Q3 2025 Knife River Corp Earnings Call

Speaker #3: Good morning , ladies and gentlemen , and welcome to the knife Corporation's third quarter results conference call . At this time , all lines are in listen only mode .

Speaker #3: Following the presentation , we will conduct a question and answer session . If at any time during this call , you require immediate assistance , please press star zero .

Speaker #3: For the operator . This call is being recorded and Tuesday , November 4th , 2025 . I would now like to turn the conference over to Nathan Ring .

Speaker #3: Please go ahead .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: 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.

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: Brian will begin today's call with an overview of our third quarter 2020 results , followed by a segment recap and an update on our competitive Edge plan .

Speaker #4: 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 .

Speaker #4: With that , I'll now turn the call over to Brian .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: Another pillar of our edge plan is to optimize prices and control costs . I'd like to thank our team members for making important strides in this area during the quarter .

Speaker #5: Their efforts helped us grow adjusted EBITDA margin to 22.7% for the quarter , an equally impressive . We also improved gross margins across our aggregate ready mix and asphalt product lines .

Speaker #5: We did all this while facing headwinds that we didn't have last year , including wet weather , a sluggish organ economy and less asphalt paving across our segments , delivering improved results in adverse conditions .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: And during that time we moved quickly to Rightsize our team and reposition our crews to where the work is . We continue to optimize pricing and control costs , and we benefited from the financial contributions of recent acquisitions .

Speaker #5: In addition , we began to see aggregate volumes improve as third party sales resumed on several jobs that had been delayed earlier in the year .

Speaker #5: 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 .

Speaker #5: In addition , the recent passing of a ten year , $4.3 billion transportation funding package helped provide additional clarity in Oregon . While not the long term fix , 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 .

Speaker #5: 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 .

Speaker #5: Total funding for the next biennium is now projected to be 6.1 billion . Dollars , slightly below the record $6.2 billion from the previous two year cycle .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: In these states , we saw healthy demand with pricing , discipline , and strong execution driving our results . We had increased mix volumes and pricing in California , where we added capacity and improved delivery efficiency .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: The wet weather we reported in the second quarter continued in the third , particularly in July and September , which delayed projects and negatively impacted operating conditions .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: We're 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 $150 million of construction work in 2026 , which is more than twice the $345 million they put out for bid in 2025 .

Speaker #5: Throughout the central segment , our markets appear poised for growth and our expanded teams are working closely together . And finally , an energy services 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 .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: We are focused on aggregates led , margin accretive targets and our midsize high growth markets . But M&A is just one component of edge .

Speaker #5: 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 .

Speaker #5: These efforts resulted in third quarter improvements to our aggregates rate mix and asphalt gross margin. While we're improving our processes, we were also improving our safety performance.

Speaker #5: I'm proud of the advancements our team continues to make on the ITU Safety Program . We believe a safe and engaged team is vital to our success .

Speaker #5: 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 .

Speaker #5: 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 .

Speaker #5: We have had four distinct periods . The first was to build scale , the second was to enhance our vertical integration and generate industry leading return on invested capital .

Speaker #5: 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 .

Speaker #5: We accomplished our goals in each of the first three phases , and we are on track to meet our edge goals as well .

Speaker #5: Over the past three 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 .

Speaker #5: 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 .

Speaker #5: With that , I'll turn the call over to Nathan .

Speaker #4: 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 .

Speaker #4: Aggregates , ready and asphalt saw margin improvement over the third quarter last year . In aggregates prices increased 8% . And margins improved 50 basis points .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: We anticipate that pricing will remain strong and increase high single digits for the full year . Switching to Readymix , we had one of our best quarters ever .

Speaker #4: 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 .

Speaker #4: Volumes were up mainly due to the addition of Stratus 24 ready mix plants , and also because of increased commercial work in Alaska , California and Hawaii .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: Our contracting services margin was also down due to slightly lower margin available on the backlog work . We performed fewer project bonus opportunities because of the type of work and delays in jobsite challenges from adverse weather .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: As we look forward , we anticipate that fourth quarter will be higher than last year by mid-single digits plus increases from the recent acquisitions .

