter financial results in Oregon, that were higher than last year, suggesting the headwinds are beginning to calm.

In addition, the recent passing of a 10-year $4.3 billion transportation funding package helped provide additional [ clarity ] in Oregon. One of the long-term fixed lawmakers originally proposed, we expect the bill at a minimum will help maintain current funding levels and improve upcoming bid schedules at the local agencies. Half of the funding is earmarked for cities and counties for the types of projects we most often perform. The other half of the new revenue stream will be added to Oregon's DOT budget. Total funding for the next biennium is now projected to be $6.1 billion, slightly below the record $6.2 billion from the previous 2-year cycle.

Given the new funding, our improving aggregate sales, management's commitment to keeping costs in check and ongoing contributions from M&A, we expect the stabilization to continue and currently anticipate overall 2026 results in Oregon will be similar to this year.

Switching from Oregon to Mountain, this segment remains one of the fastest-growing areas in our footprint, and we continue to enjoy record backlog here. However, third quarter results were impacted by less asphalt paving, related to project timing, type of work, competitive bid dynamics, and delays caused by weather and project phasing. We experienced more scheduling delays this year than last year.

The overall decrease in asphalt paving in the segment not only impacted contracting services, but also had a ripple effect through hot mix asphalt, aggregates, and the utilization of our equipment pool. Fortunately, this work remains in our backlog, and we continue to add paving tonnage for next year. DOT budgets are strong, backlog is at record levels, and we've added capacity in an effort to capture even more work heading into 2026.

Continuing with our segments recap, let me move to the West. Since I already touched on Oregon, I'll focus on California, Hawaii and Alaska. In these states, we saw healthy demand with pricing discipline and strong execution driving our results. We had increased ready-mix volumes and pricing in California where we added capacity, and improved delivery efficiency. We also had higher contracting revenue margin in California, where we continue to see strong public agency demand. In Hawaii and Alaska, we had increased aggregate and ready-mix volumes, and we stand to benefit in both states from some large impact projects that are just beginning construction. With the stabilization in Oregon, we are optimistic about continued growth in the West in 2026.

In the Central segment, our results were supported by the integration of Strata, which contributed to volume and margin improvement. Third quarter revenue and EBITDA were up substantially, and EBITDA margin was 23%, an all-time record. The strong quarter in Central could have been even better if not for the rain. The wet weather we reported in the second quarter continued into third, particularly in July and September, which delayed projects and negatively impacted operating conditions.

Still, we achieved a record quarter and are excited about the year ahead. Backlog in this segment is up 83% year-over-year, driven primarily by an increase in Texas. We are seeing strong commercial and public work opportunities in our Texas footprint, and our teams there have secured major highway projects in the College Station area.

In North Dakota, we are also set up favorably for 2026 with new infrastructure funding driving bidding opportunities and supporting the Knife River and Strata combined operations. The North Dakota state DOT intends to bid about $750 million of construction work in 2026, which is more than twice the $345 million they put out for bid in 2025. Throughout the Central segment, our markets appear poised for growth and our expanded teams are working closely together.

And finally, at Energy Services, the segment delivered a strong quarter with revenue up 34% and EBITDA up 18%, primarily due to the acquisition of Albina Asphalt, and the new polymer modified liquid asphalt plant in South Dakota. The segment continues to benefit from vertical integration and disciplined bidding, and is on track to have another solid year. While 2025 has had its share of challenges, we continue to focus on our EDGE strategy and the opportunities we have to improve our performance and finish the year strong.

As mentioned, EDGE includes acquisition growth, which contributed to our improved results for the quarter. M&A will remain an integral part of our strategy, and our corporate development team continues to add quality opportunities to the pipeline. We are focused on aggregates-led margin-accretive targets in our midsized high-growth markets. But M&A is just one component of EDGE.

During the quarter, our process improvement teams, and field personnel were also hard at work, implementing efficiencies across our operations. At the same time, our sales teams continue to emphasize our dynamic pricing model, helping to better capture the full value of our products. These tandem efforts resulted in third quarter improvements to our aggregates, ready-mix and asphalt gross margin. While we're improving our processes, we are also improving our safety performance.

I'm proud of the advancements our team continues to make on the I Choose Safety program. We believe a safe and engaged team is vital to our success. Combined, we expect each of the ongoing efforts in our competitive EDGE plan will help drive consistent EBITDA growth and enable us to achieve our long-term goal of 20% adjusted EBITDA margin.

Before I turn the call over to Nathan, I'd like to take just a moment to reinforce our track record of meeting our goals. In our 30-year history, we have had 4 distinct periods. The first was to build scale. The second was to enhance our vertical integration and generate industry-leading return on invested capital. The third was to position Knife River to become an independent publicly traded company. And the fourth is where we are today, implementing our competitive EDGE strategy in an effort to grow EBITDA, and improve margins. We accomplished our goals in each of the first 3 phases, and we are on track to meet our EDGE goals as well.

Over the past 3 years, on a trailing 12-month basis, we have grown revenue by 22%, adjusted EBITDA by 56% and adjusted EBITDA margin by 320 basis points. EDGE is working and the fundamentals of our business are only getting stronger. All this gives me great confidence that our dedicated team members will continue delivering profitable growth and create long-term value for our shareholders.

With that, I'll turn the call over to Nathan.

Thank you, Brian. As we take a closer look at our financial results, you'll see that it was also a positive turning point in the year for our materials product lines. In particular, aggregates, ready-mix, and asphalt saw margin improvement over the third quarter last year.

In aggregates, prices increased 8% and margins improved 50 basis points. As we mentioned last quarter, we anticipated that the early season pre-production work and our team's ongoing efforts to create operating efficiencies would begin to produce improved financial results. We're taking these efficiencies and scaling them. As we assess our operations, we believe the upside in margins for aggregates provides one of the most compelling opportunities for earnings growth. Volumes also increased in the quarter, thanks to contributions from Strata, as well as Alaska and Hawaii.

Looking at the full year, we expect volumes to be flat as a result of the increased rainfall and less paving work performed earlier in the year. We anticipate that pricing will remain strong, and increase high single-digits for the full year.

Switching to ready-mix, we had one of our best quarters ever. We had price increases of almost 6%, volumes were up 16% and margins improved 160 basis points over third quarter last year. Much of the improvement comes from our dynamic pricing model, along with operating efficiencies at the batch plants and product delivery. Volumes were up mainly due to the addition of Strata's 24 ready-mix plants, and also because of increased commercial work in Alaska, California and Hawaii. We expect full year volumes to be up by low double-digits and pricing to increase mid-single digits.

The asphalt product line was directly impacted by less paving work in contracting services. Almost 70% of asphalt volumes are sold internally, and internal sales were down approximately 7% for the quarter. Prices were also down compared to last year, directly related to lower liquid asphalt input costs. Despite the lower volumes and pricing, we have been able to manage our cost structure and slightly improve margins over third quarter of last year. For the full year, we expect volumes and pricing to be down by low single-digits.

In contracting services, the revenue and gross profit declines were largely related to less paving work for the quarter. Our contracting services margin was also down due to slightly lower at margin available on the backlog work we performed, fewer project bonus opportunities because of the type of work, and delays in job site challenges from adverse weather.

Looking ahead, our backlog is 32% higher than last year with significantly more paving work secured, and we are also seeing additional paving jobs in the upcoming bid schedule from what we did at this time last year. Even though the expected margin in our backlog is slightly lower year-over-year, we expect this will be more than offset by the anticipated benefit of additional volumes of upstream higher-margin materials.

Moving to SG&A, the increase over third quarter last year is primarily related to overhead that came with acquisitions we have made in the last 12 months. Although costs are higher year-over-year, they are coming in lower than we had forecast, partly due to the benefit of higher gains recognized on the sale of assets and lower payroll incentives. As we look forward, we anticipate that fourth quarter SG&A will be higher than last year by mid-single digits, plus increases from the recent acquisitions.

As we look at our balance sheet, we ended the quarter with a net leverage position of 2.6x and $457 million of borrowing capacity on the revolver. For capital deployment, we have invested $664 million on growth initiatives through the third quarter, including acquisitions, aggregates expansion, and greenfield projects. For the remainder of 2025, we expect to spend approximately $32 million on organic growth projects.

For maintenance and improvement, we continue to expect capital expenditures to be between 5% and 7% of revenue for the full year. Our balance sheet remains strong with available financial capacity for future acquisitions and new organic growth opportunities, which will be incremental to our outlined capital program.

As we consider the full year, we are narrowing our financial guidance. Our updated guide is based on normal weather, economic and operating conditions for the remainder of the year, and includes consolidated revenue between $3.1 billion and $3.15 billion, and adjusted EBITDA between $475 million and $500 million. Our teams have done an excellent job managing through the challenges we faced this year, and the third quarter results proved that the fundamentals of our operations are strong. Our EDGE strategy is working. The markets we operate in have solid public funding. Our PIT Crew initiatives are producing financial results, and we believe Knife River is well positioned to deliver long-term value to our shareholders for years to come.

I would now like to open the call for questions.

[Operator Instructions] Your first question comes from the line of Brent Thielman from D.A. Davidson.

Maybe just, Brian on, I guess, a shorter term question, just kind of backing into the math for the fourth quarter with the revised guidance here implies decent year-on-year growth in EBITDA. Just wanted to maybe get a little more context of what you're seeing on the ground right now that kind of gives you confidence in that year-on-year growth range? I know there's been challenges through the year, and delays and pushouts with weather, but any more context there would be helpful?

No, I appreciate that, Brent. And so, yes 3 factors really. The Oregon stabilization and their ability to actually produce more profit for the third quarter, that momentum will continue. That stabilization in Oregon will continue. A few of those jobs we talked about earlier in the year that were delayed have resumed construction, and so, that is part of the fourth quarter guide.

The other thing is our record backlog, and the additional paving that we have in our backlog with favorable weather, and I would say that we had a good October as far as weather. And so, we obviously have 2 more months left, that begins to change on us. But if we get a couple more weeks of good weather, that gives us confidence we can get that work done.

And so really, it's the turn, the stabilization in Oregon, the strong backlog that we've got that has additional pull-through of those higher-margin asphalt paving materials and then normal weather, and we had a good month in October.

Got it. And then, I appreciate all the detail on kind of what's going on in Oregon. I guess, Brian, the -- I think you said you anticipated results would be similar in 2026 to what you should see this year. What are you looking for over the next several months that might dictate maybe something more than stable, maybe possibly some sort of rebound in Oregon next year? Just curious kind of the things you're looking at that might drive that?

Yes. I'm real pleased, Brent, with the management's reaction and quickly rightsizing to the new level of work there, repositioning crews within the state where we're busier, and there's pockets within Oregon that are still healthy. Obviously, the Portland market is the large driver of our volumes.

And so, we're still looking for some additional market stability in there. I think the trade talks that are going on has an impact on that Portland economy with the imports, and along with some of the larger employers in the state that are impacted by tariffs. And so, I think looking for some stability there. The governor needs to sign, which we fully anticipate will happen, the transportation bill.

We need to see the bid lettings come out that, that 50% is going to the counties and cities that we expect will benefit us. We're heading into our busier time of the year as far as bidding. So, looking for some stability there. So there's still, I mean -- I think there's a lot of positive signs in Oregon over the last 90 days. And I think we want to see that momentum continue into next year. And then when we get to February, we'll give better guide. But at this point in time with what we see, we feel comfortable that Oregon [ is ] [ stabilized ] and the results next year in 2026 should be flat with this year.

Okay. Just last one on Strata, realize that conditions have been sort of atrocious in that region, probably tough to get to that $45 million bogey for this year. But maybe kind of what's under the hood that you're seeing, that you really like about that business? And as we think about a year where we don't have some of these challenges from weather is $45 million sort of contribution to EBITDA from that business is still very, very reasonable to you?

Yes. Brent, we're very pleased with what we've seen, extremely pleased with the integration that our team and their teams are coming together as one. You look at the DOT budget in North Dakota, more than double than what we had this year, and we are well positioned to take advantage of that.

You look at our ready-mix results for this quarter, and Strata is a large contributor to that success. And so they absolutely are performing as we had modeled, as we anticipated, with the one exception that you mentioned was a very wet summer for those days.

But other than weather, they absolutely are on track, both to capture the synergies that we modeled. The volumes are in line with what we modeled, and it's really performing very well, and we're excited about next year with the North Dakota bid letting schedule coming up.

Your next question comes from the line of Kathryn Thompson from Thompson Research Group.

I just want to dig a little bit more into backlogs, had a nice increase, very solid contribution from public, as is typical. But could you give a little bit more color in 2 different buckets; one, the type of projects, really more color specifically on contracting? And then the type of product, the asphalt type jobs and what this means for margins overall on a go-forward basis?

Yes, let me start with the margins in our backlog. Nathan mentioned that we have slightly lower margins. And I'll start by saying that we -- I'm very proud of our teams, and we have industry-leading margins to begin with. And I know that the margins that we have in our backlog, that come from our pull-through of the downstream materials. So, when we're doing asphalt paving, and we have a lot of asphalt paving in our backlog, Kathryn, I'll talk about that next.

But that more than offsets those margins in aggregates, those margins in asphalt. That's not part of contracting services, those margins more than offset the slight decline that we have in our backlog margins. So, if you look at it from an enterprise level, from a consolidated level, our backlog has more gross profit in it than it has in the past, even with the slightly lower margins in contracting services, more than offset by the benefits we get of higher volumes of asphalt paving, because of that pull-through of the higher-margin material.

So, Nathan also mentioned that we have significantly more asphalt paving in our backlog. And we did not secure the amount of work that we had anticipated for this year. And we also didn't perform it, partly because of weather, partly because of delays. The good news is that backlog, I mean, is still -- that work is still in our backlog. And so we have significantly more asphalt paving with those higher-margin pull-through that will benefit the asphalt, the liquid asphalt, the equipment pool, the aggregates business line.

So just to put it in perspective, the Mountain region today -- I'm sorry, at the end of September, so end of the quarter, has 23% more backlog of asphalt paving than we performed all of this year in the Mountain region. So that's one data point to kind of give you some context in our backlog.

The Central region, we obviously picked up some very large jobs. Their backlog is up 83% in the Central region. And they have more than 2 times the amount of asphalt paving in their backlog that they'll perform next year than they had in their backlog 1 year ago. And so that's just 2 data points to kind of reemphasize the amount of substantially more asphalt paving that we have in that backlog. So the slightly lower margins does not concern me at all because of the strong benefit that we'll receive from the downstream higher-margin material.

So -- and the last point I'd make is we're really just entering the busiest time of the year for us as it relates to bidding. And so, we have 32% more backlog than we did 1 year ago, and we're heading into the heart of our bidding season with some strong DOT budgets, most of them at record or near record levels. And so I really like the position that we're in right now, Kathryn, as it relates to our backlog.

Okay. Great. And then, if you were to look at -- once again, just kind of a follow-on with that backlog. How do you feel about your backlog, the mix of your backlog today versus, say, 1 year ago? I mean, are you kind of with that balance, what are some differences in type of mix that you're seeing today? And if not 1 year ago, even 6 months ago, is there anything changing in terms of that mix overall?

Yes. I think the change is what I've mentioned is, we have a lot more of that higher margin pull-through of materials in our backlog. The other thing that's changed is we've added some larger jobs over the last couple of quarters. And so our burn rate has changed over 1 year ago. And so, we typically burn about 90% of our backlog off in 12 months. And so, with the larger amount of backlog we have, some of those larger jobs are multiyear jobs. And so that burn rate now is at 77%.

But if you do the math, I mean, we still have an 11% increase in expected revenue in our backlog, even with that lower burn rate. And so stronger revenue projections with a larger percentage of that work being directed towards asphalt paving, which does benefit our downstream materials in asphalt and aggregates.

Your next question comes from the line of Trey Grooms from Stephens.

So I guess starting off, asphalt paving in Mountain, seeing some challenges there. Sorry if you touched on this, but you mentioned the competitive bid dynamics. Has that intensified in this market? Is this something that's expected to continue? And then also, is this isolated to the region? Or are you seeing it kind of creeping into other markets? Or how widespread is it?

Yes. Great question, Trey. And I would just -- I would say that you know our business is very local. It's a really regional business. And so the same headwinds that we face this year, whether that's timing of work, type of work, phasing of work, weather, our lack of asphalt paving, our local competitors would be in the same boat. And so, yes, that has slightly changed the bid dynamics in the bid room. We've obviously secured our fair share of work, having backlog that's still up 32% with more asphalt paving.

But we didn't do the asphalt paving that we had anticipated and hoped for this year in the Mountain region. And then weather is certainly impacted us in the Central region. Specific to the Mountain region, we talked about this on the last call. I mean there's just -- it's really a type of work that was being let out. It's the timing of the work that's getting built, and the kind of the phasing of those large, heavy civil interstate jobs that started off with a lot of [ dirt ] work that has paving in it, and we have a lot of that paving on our books.

And frankly, we thought some of that work was going to go. There was one job even in Idaho that had 70,000 tons of paving on it, that we thought would go this summer, that's gotten pushed a little bit into the fourth quarter depending on weather and then into next year. The location of work was not necessarily right in our core markets in the Montana area, we talked about that last time. The type of work, again, the DOTs, they rotate the dollars between bridges, heavy civil, asphalt paving. And so, I think this is a temporary problem challenge that we faced in Montana and frankly, in pieces of Idaho and Wyoming, so that Mountain region.

The good news is that Mountain region, it has record backlog. I mean it has $100 million of more backlog than it had 1 year ago, and it's still one of our faster-growing regions. And so I'm not concerned about the future of that. but we certainly lacked asphalt paving to keep our crews and really to keep the asphalt plant and aggregate plants busy. We didn't have that this summer, and it's more related to timing type of work than it is a structural issue.

In the bid room, we're dynamic. I mean we can move quickly, and we've made those adjustments. But the market dynamics as far as new competition, has not changed much. And our margins being slightly lower, again, are more than offset with the benefit of the higher pull-through of materials. So not structural, nothing that we can't adapt to and any kind of major problems going forward.

Yes. Okay. That's helpful. And then on the ready-mix business, your margins there are up nicely year-over-year. I'm sure there's some benefits from acquisition and whatnot. But as we're thinking about the ready-mix business looking -- kind of going forward, what's your thoughts around kind of the puts and takes on price cost as you look at that? I mean asphalt is kind of -- it's facing its headwinds, which we've talked about, but ready-mix seems to be performing pretty well given the tough operating environment that's out there?

If you look at our margins of 20% for the quarter, those are going to be industry-leading margins. So very proud of the work that our teams are doing. Our PIT Crews and our dynamic pricings have a lot to do with that success. So obviously, Strata is a large contributor to that. But even without Strata, we had very good numbers in our ready-mix business units. So we do see that momentum carrying into next year.