Speaker #4: As we look at our balance sheet , we ended the quarter with a net leverage position of 2.6 times and $457 million of borrowing capacity on the revolver for capital deployment .

Speaker #4: 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 .

Speaker #4: 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 would be incremental to our outlined capital program .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: 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 .

Speaker #4: For years to come, I would now like to open the call for questions.

Speaker #3: Ladies and gentlemen , we will now begin the question and answer session . If you have a question , please press star followed by the number one on your touchtone phone .

Speaker #3: You will hear a prompt that your hand has been raised . If you'd like to withdraw from the polling process , please press star followed by the number two .

Speaker #3: If you are using a speakerphone , please make sure to lift your handset before pressing any keys . Your first question comes from the line of Brent Thielman from D.A.

Speaker #3: Davidson . Please go ahead .

Speaker #6: Hey , thanks . Good morning guys .

Speaker #7: Morning , Brent .

Speaker #6: Hey , maybe just Brian on , I guess shorter term question . Just kind of backing into the math for the fourth quarter with with the revised guidance here implies decent year on year growth in EBITDA .

Speaker #6: 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 .

Speaker #6: You're on your growth range . I know there's been challenges through the year and delays and push outs with weather , but any more context there would be helpful .

Speaker #7: No , I appreciate that . Brent . And so yeah , three factors really . The Oregon stabilization and their ability to actually produce more profit for the third quarter .

Speaker #7: 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 .

Speaker #7: 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 .

Speaker #7: And I would say that we had a good October as far as weather . And so we obviously have two more months left .

Speaker #7: That begins to change on us . But , you know , if we get a couple more weeks of good weather that gives us that , we can get that work done .

Speaker #7: 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 .

Speaker #7: And then , you know , normal weather . And we had a good month in October .

Speaker #6: Got it . And I appreciate the the detail on on what's going on in Oregon I guess Brian , the I think you said anticipated results would be similar in 2026 to what you should see this year .

Speaker #6: What what are you looking for over the next several months that might dictate maybe , maybe something more than stable , maybe , possibly some sort of rebound in Oregon next year .

Speaker #6: Just just curious . Kind of the things you're looking at that might drive that .

Speaker #7: Yeah . 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 .

Speaker #7: Obviously , the Portland market is the large driver of our volumes , and so we're still looking for some additional market stability in there .

Speaker #7: I think , you know , the trade talks that are going on has an impact on that . Portland economy with the imports .

Speaker #7: And along with some of the larger employers and the state that are impacted by tariffs . And so I think looking for some stability , some stability , there .

Speaker #7: 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% that's going to the counties and cities that we expect will benefit us .

Speaker #7: We're heading into our busier time of the year as far as bidding . So looking for some stability , there . So there's there's still I mean , I think there's a lot of positive signs in Oregon over the last 90 days .

Speaker #7: 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 .

Speaker #7: But at this point in time, with what we see, we feel comfortable that Oregon is stabilized and that results next year, in 2026, should be flat.

Speaker #7: With this year .

Speaker #6: Okay , just last one on strata . Realize that conditions have been sort of atrocious and that that region probably tough to get to that $45 million bogey for this year .

Speaker #6: But maybe kind of what's under the hood that you're seeing that you really like about that business . And , you know , as we think about , you know , a year where we don't have some of these challenges from weather as 45 million sort of contribution to EBITDA from that business , still very , very reasonable to you .

Speaker #7: Yeah . 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 .

Speaker #7: 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 .

Speaker #7: You look at our ready mix results for this quarter and strata is a large contributor to that success . 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 guys .

Speaker #7: But other than whether 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 lighting schedule coming up .

Speaker #6: Okay , great . Thanks , guys .

Speaker #3: Your next question comes from the line of Catherine Thompson from Thompson Research Group . Please go ahead .

Speaker #8: Hi . Thank you for taking my question today . I just want to dig a little bit more into backlogs . Had a nice increase , very solid contribution from public as is typical .

Speaker #8: But could you give a little bit more color in two different buckets ? One , the type of projects really more color specifically on contracting .