Our dynamic pricing model is being embraced both -- internally, and our customers have received that modeling well. As long as we're providing the value of the materials through quality and customer service, they will pay the prices that we are asking for, our dynamic pricing. And you couple that with dispatch efficiencies, some new KPIs, and dashboards we're putting in place to help us manage our costs. You look at the purchasing power we have in our regional markets for our input costs. I think I like the position that we're in for ready-mix going forward with prices exceeding costs.

If I could just sneak one more in there. Aggregates pricing very, very good. There's been, I guess -- several of your larger competitors have been in the market kind of commenting on high-level expectations for aggregates around pricing and volume. Just given the markets you're in, is there anything that maybe you could give us just from a maybe high-level standpoint around how to think about pricing or volume or anything around your aggregates business looking into next year?

Yes. I would say, I've mentioned on previous calls, that we think that with our commercial excellence and dynamic pricing model, that mid-single digits for aggregate pricing is something that's sustainable. We've enjoyed high single-digit price increases this year, and that has a lot to do with the acquisition of Strata and their pricing cost structure up in that market with the rail. Keep in mind, our average selling price includes delivery and freight. And so the addition of Strata pushed that up to high single-digits this year. But Trey, our legacy operations are continuing to perform at mid-single digits, and we do feel like that is sustainable going forward.

The volumes, that's been a little bit of a different story this year. The addition of Strata has given us positive volume growth for the quarter, but our legacy operations are still down, and that is primarily due to, again the 2 factors, the less asphalt paving and the pull-through that, that brings and then the weather. And so you look at the DOT budgets, you look at our backlog going forward, I look forward to providing specific guidance on volume during the next quarter's call.

Your next question comes from the line of Garik Shmois from Loop Capital.

You there, Garik?

Hi. Can you hear me?

Yes, we can hear you now.

Sorry.

You're a little bit [indiscernible]. You're a little bit -- we can't hear you -- understand you, Garik. Sorry.

Okay. Sorry. Okay.

We got either [Technical Difficulty].

Apologies. I wanted to ask on the fourth quarter guidance. What's going to have to happen for you to hit the upper end or lower end of the guidance range?

Yes. I would say that we've based our midpoint on normal weather plus the successful weather that we had, favorable weather for October. And so, weather in November and December in our footprint 1 or 2 weeks can take us, swing us to the high end or the low end of that. And so weather is a big factor on that. I think the continuation of the Oregon stabilizing, and that work that third-party private work continuing into the fourth quarter would be -- would help us. And we saw that in October, and we anticipate that will continue in November and December.

We've got some projects. I mean, with the backlog, we have a lot of work to go perform this year. And so, I think it really does come down to weather. We've got some larger impact projects. We're currently providing a lot of stone on the project down in Southern California called Pier G, the P209 project in Honolulu at Pearl Harbor. That was supposed to begin pouring concrete to that dry dock facility in the third quarter, and it got pushed to the fourth quarter. We're still not in full production on that.

And so that right now could -- if they get going and actually exceed their production rates, that would push us to the high end. If it continues to be slow to get going, that could be on the low end. So there's a few things there. Nathan, did I forget anything that you would want to add?

Give it all [indiscernible].

I mean, I think I got most of those, Garik.

Okay. That's helpful. Follow-up question is just on some of the private construction projects. You had earlier in the year spoken to non-residential delays in particular. You sound a little bit more positive on that based on your prepared remarks. Just want to confirm that and if you could speak to some of those projects that are trying to come back?

Yes. There was close to a dozen projects that we had secured purchase orders, actually had begun construction on some of them early in the year. I mean this was back in January, February, then were delayed. And -- so we've talked a lot about that kind of in the first quarter, second quarter and now here we are in the third quarter. A few of those projects resumed construction. And so I think there's a good slide in our deck that shows that our aggregate volumes in Oregon year-over-year were down 3%.

And if you look at that in the prior quarters, we were down 25% -- 26% quarter-over-quarter last -- in the second quarter. In the first quarter, year-over-year, we were down 26% also. And for the third quarter, we're only down 2%. And so, we have seen that begin to stabilize the quarter-over-quarter comps. I mean, some of those headwinds, we were starting to feel those a little bit starting about this time last year, frankly, in the fourth quarter.

And so, that kind of gives me confidence that aggregate volumes are beginning to stabilize, and that we will continue some of that work on that private work. And specifically, our large market that drives most of the volume for aggregates is in Portland, Oregon, and we have a very strong market position. And we are seeing some of that work resume construction.

Your next question is from the line of Ian Zaffino from Oppenheimer.

On Oregon, can you maybe tell us what the pricing that you realized in the past quarter? Just trying to understand this because it's -- to me, it's always been viewed, I guess, as an optimized area, which I would imagine the pricing would be more optimized, but maybe kind of give us a little bit of color on that?

And then also on the funding package, right, the funding package is 1/3 of what it should have been. So does that then mean just given kind of your near-term guidance that we would see like a faster roll-off of that business? Or was just the business supposed to be up so much with a $12 billion package, and now it's just kind of, like you said, flattish, give or take, versus previously?

Yes. I'll start with that one. So -- and I'll let Nathan talk about the pricing in Oregon. We don't provide specific pricing results and guidance by state, obviously, but there's certainly momentum, and a lot of positive things that come from our dynamic pricing that was really born in that region. And so good news there. As far as the Oregon -- and that's a 10-year bill. And it's substantially less than what the legislature wanted. It's substantially less than what is needed to maintain the current level of repair in Oregon, which is not great.

And so to start making progress. I mean, they need a lot of funding -- additional funding each year going into that. So yes, it's substantially less. Really, you take ODOT gets half of that gas tax. The other half of that $4.3 billion. So over 10 years, and you start doing the math, it's $430 million. If you just did it evenly, it's not always exactly even.

Half that goes to the states, and the other half goes to the cities and counties. The half that goes to the cities and counties, we expect that will benefit us beginning next year. Those are real jobs, real benefits in small communities, midsized markets that we operate in throughout the entire state. And those are those $2 million to $5 million overlay type of projects, some small bridge repairs that are $2 million to $5 million, that is really our bread and butter. We do a lot of that work in a lot of our states, frankly. So that will have an immediate impact to us next year, not as much as we had hoped with a larger bill at $12.1 billion, but meaningful, that will help us out.

The other half of that revenue stream going to ODOT, I frankly don't see that improving the construction that much. It really is without it, they would have had to lay off hundreds of DOT workers that really are maintaining the roads, plowing the snow. So, I would say I would look at the $4.3 billion as a stop gap at the state level. And will require the legislature and the governor and the taxpayers to continue having the conversation as how do we add more dollars to the budget through another transportation bill in order to start making progress on the deferred maintenance that's been happening in Oregon for years.

The roads -- I live there. And I can tell you, they need fixed. And I'm driving on a lot of very old bridges that are well past their design life. And so the Oregonians, we need to fix this problem. So with that, I'll just turn it over to Nathan to talk about pricing real quick.

Good to hear from you. On the pricing, first, just as Brian said, I mean, we don't necessarily give the pricing for any particular market. But maybe to help you understand how the markets are performing. So, Brian talked a moment ago about some of the key markets that are impacting volumes year-over-year. If you look at those markets, they are seeing pricing improvement over last year. And if you look at Oregon overall, including both the larger key markets like you mentioned in the Portland area, but even the other ones, you'll see that Oregon overall is up in its pricing. So an indication that, that dynamic pricing model is working even in those markets where you may see downward volumes.

Okay. And then maybe just touch on M&A. As you look kind of at the landscape over the next 12 months, what type of M&A activity do you think we'd see from you guys? And where would it be? I mean, would it be infills? Would it be new markets? Any other kind of color on what you're thinking about as far as future M&A?

Yes. I would say I'll start with the -- looking just for a second in the rearview mirror, and the success that we've had at integrating the acquisitions that we've done when we restarted our program. I really could not be happier with the due diligence process that's being done at the local regional level that then feeds into our integration. And that playbook has worked well for us and gives me good confidence going into next year in that there are more opportunities.

Our business -- our corporate development team, I talked about a robust pipeline. And there are ample opportunities in the markets we're currently in. Our #1 priority is to continue to infill our existing markets, but also look at markets that are adjacent to our current states. We're going to be focused on the higher-margin materials-led type of companies, specifically aggregates. We continue to like the midsized high-growth markets that we're in.

And I would just tell you that with the addition of Strata, we've been talking about seasonality in the first quarter and second quarter, that I want to level out that seasonality and look at some of the states that we're currently in, in the southern part of our footprint, along with states that we're not currently in, in the southern part of our footprint. So I think our strategy has been pretty consistent and clear from when we first laid out our capital deployment strategy, and very happy to report that there are ample opportunities that continue to come our way. All the deals we've done so far have been negotiated deals. They've all been with multiples that have been very attractive and kind of meet our disciplined modeling criteria.

And so I would say that the future is going to look a lot like the past. If you look at the step-up this year that we spent in SG&A, it was primarily to support our M&A activity. That $20 million step-up in SG&A was primarily for M&A, and we project that same dollar amount to continue forward into future years. So I think that would kind of give you an indication of what we're looking at as far as the amount of capital deployment and number of deals we're looking at.

[Operator Instructions] The next question comes from the line of Ivan Yi from Wolfe Research.

First, can you discuss what were organic aggregate volumes and pricing in [ 3Q-ex ], any acquisitions?