Speaker #8: And then the type of product asphalt type jobs and what this means for margins overall on a go forward basis . Thank you .

Speaker #7: Thanks , Catherine . Yeah , let me start with the margins in our backlog . Nathan mentioned that we have slightly lower margins .

Speaker #7: And , you know , I'll start by saying that we I'm very proud of our teams and we have industry leading margins to begin with .

Speaker #7: And you know , I know that the margins that we have in our backlog that come from our pull through of the downstream materials .

Speaker #7: And so when we're doing asphalt paving and we have a lot of asphalt paving in our backlog , Catherine , I'll talk about that next .

Speaker #7: 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 .

Speaker #7: 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 .

Speaker #7: 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 materials .

Speaker #7: So Nathan also mentioned that we have significantly more asphalt paving in our backlog . And , you know , we did not secure the amount of work that we had anticipated for this year .

Speaker #7: And we also didn't perform it partly because of weather , partly because of delays . The good news is that backlog , I mean , it is still that work is still in our backlog .

Speaker #7: 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 .

Speaker #7: So just to put it in perspective , you know , the mountain region today , I'm sorry , the end of September . So the end of the quarter has 23% more backlog of asphalt paving than we performed .

Speaker #7: 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 have picked up some very large jobs .

Speaker #7: Their backlog is up 83% in the central region , and they have more than two times the amount of asphalt paving in their backlog that they'll perform next year than they had in their backlog a year ago .

Speaker #7: And so, that's just two data points to kind of reemphasize the amount of substantially more asphalt paving that we have in that backlog.

Speaker #7: 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 .

Speaker #7: So and the last point I'd make is we're really just entering the the busiest time of the year for us as it relates to bidding .

Speaker #7: And so we have 32% more backlog than we did a year ago. And we're heading into the heart of our bidding season with some strong dot budgets.

Speaker #7: Most of them at record or near record levels . And so I really like the position that we're in right now . Catherine , as it relates to our backlog .

Speaker #8: Okay . Great . Thank you . And then if you were to look at it once again , just kind of a follow on with that backlog , how how do you feel about your backlog , the mix of your backlog today versus , say , a year ago ?

Speaker #8: I mean, are you kind of with that balance? What are some differences in the type of mix that you're seeing today?

Speaker #8: And if not a year ago , even six months ago , is there anything changing in terms of that mix overall ?

Speaker #7: Yeah , I think the change is what I mentioned is we have a lot more of that higher margin pull through of materials in our backlog .

Speaker #7: The other thing that's changed is we've added some larger jobs over the last couple of quarters. As a result, our burn rate has changed compared to a year ago.

Speaker #7: 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 multi-year jobs .

Speaker #7: And so , you know , 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 .

Speaker #7: Even with that lower burn rate . And so stronger revenues projections with a larger percentage of that work being directed towards asphalt paving , which does benefit our downstream materials in asphalt and aggregates .

Speaker #8: Okay . Great . Thanks so much . I'll jump back in the queue .

Speaker #7: Thanks , Catherine .

Speaker #3: Your next question comes from the line of the three grooms from Stephens . Please go ahead .

Speaker #9: Good morning everyone .

Speaker #7: Hey , Trey .

Speaker #9: Hey , Brian . So I guess , you know , starting off asphalt paving in mountain , you know , seen some challenges there ?

Speaker #9: Sorry if you touched on this , but you mentioned , you know , you mentioned the competitive bid dynamics . Is that intensified in this market .

Speaker #9: Is this , you know , something that's expected to continue , you know , and then also is this is this isolated to the region or are you seeing it , you know , kind of creeping into other markets or how widespread is it .

Speaker #7: Yeah . Great question . Trey and I would just I would say that , you know , you know , our business is very local .

Speaker #7: It's a really regional business . And so the same headwinds that we faced 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 .

Speaker #7: And so yeah , that has slightly changed the bid dynamics in the in the bedroom . We've obviously secured our fair share of work having backlog that's still up 32% with more asphalt paving .