Yes. I would say -- so on the pricing, we -- on the aggregate specifically, and that's where I'll kind of focus on, that's the largest piece of the -- what we all talk about. Our pricing continues to be at that high single with the addition of Strata. Our legacy operations would be in mid-single. And I think that's a sustainable look ahead. We like that mid-single, and we enjoy that in most of the markets that we're in right now.

On the volume, we show for the quarter that we were up 4%. I would say that if you look at legacy operations, because of the headwinds related to the lack of asphalt paving, weather, and the Oregon headwinds that we faced in the first half of this year, we are down, and we continue to be down with those legacy operations. I think you offset that even by looking at our backlog, and the local DOT budgets. That gives me a good hope that, that's beginning to turn at the legacy operations. And just with some normal weather, I think our -- you've seen our aggregate business lines performing much better from a volume standpoint.

Great. That's helpful. And also, we appreciate that you're breaking out the Oregon volumes by quarter. Any insight into 4Q at all? Have you reached an inflection here given the nice improvement we saw in 3Q?

Yes. I think that, when we say that Oregon has stabilized, I'm certainly looking at what happened in October, and what we project continuing to move forward. As I look at and provide a little bit of a look ahead into 2026, and having flat, that we do feel good about where we're at in Oregon. Really, this comes down to the -- how quick our team was able to navigate these headwinds, and change kind of where crews were stationed and moving equipment around, rightsizing the team and the crews, being creative, and finding work that maybe we would traditionally not bid if we had strong DOT budgets.

We had an acquisition in July that performed better than we actually had even modeled for. And so that's good, strong momentum. It's a nice well paving company in Central Oregon. Central Oregon is one of the hottest spots within Oregon. So yes, there's a number of things that we like that's going on in Oregon, that gives us confidence to talk about the stability that, that state is now enjoying, and then kind of look ahead into '24 or '26.

There are no further questions at this time. So I'd like to turn the call back to Mr. Brian Gray for closing comments. Sir, please go ahead.

I just want to thank you all again for joining us today. Just equally importantly, I want to thank our team for delivering record results in the third quarter. Our EDGE plan is working. The fundamentals of our business are strong, and we believe we are well positioned for long-term success. We appreciate your continued interest and support. And with that, we'll turn the call back over to the operator.

Thank you, sir. Ladies and gentlemen, this concludes today's conference call. Thank you very much for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Knife River Corporation Second Quarter Results Conference Call. [Operator Instructions].

Also note that this call is being recorded on Tuesday, August 5, 2025.

And I would like to turn the conference over to Nathan Ring, CFO. Please go ahead.

Thank you, and welcome to everyone joining us for the Knife River Corporation Second Quarter Results Conference Call. My name is Nathan Ring, Chief Financial Officer of Knife River, and I'm joined by our President and Chief Executive Officer, Brian Gray. Today's discussion will contain forward-looking statements about future operational and financial expectations. Actual results may differ materially from those projected in today's forward-looking statements.

For further detail, please refer to today's earnings release and the risk factors disclosed in our most recent filings with the SEC, which are available on our website and the SEC website. Except as required by law, we undertake no obligation to update our forward-looking statements.

During this presentation, we will make references to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in today's earnings release and investor presentation. These materials are also available on our website.

Brian will begin today's call with an overview of our second quarter 2025 results, followed by a segment recap and an update on our competitive edge plan. Following his remarks, I will provide a product line summary, a capital update and a review of our 2025 financial guidance. At the conclusion of our prepared remarks, we will open the line for a question-and-answer session.

With that, I'll now turn the call over to Brian.

Thank you, Nathan. Good morning, everyone, and thank you for joining us. Before I talk about our all-time record backlog and the progress we're making on our growth strategies, I want to address the slower start to the first half of 2025. Simply put, we had unfavorable weather throughout most of our footprint, and we had fewer projects to bid and build in Oregon.

Let me start with weather, where we had a difficult time getting out in the field to begin working through our record backlog. Rain plagued our operations throughout the Central segment in pockets of Montana and Wyoming. In key markets across those regions, it rained on nearly 40% of available workdays, impacting revenue, volumes and gross profit. Not only did weather negatively affect our construction revenue and materials volumes, it also impacted our Energy Services operations as we reduced shipments of liquid asphalt.

As we've discussed on previous earnings calls, we had favorable weather the past 2 construction seasons, but this year, it's causing substantial disruptions for our crews as they try to get to work. I'd like to pause for just a moment here and also recognize the tragic flooding that occurred in Texas over the fourth of July weekend. Torrential rain overwhelmed rivers and claimed innocent lives.

Our hearts go out to the families who are coping with that loss. I'd also like to thank first responders for their heroic actions. Thankfully, our Texas team members were all safe. They are actively repairing our Honey Creek quarry operations where floodwaters washed out our access roads.

In addition, the rail line servicing authority was damaged and is currently under reconstruction. Sales volumes will be down for the third quarter at Honey Creek as repairs are made, but we expect to see strong demand once we start selling materials there again. This impact has been included in our revised guidance. The other factors for our slower start to the year was project availability in Oregon.

On both the public and private side, we continue to see work being delayed. Over the past few years, the state DOT has heavily invested in several mega projects that are over budget. This has diverted funding from paving work we typically perform. The state legislature has been called in a special session later this month to address additional DOT funding, which we're watching closely.

On the private side, macroeconomic factors, including uncertainty around tariffs and high interest rates continue to affect Oregon's manufacturing and import export industries, prolonging delays on private projects. We continue to rightsize our crews and equipment pool in Oregon and have been mobilizing our teams to where the work is, as we manage through the current demand environment.

To provide some year-over-year context in Oregon, our aggregates volumes were down about 25% in the first half or approximately 1.2 million tons. This is having a direct impact on our consolidated financial results. Over 50% of Knife River's EBITDA variance for the quarter, for the year-to-date and to our updated guidance is directly related to Oregon. That said, we still expect the state to be a solid contributor.

We anticipate Oregon's EBITDA margin, which has been Knife River's North Star for the past decade, will continue to be accretive to our overall results for the year. And while Oregon has its challenges at the moment, there are many good things happening in our other 13 states.

Let me start with the West, where we got off to a faster start in California, Hawaii and Alaska. Aggregate volumes were up almost 60% this quarter, Alaska, while ready-mix volumes were up in both Hawaii and Alaska. In California, asphalt volumes were up along with contracting services revenue, which improved 30% over last year.

We expect contracting services will continue to have a strong year in California, and we further expect volumes in all product lines to be up in California, Hawaii and Alaska. I've stated several times that these states, which make up our legacy Pacific segment, have historically been a top contributor for Knight River. It's exciting to see their progress on our competitive edge initiatives.

Finally, in the West, the state of Washington recently increased its transportation funding by over $2 billion, and we are seeing more opportunities to bid bridge work in that market out of our prestressed division. Switching to Mountain. We anticipate another solid year. As you can see in our quarterly and year-to-date performance, work was affected by our ability to get in the field due to weather and project timing, both causing a delayed start to the construction season.

Also causing lower revenue and profitability this quarter is the lack of asphalt paving in Montana as the DOT is spending a larger portion of its budget on bridge structures, but this region has all-time record backlog, the DOT budgets are strong, and we continue to see more opportunities to bid private work. [ IIJA ] approved funding during the quarter focused on relieving congestion, and we are seeing shovel-ready projects already coming up for bid. We're currently working on the $95 million farmworoad projects in Boise, and recently secured a $54 million interchange project in that same market.

In Central, the acquisition of Strata drove record second quarter volumes, revenue and EBITDA, and our quarterly results could have been even better, if not for the rain. The integration of state is going well. And the guidance we provided earlier this year related to Strata remains on track. In North Dakota, the state passed a spending bill in the second quarter that allocates $800 million a year over the next 2 years for road construction projects. This work is right in our wheelhouse.

Meanwhile, we are also seeing exceptional infrastructure investment in Texas. We are preparing for a $118 million multiyear highway project in College Station, where we are a material supplier and paving subcontractor. Our Texas team also landed a $33 million pave subcontract for a highway project in Madison County. Even though these projects are larger in size than traditional projects in our backlog, they are work we typically perform and have similar risk profiles.

And finally, at Energy Services, volumes increased year-over-year with the acquisition of Albina asphalt and the addition of our new polymer-modified liquid asphalt plant in South Dakota. Wet weather in the Midwest and economic challenges in Oregon negatively impacted financial results in this segment for the quarter. However, we expect EBITDA margin at Energy Services to continue to be accretive to Knife River again this year.

Looking ahead, we have many opportunities across our company as we move into the second half of the year. We have record backlog, a strong demand for our products and several exciting edge updates. Our second quarter backlog of $1.3 billion is the highest of any quarter in Knife River history. And this wasn't just delayed work being pushed forward.

We secured $650 million in new projects during the quarter, a $250 million increase from the same time last year. Record DOT budgets are driving record backlog. Approved budgets in Knife River states are growing 14% from fiscal year 2026, compared to just 3% for the U.S. average. Our 14 states also have about 60% of IIJA funding still to spin, and we expect IIJA to continue to positively impact our markets well past the builds expiration.

As we enter our busiest quarter, we have a lot of work that should carry us through this year and into 2026. We expect our record backlog to drive volume growth across all product lines in the second half of this year. On top of strong budgets and record backlog, we also remain focused on our competitive edge strategy of EBITDA margin improvement, discipline, growth and excellence.