Speaker #7: But we didn't do the asphalt paving that we had anticipated . And hoped for . This year in the mountain region . And then weather certainly impacted us in the central region , specific to the mountain region .

Speaker #7: We talked about this on the last call . I mean , there's just it's really a type of work that was being led out .

Speaker #7: 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 .

Speaker #7: And we have a lot of that paving on our books. Frankly, we thought some of that work was going to go.

Speaker #7: There was a one job even in Idaho , that had 70,000 tons of paving on it , that we thought would go this summer .

Speaker #7: That's gotten pushed a little bit into the fourth quarter , depending on weather and then into next year . The location of work , you know , was not necessarily right in our core markets in the Montana area .

Speaker #7: We talked about that last time . You know , the type of work . Again , the dots , they rotate , the dollars between bridges , heavy civil asphalt paving .

Speaker #7: And so I think this is a temporary problem challenge that we faced in Montana . And frankly , in pieces of Idaho and Wyoming .

Speaker #7: So that mountain region , the good news is that mountain region , it has record backlog . It has $100 million of more backlog than it had a year ago .

Speaker #7: 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 in aggregate.

Speaker #7: Plants are 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 bedroom.

Speaker #7: We're dynamic . I mean , we we can move quickly and we've made those adjustments , but the market dynamics as far as you know , new competition , it has not changed much .

Speaker #7: And our margins being slightly lower . Again are more than offset with the benefit of the the higher pull through of materials . So not structural nothing that we can't adapt to .

Speaker #7: And any kind of major problems going forward .

Speaker #9: Yep . Okay . That that's helpful . And then on the ready mix business , you know your margins there are up nicely year over year .

Speaker #9: I'm sure there's you know some benefits from acquisition and whatnot . But as we're as we're thinking about the ready business looking kind of going forward .

Speaker #9: What's your thoughts around kind of the puts and takes on on price costs as you as you look at that ? I mean asphalt kind of you know , it's facing a headwinds which we've talked about .

Speaker #9: But ready mix seems to be performing pretty well given the, you know, the tough operating environment that's out there.

Speaker #7: If you look at yeah , 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 .

Speaker #7: Our pit crews and our dynamic pricing have a lot to do with that success . So obviously strata is a large contributor to that .

Speaker #7: But even without strata , we had very good numbers in our business units . So we do see that momentum carrying into next year .

Speaker #7: Our dynamic pricing model is being embraced . Both , you know , 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 , you know , they will pay the prices that we are asking through our dynamic pricing .

Speaker #7: And you couple that with dispatch efficiencies , some new KPIs and dashboards . We're putting in place to help us manage our costs .

Speaker #7: 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 .

Speaker #9: And if I could just sneak one more in there , aggregates pricing very , very good . You know , there's been , I guess several of your , you know , larger competitors have been in the market kind of commenting on high level expectations for aggregates around pricing and volume is just given the market you're in .

Speaker #9: 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 ?

Speaker #9: Looking into next year? Thank you.

Speaker #7: Yeah , 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 sustainable .

Speaker #7: 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 .

Speaker #7: 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 .

Speaker #7: But Trey , our legacy operations are continuing to perform at mid-single digits . And we do feel like that is sustainable . Going forward .

Speaker #7: The volumes , you know , that's been a little bit of a different story . This 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 the again , the two factors , the less asphalt paving and the pull through that that brings .

Speaker #7: And then the weather . And so you look at the Dot budgets , you look at our backlog going forward . You know , I look forward to providing specific guidance on volume during the next quarter's call .

Speaker #9: Okay . Thanks a lot for all the details , Brian . And best of luck navigating through the to the for Q .

Speaker #7: All right . Thanks , Ray .

Speaker #9: Thank you .

Speaker #3: Your next question comes from the line of Gaj whites from Loop Capital . Please ask your question .

Speaker #10: I'm wondering if .

Speaker #7: You there Garrick .

Speaker #11: Can you hear me ?

Speaker #7: Yep . We can hear you now .

Speaker #11: Sorry .

Speaker #10: Okay .

Speaker #7: You are a little bit garbled . You're a little bit . We can't hear you . I understand you , Garrick . Sorry .