We are committed to achieving our long-term goal of 20% adjusted EBITDA margin, and we see multiple paths to get there. One of those paths is growth, and we have acquired 2 aggregates led companies since the first quarter. In May, we purchased Kramer trucking executing in St. Cloud, Minnesota. Kramer provides infill growth for us in the central part of the state. It has 90 gravel sites to support our current footprint, along with a strategically located Granite quarry on Interstate 94 that can serve the suburbs of Minneapolis. Then in July, we acquired High Desert Aggregates and Paving in Bend Oregon. This population has grown 8% in the last 5 years, and we expect this market to continue to grow faster than the national average.

High Desert adds aggregate reserves, along with downstream asphalt production and paving to help serve this area. Both these acquisitions align with our growth strategy, they are negotiated deals infilling our midsized high-growth markets. They are aggregate flat and they are able to quickly integrate into our system. We have maintained an active deal pipeline and will continue to pursue acquisitions, as well as organic growth opportunities that fit our strategic goals.

We also continue to invest in long-term growth through our process improvement teams, or pit cruises, these crews are focused on self-help through standardization, cost control, price optimization and pushing towards excellence in all we do. The sixth time, we are still in the early stages of many of these initiatives, but we absolutely expect this investment to have a strong and sustainable return for our shareholders. PIT Crews are an important part of our edge strategy.

Another integral part of our strategy is materials pricing. In the second quarter, our teams improved pricing on aggregates, ready-mix and asphalt. Nathan will talk more about this in his remarks, but we continue to gain traction with the implementation of our dynamic pricing initiative, along with new and improved technology to support it.

All told, we have a lot of high-quality work in front of us, a proven strategy and positive market fundamentals. We have a record backlog of $1.3 billion that has secured work with dedicated public funding. There is bipartisan support at the federal, state and local levels to continue the build-out of America's infrastructure. This is exactly the type of work we perform. We also continue to drive pricing improvements on construction materials as we roll out our commercial excellence initiatives.

And finally, we have an incredible team that's laser focused on working safely, controlling our costs and becoming best-in-class in everything we do. All of this gives me great confidence in our ability to deliver long-term value for our shareholders.

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

Thank you, Brian. As we review our product lines, the wet weather during the quarter and the Oregon economy put downward pressure on our financial results. Generally speaking, impacts from rain caused lower volumes and challenging operating conditions, leading to higher per unit fixed costs and compressed margins in our product lines.

Additionally, the softening in Oregon shifted Knife River's overall revenue mix away from this higher margin market, which also impacted gross margins in our product lines. Beginning with contracting services, we saw an 8.5% decline in revenue for the quarter compared to last year. With a return to normal weather, we expect to get back in the field and focus on our core paving projects.

As we look forward, we are encouraged to see that the states where we operate have DOT budgets growing faster than the U.S. average, and that 10 of our 14 states are forecasting record DOT budgets for 2026. Our backlog continues to be primarily public work at about 90%, with approximately 80% expected to be completed within the next 12 months.

Moving to asphalt. The delays we experienced in contracting services also impacted asphalt revenue, with volumes declining 9% for the quarter compared to the previous year. However, we were able to improve gross profit per ton by almost 8% as we maintain pricing discipline despite lower demand.

We were also able to increase third-party sales within the quarter. And as paving work picks up in the second half, we anticipate that volumes will improve for the remainder of the year and that full year volumes will be in line with last year at comparable pricing. Aggregate revenue increased for the quarter compared to last year, benefiting from the acquisition of Strata and our continued pricing initiatives, which resulted in higher prices of almost 12%. However, as a result of headwinds previously mentioned, we experienced lower volumes along with production costs not fully absorbed into inventory, both of which had an impact on gross margin for the quarter.

Looking ahead with the recent addition of Strata and continued self-help from the pit crew, we believe aggregate volumes and gross profit will keep improving, and we expect full year results for volume to be up mid-single digits and pricing to be up high single digits.

Ready-mix volume and price improved for the quarter compared to the prior year, resulting in a 15% increase in revenue. Our Central segment saw the largest volume increase related to the recent acquisition of Strata and West saw higher demand in Hawaii and Alaska. We also continue to benefit from dynamic pricing in this product line with an 8% price increase over last year.

However, gross margin was affected by the revenue shift, I mentioned earlier as we had less overall volumes from the higher-margin Oregon market. Guidance for ready-mix includes volume increases of low double digits and pricing increases of mid-single digits.

Moving from operations to administration. SG&A increased $9.7 million for the quarter compared to the previous year and was in line with our expectations. The quarterly variance was primarily due to additional overhead costs of $10.6 million that came with the acquisitions we have made during the last 12 months.

As anticipated, we also had higher business development costs of $1.9 million, which was offset by higher gains on asset sales. In previous quarters, we talked about a step up in SG&A of $20 million for this year related to business development costs and edge initiatives that we expect will help the company grow and improve margins.

We also noted this amount will be front loaded to the beginning of 2025, and we have spent approximately $14 million on this step up through the first half. For the full year, we believe SG&A is still in line with what we had shared with you in the prior quarter, which is an increase of mid-single digits over 2024 SG&A, plus this $20 million step-up and the additional overhead from our acquisitions.

For our capital allocation, we continue to put our balance sheet to work in maintaining and growing operations. Through the first half of 2025, we have spent $111 million maintaining, improving and replacing our plant and equipment. And for the full year, we anticipate our maintenance capital expenditures, will still be 5% to 7% of revenue.

We have also invested $620 million in acquisitions, growth projects and reserve replacements that fit our vertically integrated aggregates-led strategy. In addition, we have $50 million approved for organic projects, which put our total growth spend at $670 million for 2025. Any additional acquisitions or new organic projects would be incremental to these amounts.

We ended the quarter with nearly $1.4 billion of long-term debt, which includes $183 million borrowed on the revolver, putting our net leverage position at 3.1x. Keep in mind, this is at the peak of our seasonal borrowing needs, and we anticipate the revolver will be fully repaid by year-end.

Based on our current EBITDA guidance, we expect that the net leverage position should end the year below our long-term target of 2.5x, keeping additional capacity for future strategic investments. As we consider our first half results and look at the remainder of the year, we are lowering the midpoint of our adjusted EBITDA guidance by $55 million.

About 75% of that reduction is related to the first half headwinds of a softer Oregon market than wet weather. In the second half, we expect continued softness in Oregon and a lower EBITDA contribution from Energy Services to be largely offset by recapturing preproduction costs, taking advantage of paving opportunities and benefiting from our recent acquisitions.

Our updated guidance includes consolidated revenue between $3.1 billion and $3.3 billion, adjusted EBITDA between $475 million and $525 million, including geographic segments and Corporate Services between $425 million and $465 million, and energy services between $50 million and $60 million.

With the exception of the flooding in Texas and the Oregon economy, both of which are included in this update, guidance is based on normal weather, economic and operating conditions. The fundamentals of our business are strong with roads in need of repair and funding to support our work at all-time highs, creating robust and ongoing demand for our services and materials.

We believe we are well positioned to succeed with the continued implementation of our self-help initiatives and add strategy, and we are excited about our future.

I would now like to open the call for questions.

[Operator Instructions]. Your first question will be from Brent Thielman at D.A. Davidson.

I guess -- appreciate the bridge and the walk on the revisions to guidance. I was hoping maybe just in regard to the Oregon market natively what you're sort of expecting here into the second half of the year? What are the green shoots that could happen in that market, Brian.

And then just wanted to confirm [indiscernible] Strata this year.

Yes. Yes, I'll answer that first 1 is this integration of Strata is going as planned. It's going actually very good. And so that original guidance we gave back 3 months ago of an increase of $45 million is still on track. As far as Oregon, Yes. I mean a couple of things have changed this last time we talked, Brent. As you know, the Oregon legislature was trying to pass a comprehensive transportation funding bill. We were hopeful for that. And unfortunately, after a year of work on that. They closed the legislature without passing a long-term comprehensive funding bill.

And so since then, the governor has called the legislature back into a special session at the end of this month. Frankly, I don't think that is going to have any kind of positive impact on us as far as paving work that we do in the State of Oregon this year, it is frankly going to be too late. I think it really is to avoid layoffs of DOT workers and so they can continue to work through the winter and plan the sell.

So I think we are hopeful the state of Oregon, the roads and bridges are in very poor shape. They have got to do something, just like every state has gone through trying to find funding through gas taxes and other registration fees and very hopeful that they will accomplish that more comprehensively possibly in the special session but most likely next year.

The roads need fixed in Oregon. And so this is something that cannot kick the can down the road very long or it is going to result in even higher cost. So that's on the DOT side of it, Brent. Also, since we last talked, we had a number of projects that we're on -- we were told that those projects would start sometime in June or July. And as we are here this morning in August, only one of that list of projects has started again. So most of those projects are still on pause. Only one has been canceled. One has started. The rest of them are still on hold.

And so that is a change since we last talked and has been baked into our guidance, as Nathan mentioned, or as I mentioned, more than 50% of our revision to our guidance is because of Oregon, more than 50% of our quarterly and year-to-date variances is also from Oregon. So it's definitely having an impact on us.

Okay. Yes. I appreciate that, Brian. And then on the I mean, good to see the record backlog here. There's some comments here, margins may be somewhat lower. Is that a consequence and the work you're taking? Is it more competitive? I was just wondering around what factors might drive lower margins there?

Yes. Part of that is -- I mean, just as we shift revenue from regions, as you know, Oregon has been the North Star as it relates to our margins and I mean there's a lot of good things happening in Oregon steel and they're still going to be accretive to our overall margins. But as we shift revenue from organ into other regions. That's part of that lower margins in our backlog.

And then just some of those larger jobs that we picked up, multiyear projects -- when you pick up those larger jobs, Brent, sometimes they come at lower margins, but also those larger jobs have a lot of opportunities for value engineering and bonus potential. And so we're excited about our $1.3 billion backlog, but that would be the reason for those slightly lower margins in our backlog.

Okay. Last one, I mean, the aggregates ASP really impressive year, particularly relative to what we see around the industry. I guess, your views on sustaining that. I see your outlook for the year. But do you just jacket up to just the discipline that's happening at the ground and focus on price dynamic pricing, is it mix this quarter? Just any help there would be good.

Yes. No, I think definitely I want to give credit to our team and our discipline in implementing dynamic pricing. That is gaining traction. The addition of Strata has helped our average selling price. And so -- and then as you know, I mean, our average selling price does include freight, does include different product mix. And so we did raise our guidance from mid-single-digit pricing because of the continued momentum that we're seeing in dynamic pricing.

We raised that up to high single digits. So we are very pleased with those fundamentals, Brent, that will last for a long time. I mean that is very positive sign for our aggregates division.

Next question will be from Kathryn Thompson at Thompson Research Group.

I wanted to follow up on your Strata acquisitions and just in terms of how are they performing in the quarter really focusing on their organic volume and pricing for both of those acquisitions. And you've given some color in terms of how they'll contribute going forward, but pulling the string a little bit more in terms of clarification and quantifying the impact going forward for both.

Yes. Thank you, Kathryn. No, we're very excited and pleased with the progress we're making on both of those acquisitions. The integration is going well. They are -- the materials led businesses that fit very well in our edge strategy. They both have contributed to our seasonality in the first half of the year. As you know, Strata is located in the northern part of our footprint. And so that has added to our seasonality, both in the first quarter, which we only had them for a couple of weeks in the first quarter. But certainly, adds to our seasonality in the second quarter as does Albina asphalt. I mean, they're selling liquid asphalt for asphalt paving projects in the Pacific Northwest and so they have added to our seasonality.

We don't provide specific guidance and financial results for individual business units, but I think it is helpful to provide some color and just directionally, the impact that those 2 companies are having on us. And so the revenue from these 2 operations, Strata and Albina for the second quarter accounted for about 8% of our total revenue for the quarter.

Keeping in mind, they are more seasonal. Again, so they're going to ramp up even more in the third and fourth quarters. I think putting that another way, Kathryn, if you just look at our consolidated revenue for Knife River, it would have been down 5% for the quarter, without the impact of Albina and Strata's revenue.

So again, Strata and Albina accounted for about 8% of our revenue for the quarter. And without those sales, our organic revenue would have been down about 5%. I'll just -- and by adding this kind a bit more maybe color and detail around the volumes of Strata, as you know, they're aggregates-led, and they have a large ready-mix presence.

And so just the impact of those 2 business units, both of them are about 10% of our annual sales, if you look at our annualized sales last year, strata for aggregates volumes and for ready-mix volumes would be about 10% of Knife River's consolidated annualized volumes. So that gives you a little bit of flavor on the impact that those volumes that have been added back in March are having on our overall consolidated financial statements. Did that answer your question, Kathyrn?

Yes, it did. And then on a go-forward basis, how do you think about the magnitude of the contribution for Q3, which you had noted as a higher relative contribution annualized business?

Yes. I think it's going to be -- right now, they've made up 8% in the quarter. They are more seasonal. So I see that ticking up that would be similar in line with kind of the aggregates and ready-mix contribution in that 10% range. I think as you look at our we reconfirmed the guidance that we provided on Strata. That's in that 9%, 10% of our overall EBITDA for the year. And so I think if you look at margins and contributions from those 2 acquisitions going forward, we've publicly stated in the past that Albina until it becomes fully integrated into our energy services model probably slightly dilutive.

And on the Strata acquisition, we've mentioned in the past that, that's going to be accretive to our margins. So I think looking forward, going forward as far as EBITDA contribution into the second half of the year, that might provide you some additional color.

Okay. And just to clarify, I believe you said this earlier in the prepared commentary for a follow-up. But part of the reason for the aggregate pricing raised guidance is in part due to these 2 acquisitions. Is that correct in hearing that?

Yes. For Strata, yes, Albina is strictly liquid asphalt supplier. And so -- but yes, all piece of that is from Strata. But a bigger, larger piece is just the continued traction and implementation of our dynamic pricing throughout all of our regions. Very pleased with the progress we're making in that initiative.

Okay. Great. And then following up on Oregon, I appreciate the color that you had previously on that. But just a clarification on the public side. We've seen a lot of states, many states over the past several years come to a head with funding infrastructure several, including Tennessee, where we're based, that had a reckoning moment where they had the overall infrastructure finance worked out Well, where do you put Oregon in terms of that journey towards the reckoning of reassessing infrastructure funding for the state.

Yes. I think the good news is that everybody understands the need for the funding. I think the hard part is where is it going to come from? And with this gas tax or registration fees and the accountability that of the current dollars that are going into ODD from the gas taxes, they've got some challenges. They have several large mega projects that are over budget. And so I think that they need to get some better trust with the legislators and the general public, but there's no doubt that the roads, everybody on both sides of the aisle, there's bipartisan support, the taxpayers understand the need for infrastructure investment and so they're going through that process right now.

I think, like I mentioned, there was a lot of hope and a lot of traction that they would get that done about a month ago. They've been working on it for a full year. They had roadshows across the state. They built the momentum and support that people understood the need for infrastructure investment. But unfortunately, they did not get it across the finish line. And so we will be paying close attention and special session that's been called for later this month.

And then the results of that will continue to work during the off-season to give something more meaningful path. So you're right, Kathryn, every state goes through this cycle. Fortunately, for us, we have many states that have been successful, whether that's North Dakota or Texas or Washington, Idaho, I mean, that is more than offsetting what's going on in Oregon.

I mean just -- to remind you, we are in 14 states and Oregon is on, and we'll talk a lot about it probably today because the impact is having. But we have record backlog and the fundamentals are the same in organ as they are in other states. The roads need to be repaired we just need to find the funding to get and we'll get that done in Oregon.

Yes. Actually, as you described, it sounds a little bit like Georgia and what happened when they have failed referendum, and did the same course which resulted in going back and overhaul funding.

Next question will be from Trey Grooms at Stephens Inc..

Thanks for all the color on this. And there's a lot of moving pieces as we kind of move into the back half of the year. You mentioned Strata, you're going to see a pickup here this quarter and continuing into Q4. There's some moving pieces around Oregon.

I understand all that. But is there anything or any way you can help us kind of maybe fine-tune the cadence or seasonality that's kind of in the back half of this year as we look at third quarter and fourth and then understanding not to bring '26 into the picture just yet, but just understanding the increased seasonality that Strata and specifically Strata brings to the table and this year being really abnormal maybe from a weather standpoint, is there any way to just kind of pro forma the Strata acquisition that we can think about just typical seasonality?

I don't know if it's from a percent of total standpoint for each quarter? Just any kind of broad strokes on that because I think we were a little off on calibrating the seasonality. So any help there would be great.

Yes. I think the thing that compounded that problem more than anything is the weather that we had in those regions. And so it was wet up in North Dakota and Minnesota. And throughout much of our Texas -- I'm sorry, our central footprint. And so that definitely compounded the seasonality. But just the sheer footprint of the Strata acquisition, I mean, we disclosed in the first quarter that it had about a 2 to 3 -- 200 to 300 basis point impact on our seasonality in Q1.

And I would say that, that's going to be similar in Q2. I mean, maybe 100 to 200 basis points for our seasonality of not just Strata, but, again, Albina there's -- we don't really get going on a lot of asphalt paving in the Pacific Northwest until mill part of that second quarter, call it, April, beginning of May.

So yes, we have added to our seasonality curve going forward that will carry into next year. Compounding the problem this year was just the number of rain days that we lost to production, and then just some timing of some asphalt paving projects trade compounded that as well. So looking going forward, assuming normal weather, I think that the new cadence for our seasonality would be reflective of 1% to 2% off of our 5-year history in the first quarter and 1 to 2 percentage points less in the second quarter, pushing mostly primarily into the third quarter, with a small pickup in the fourth quarter. So that -- I think that would get into your question.

Yes. Okay, Brian, that's helpful. there was -- there's been a lot of talk about Oregon clearly, and I understand that's important. But also, to your point earlier, you guys are in a lot of other places besides Oregon. So you named Alaska, California, Hawaii, seeing some positives there. But can you maybe talk about just generally your overall footprint, where you're seeing some of the positives Again, you named some of these states, but kind of what's driving some of those and maybe across your footprint where you're seeing some strength versus just the headwind that we're seeing in Oregon.

No, I appreciate that. And we have -- as you know, 90 -- over 90% of our backlog is public funding. And so we continue to see record DOT funding in almost all of those states. In fact, if you look at the budgets and you mentioned 2026, those -- the states that we're in, with the exception of Oregon, DOT funding is up 14% in 2026 as far as our budgets and that compares to the rest of the United States at 3%. And so we do continue to see a lot of strong funding, strong demand in the public environment, and that's a large piece of our back like over 90%.

And as you know, those -- the nice thing about that is those are dedicated dollars in a lockbox. And we've not seen even in Oregon through this challenging time, any of those DOT jobs that are in our backlog get canceled. And so that is very secure work. But as you mentioned, there's a lot of other things in our material sales, about half of our aggregate sales go to third parties to private work and the majority of our ready mix goes out.

And we are up in California, Hawaii and Alaska, in those product lines for the most part. We are seeing a lot of opportunities. We continue to see activity up in Alaska around the gold mines. There's a large airport project up there, tourism in both those states in Hawaii and Alaska are rebounding. We've got a lot of multi-housing commercial work going on in Hawaii. The big job in Hawaii and unfortunately, [indiscernible] and continues to be slightly delayed, is the large dry dock at Pearl Harbor.

We have mobilized a ready-mix plant on site, but we have not seen any production out of that, and that's pushing out to late third quarter, early fourth quarter. So the legacy Pacific region, California, Hawaii and Alaska are doing well. Idaho has record backlog and Idaho continues to find funding for public works and continues to let large jobs, there's good private work.

The semiconductor business is moving into Boise, the data centers in Wyoming, the wind projects in Wyoming. Lots of opportunities. Frankly, that Mountain region is one of our fastest-growing regions. Central continues the integration of Strata and the Knight River's footprint. The funding at the DOT levels in almost all of those states has been positive. And in Texas, it just continues to see some large projects that have high pull-through of our materials business.

And then the private development has just been strong throughout that central region. So as far as the end markets, there are things going on in all of our different markets.

Perfect. That's super helpful, Brian. And just if I could touch on one last thing. I'm not sure if you mentioned it, but 2 bolt-on acquisitions, if you could maybe touch on those and kind of what they mean to the strategy and how they fit and then maybe your appetite for M&A just where we are with the State integration and just where we are in kind of the cycle?

Yes. We've been very focused on the Strata integration. And our COO and I talk about the schedule that we are on as far as integrating Strata. And we put together a very detailed schedule of synergies that we expected to get out of that our large for a 30-, 60-, 90-day and 180-day schedule of those synergies. I'd just tell you that I've been very pleased at where we're at and the progress of the traction that we get. And we haven't and we've done over 90 acquisitions. So we have a proven playbook, the 2 smaller acquisitions I mentioned, KTE which is in St. Cloud, Minnesota area, also has a [ corianI-94 ] that would service the suburbs of Minneapolis and then the high desert paving operations in Central Oregon has -- both of them are [indiscernible].

High Desert has some asphalt plants and some paving that goes along with it. But those projects or those deals, again, are in our wheelhouse. So they are deals that they are reflective of every deal that we've done since we've spun negotiated deals in a single-digit multiple that are in midsize, high-growth markets. They infill our existing footprint, they're materials led and that we can quickly integrate and capture those synergies. So very excited about those 2 opportunities.

And our pipeline continues to be full. Our business development team is out continually looking at deals that fit that strategy of ours, and we're going to continue to grow. Very excited about the progress that we've made and look forward to future announcements.

[Operator Instructions]. Your next question will be from Ian Zaffino at Oppenheimer.

Question would be, I guess, the return to pricing. How far along are we the dynamic pricing, if you look at kind of across the portfolio, maybe on a percentage basis. And just given how strong the quarter was, as far as pricing, what kind of explains, I guess, the step down of the guide, even though the guys raised still kind of assumes a little bit of a step down. So wondering what that was?

And then if I just switch it one more is it kind of feeds into this as you throw the 20% number again. How are you thinking about that and getting there as far as either timing and then just Oregon and just delay the timing of maybe potentially achieving that 20%?

Yes. So I think on the pricing, as far as where we're at with dynamic pricing, it's a little bit different like we've talked about in the past. I mentioned that Strata, I mean we've honored the pricing, and we've not -- we're beginning to implement dynamic pricing. But part of our -- the fundamental part of dynamic pricing is that we don't send out the price increase letters. And so when we acquired them in March, we will be at the very beginning process of implementing dynamic pricing throughout Strata.

So that's something that's still upside that we'll see next year. But they've got good pricing. It's just a different model. This is more of the traditional model, and we'll be moving to dynamic pricing. All the way to the Northwest region where dynamic pricing came from. They're probably in that 8 to 9th inning. And then we've got other segments, other regions, other states that are still in that second and third, as we kind of build out our sales team to training, implement the new tools that we have, the new software that we've got.

But generally speaking, I would say that Knife River, the progress we're making, the traction we're getting with dynamic pricing, the tools that we're putting in place, the dashboards that we are monitoring, I would say that we're 50% of the way there on dynamic pricing. I would say that I'm excited and see the momentum that we are raising our pricing guidance from mid-single up to high single to reflect that traction.

But Keep in mind, I mean, the first and second quarter are not our biggest quarters. And as we look forward in the third quarter and as we look at the central region coming online with more volumes, kind of back to that region mix, those numbers will shift. And as we look at just our same-store sales, the 1 product at the same pit, I think high single digits is more reflective than the low double digits that we've seen currently as we look at the next 6 months.

But those are incredible numbers. I mean high single digits for pricing is very positive momentum. It's a key pathway for us to get to that 20% flag that you talked about. A big part of our edge strategy is to continue to increase the percent of our revenue into aggregates and to continue to optimize our pricing and maximize the total EBITDA contribution and aggregates is an important part of that.

And you can see that in our largest acquisition to date, Strata. You can see that in KT and High Desert, we're going to continue to look at those opportunities. And so Ian, we've identified a number of different paths to get there to 20%. And Oregon is a temporary setback, but that's why we are diverse, both geographically and by product lines.

We like our strategy and we can get to 20% with where Oregon is currently at, it ebb and flows. I've mentioned to you, Ian, in the past that I've looked up to the Pacific region, the legacy Pacific, California, Hawaii, Alaska as being one of our north stars for a long time. And the progress that we're making on our edge strategies and the overall economy in those states, I mean, they're you had a fantastic year.

If you look at the West segment, I mean, it almost completely overshadows what's going on in Oregon, and that's a very positive thing. So multiple paths to get to 20%. It's a long-term goal that we continue to be focused on. I can tell you that our management team and everybody out in the field that if are laser-focused on all aspects of that edge strategy to get to that long-term 20% goal.

Next question will be from Garik Shmois at Loop Capital Markets.

Sorry if some of these questions are redundant. The call was dropped earlier. But I wanted to follow up on contracting services and just the increase in the number of larger jobs in your backlog. Is that just something that was opportunistic over the last quarter based on what was coming up for bid. Are you generally seeing larger projects coming up, maybe there's a mix shift happening? Or is it maybe a change in this overall strategy to go after larger projects as opposed to some of the smaller maintenance work we used to do.

Yes, definitely not a change in strategy. I mean the majority of our backlog continues to be projects less than $5 million. This is really a result of DOTs deciding internally to maybe more efficient to manage one larger project and have just one set of project schedules and contractors on a site. And so we are -- I mean part of that is maybe trying to get a lot of this I money that still -- there's almost 50% of that needs to be spent through the system in these larger projects.

And so we are subcontractors on the largest projects that we've taken on, the big job that we have in Texas, it's work that we do is asphalt paving and supplying materials our risk profile on these projects -- I mean, this is something that we've seen coming for a while, Garik. In fact, we've been talking about probably for the last 2 or 3 quarters that we see larger projects being led by DOTs, and we will take a look at those. I mean, we bid some of those as prime contractors, but it's not a different type of work.

It's not different risk profiles. It really is the work that we do. The nice thing about it is a multiyear project like this. These large projects, we have the ability to have price protections and prepurchase and lock in on our pricing and have escalations built into them.

But it's also secured backlog for the next couple of years on some of these projects. So you did see a shift in the amount of backlog that we burn in any 1 year down to that about 80% now.

Okay. That's helpful. Follow-up question is just on the weather impacts and how we should think about your ability to recover the volumes that were delayed from the first half of the year, should we expect some of that to bleed into 2026. And also just was hoping you could provide some color on how July has trended recognizing Texas. There was severe flooding. So you've called that out, but other public aggregates and cement companies have spoken to strong demand so far in July.

And I'm wondering if you're seeing a similar rebound in markets where weather has not been an issue.

Yes, with the exception of our Honey Creek facility that has been shut down for the majority of all of July and continues to be shut down and will be through part of August, is that the demand is strong. The backlog is there. The demand is strong. But our weather has been mixed, frankly, in July, and we've had very favorable weather, a large portion of our footprint, but there is still pockets that we continue to get rain. This is the time you were a little bit easier, it drives out faster. It doesn't rain quite as much typically some years. So a lot of times they're just thunderstorms that come through causing some rain that we can typically work our way through.

But the overall demand is strong, and I'm pleased to see with where we're at on our volumes for July. And I think that's reflective of when we put our guide together for this call for [indiscernible] in all product lines. I think that is reflected -- we did take July into consideration for that guidance for the rest of the year.

Next question will be from Chris Ellinghaus at Siebert Williams Shank.

Brian, you sort of talked about Oregon and coming back to the legislature, it makes perfect sense that it does in a 2025 very much. But do you expect sort of Oregon state conditions to revert to normal for 2026?

Yes. I'm hopeful, Chris. But the reality is, and I mean, typically, you don't pass comprehensive transportation funding in a short special session. I mean you would -- and so I would suspect that there'll be some stopgap funding that they accomplish at the special session and that the legislature meets every year in Oregon. And so they'll be back in session again at the beginning of next year.

And so I'm more hopeful that they will figure that out. I mean what I can tell you is, again, that the need is there. I mean there is an analysis that was done by the DOT that identifies almost $1 billion -- $988 million of a shortfall to get the roads and the bridges up to an adequate fair condition.

There's a report out there right now that the DOT the cycle that they're maintaining and replacing bridges is every 900 years, and these bridges were designed to last 50 to 75 years. And so they have to fix this problem. And as you know, Chris, the longer you delay maintaining these infrastructures, the cost of repairs and maintenance just goes up exponentially, requiring more materials, not good.

I'm a taxpayer in Oregon, not good for a taxpayer, but as a construction material supplier and a contractor that does that type of work is going to require even more materials. So this is not a speculative problem. I think the challenges of finding ways to fund the transportation bill and they will do that. I don't necessarily think they'll do that at a special session at the end of the month, but they will do that, I mean, or later.

So how does that impact '26 yet, Chris. I mean I don't know. I would say I'll know more at the end of this month. We'll update everybody at the next quarterly call, and we'll know more kind of the progress that we're making in Oregon as far as the DOT funding.

Okay. Great. That helps. In the quarter, I want to say that Strata [indiscernible] masks due to the weather impacts. So can you just sort of -- it seems like Strata must have been pretty significantly accretive to margins. So can you just sort of talk about what you saw from Strata in the second quarter? And how did it match up versus your sort of expectations?

Yes. I mean other than the impact they had to weather. And there was absolutely an impact to Strata from weather. But everything else that we're seeing with the integration with their sales volumes, I mean, it's right on plan, and that's why we're maintaining the guidance for Strata to continue to contribute that $45 million is baked into our guide going forward. And so the revision to our guide does not -- there is no negative impact.

And frankly, if you look at our range within our guide, I would say that one of the ways we hit the upside, the high end of that range is we are excited of what we're seeing at the Strata acquisition. There's nothing there that has been alarming. There's no surprises. We can't control the weather, but we can control our pricing, our bid room strategies of quality over quantity.

All of the edge principles, they've embraced those principles at Strata and it's going -- it's on track, Chris. I would just say that it's on track.

Okay. Can I sneak in one really quick question. Are you guys working on the Micron projects in Idaho? There are probably some opportunities for us. We are in conversations as they continue to look at getting that project back on track. And so I would say that we are in conversations with the team at Micron.

Next question will be from Gabe Hajde at Wells Fargo Securities.

Three questions. One is -- and I know there's been a lot of airtime on Oregon and may be unfair to ask it this way. But -- can you kind of give us for this at a state level, what is down or what you're projecting it to be down, that's embedded in your guidance year-over-year. And if nothing changes as it relates to funding, perhaps what that kind of -- the run rate into 2026. Have we seen all of the, call it, Max paint? Or would there be something in Q1 that would come out? I'm assuming that much because of the seasonality of the business?

Yes. We don't provide individual state guidance, and I probably won't do that here, Gabe. What I can tell you is that if you look at our variance, the negative variance year-over-year for the quarter for the first half of this year and the update to our guidance the $55 million reduction in the guidance that we've said that more than 50% of that variance for the quarter, for the year into the guide is directly related to what's going on in Oregon.

There's too many unknowns at this point in time to start speculating what's going to go on in 2026. I can tell you that the list of projects that we have that are on hold, the majority of those, all but 1 are still on hold. They've not been canceled. And so I think we'll know more in 3 months and certainly, we'll update everybody as far as the progress on where we're at in Oregon.

But I think that's the best way of looking at the impact to Oregon. Keep in mind, they have industries, they have the highest margins within all of Knife River. There's a lot of very good things that are going on. They are very well equipped in Oregon to deal with the headwinds there. I can tell you that, that management team is rightsizing their crews, their equipment. We're mobilizing both crews and equipment to other parts of the company to try to keep people busy.

We are managing our way through this temporary short-term headwind that we have in Oregon.

I would expect nothing less. You guys are dynamic folks. Interesting commentary on the backlog. You mentioned, I think, putting $650 million into the backlog? I'm assuming that was during the second quarter, it was up $250 million. So again, I'm just mathematically, I assume you put $400 million into your backlog in second quarter of '24. So maybe confirming in nature of a question.

Was Strata in that already given timing of when you closed it, would it have a material impact on backlog? And then can you talk about maybe just geographically where some of that incremental $250 million is sitting?

Yes. So there is no backlog from Strata back in 2Q of last year. And so that would all be incremental. It's somewhere in that $50 million, $60 million of backlog that we had some strata that we added to our overall backlog. And so the majority of what we picked up, the gain, the $250 million increase year-over-year. You're right, you did the math right. We had very close to -- we gained $400 million of backlog last year. This year, we secured $650 million of new backlog. And so I said that right, yes.

Yes. And so a lot of that came from some larger projects, 2 of them down in Texas, 1 in Idaho. We secured a nice job down at Conway Pacific down in Southern California. I mean, really, it's across the board. If you look at the states that we operate in, they all have very strong DOT funding. And so -- there's a lot of opportunities for us to continue to pick up backlog.

And I think one of the upsides and again, in our guide is often times, this is the time of the year, we will start seeing some late jobs come out. The good news for us is we've got capacity to take on more backlog and so we'll continue to look at those opportunities that continue to add more backlog. But it really came from some -- across all of our footprint. It came from some larger projects that we picked up down in Texas and Idaho, and then a portion of that did come from Strata.

Okay. And last one, I may have missed it. There's a lot going on this quarter, and you threw out a lot of numbers. The Strata acquisition around $450 million, I think you said $675million between the other 2 acquisitions that you've done and maybe some strategic capital. So I just want to make sure I heard you correctly. And if I did my math right on these other 2 deals, is that adding on an annualized basis, another $20 million to $25 million of EBITDA?

Yes, I'll let Nathan take on that question for us.

Yes. Gabe, good to hear from you. So from the standpoint of what kind of capital have we invested on the acquisition side, and I'll put that entirely into the growth bucket. So for the course of the year, Strata was the largest fleet. As you noted, $454 million was the announced purchase price. We've done other acquisitions since then. So the total is $620 million. through the year, that's through June that we have spent on growth projects at acquisitions, that's growth reserve replacements and organic projects that we have going on elsewhere.

We have another [indiscernible] that we're looking at for the remainder of the year, that relates to an organic project that we have. So if you want to put that whole growth bucket together for 2025, we're looking at $670 million that would be related to that.

And then on the maintenance capital, if you want to put the whole capital piece together, we spent about $111 million on maintenance capital and just like in the past, this year is the same thing, we're anticipating that our maintenance capital expenditures would be 5% to 7% of revenue. So those 2 pieces, Gabe, would give you an idea of how much we have going invested into the company.

And then remember, along with that, we did take on $500 million of term loan B to help fund the Strata acquisition. The rest is funded with internal sources of cash. And so I know you're probably looking at the net leverage, wondering if we've got a limitation there. But as we move through the rest of the year and take on the EBITDA, as we announced at the midpoint of our guidance and pay off the revolver, we'll be in a net leverage position compared to EBITDA, probably close to 2, leaving additional capacity for us to pursue other acquisitions, greenfield projects this year and into next year. Does that help, Gabe?

It does.

Our last question comes from Ivan Yi at Wolfe Search.

Going back to the cadence of guidance, like revenue and EBITDA are you expecting 3Q versus 4Q. Just wanted to see if we should assume anything outside of normal seasonality there.

Yes. We have a -- what is it, we've got a seasonality chart that we take a look at. And so within the first 2 quarters we're generally and I'll take a look at it in terms of EBITDA and revenues relatively close to that. We're probably around 20% for both first quarter and second quarter, about 20% of our revenue and EBITDA comes from that quarter and then close to 80%, almost of our EBITDA comes in that third quarter time frame with the remainder coming in the first quarter.

And so on a revenue basis, that third quarter is close to 40% of our revenue. And then on an EBITDA basis, about 56% of our EBITDA comes in that third quarter. Does that help?

I'll kind of go through again Yes. For the remainder of the year, we're probably looking at close to 60% I'll say it this way. For the rest of the year, we're looking about 60% of our revenue coming in the third and fourth quarter. That's our historical curve line.

And then for EBITDA, it's probably closer to 70% of these changes and then with the seasonality changes we've got here, it's probably a little bit higher than what it's been historically with the addition of Strata and Albina.

That's very helpful. And then lastly, can you discuss how roughly transportation costs are trending? Also roughly what percent of your shipments are moved on trucks versus rails. Just want to see which modes are seeing greater pricing increases right now?

Yes, I can take the overall cost piece of that and then we can get into the transportation component. I would say on the whole, our cost structure, when you're taking a look, whether it's labor, trucking, equipment, get into energy. On the whole, those are probably mid-single-digit increases year-over-year as far as the inputs.

What you might be looking at on the other side, though is, okay, wait a minute, your cost per unit is going up. That really is a reflection of lower volumes on fixed cost components. And so even though our input costs are mid-single digits, we've got lower volumes, and we did talk a little bit about weather, and that does impact our efficiencies to some degree.

And so you can imagine working in the rain is not as cost effective as working in dry weather. And then along with that, we did continue to have some preproduction costs. So on the whole, input costs still sitting around that mid-single digits for the quarter, and I'd say this is temporary, our cost per units are higher as far as our production costs. Is it specifically related to transportation?

Yes, the majority of our material is still delivered by truck. We do a fair amount of rail in Texas. We do railing operations in Oregon. We got rail up in Alaska. And the exciting thing about Strata adding Strata is they move a lot of their aggregates by real. They've had a very good strategy on rail for years. So those rail movements will continue to increase. But right now, the majority of our material is delivered by trucking.

And at this time, I would like to turn the call back over to Brian Gray.

Yes, I'd just like to thank you all again for joining us today. Our second quarter was largely impacted by factors out of our control, but we continue to make good progress on our edge initiatives and believe we are well positioned to grow our company and deliver long-term value for our shareholders. We appreciate the interest and support. I will now turn the call back over to the operator. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.