Speaker #11: Hey . Sorry . Okay . Is this better ?

Speaker #7: We got .

Speaker #11: You there . Okay ? Yeah . 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 ?

Speaker #7: Yeah , I would say that , you know , we we've based our midpoint on normal weather plus the , the successful weather that we had , you know , favorable weather for October .

Speaker #7: And so weather in November and December in our footprint , you know , 1 or 2 weeks can take us , swing us to the high end or the low end of that .

Speaker #7: And so weather is a , a big factor on that . You know , I think the continuation of the Oregon stabilization , you know , stabilizing and that work , that third party private work continuing into the fourth quarter would be would help us .

Speaker #7: And , you know , we we saw that in October and we anticipate that will continue in November and December . We've got some projects with a backlog .

Speaker #7: We have a lot of work to perform this year, and so I think it really does come down to whether we've got some larger impact projects.

Speaker #7: We're currently providing a lot of stone on a project down in Southern California called Pier G. The P209 project and Honolulu at Pearl Harbor were supposed to begin pouring concrete for that dry dock facility in the third quarter.

Speaker #7: And it got pushed to the fourth quarter . We're still not in full production on that . And so that right now could , you know , 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 .

Speaker #7: So, there are a few things there. Nathan, did I forget anything that you would want to add? Yeah, I think I got most of those.

Speaker #7: Garrick okay .

Speaker #11: That's that's helpful .

Speaker #11: 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 .

Speaker #7: , you know , close to a dozen projects Okay . I that we had secured purchase orders actually had begun construction on . Some of them early in the year .

Speaker #7: I mean, this was back in January, February. Then we're delayed, and so we've talked a lot about that kind of in the first quarter.

Speaker #7: Second quarter . And now here we are in the third quarter , a few of those projects resumed construction . And so , you know , I think there's a good slide in our deck that shows that our , you know , aggregate volumes in Oregon year over year were down 3% .

Speaker #7: And if you look at that in the prior quarters , we were down 25 , 26% quarter over quarter last in the second quarter .

Speaker #7: In the first quarter , year over year , we were down 26% . Also . And for the third quarter , we're only down 2% .

Speaker #7: 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 .

Speaker #7: Frankly , in the fourth quarter . And so that kind of gives me confidence that , you know , our that that aggregate volumes are beginning to stabilize and that we will continue some of that work on that private work in specifically our large market that drives most of the volume for aggregates is in Portland , Oregon .

Speaker #7: And we have a very strong market position . And we are seeing some of that work resume construction .

Speaker #11: Okay. Very good. I appreciate all the color, and best of luck.

Speaker #3: Your next question is from the line of Vienna . Zaffino from Pappenheimer . Please go ahead .

Speaker #12: Hi. Great. Thank you. On Oregon, can you maybe tell us what the pricing was that you realized in the past quarter?

Speaker #12: Just trying to understand this because it's to me , it's always been viewed , I guess , as a optimized area , which , you know , I would imagine the pricing would be more optimized , but but maybe kind of give us a little bit of color on that .

Speaker #12: And then also , you know , on the funding package . Right . The , the funding package is a third of what it should have been .

Speaker #12: So does that then mean , you know , just giving kind of your near-term guidance that we would see like a faster roll off of that business , you know , or was just a business supposed to be up ?

Speaker #12: So much with a $12 billion package . And now it's just kind of like you said , flattish , give or take , you know , versus previously .

Speaker #12: Thanks .

Speaker #7: Yeah , yeah , I'll just start with that one . So and I'll let Nathan talk about the pricing in Oregon . I mean , we don't provide specific pricing results and guidance by state , obviously , but there's certainly momentum .

Speaker #7: And a lot of positive things that come from our dynamic pricing . That was really born in that region . And so good news there .

Speaker #7: As far as the Oregon , that's a ten year bill . And it's substantially less than what the legislature wanted it , substantially less than what is needed to maintain the current level of repair in Oregon , which is not great .

Speaker #7: And so to start making progress , I mean , they need a lot of funding , additional funding each year going into that .

Speaker #7: So , yeah , it's substantially less really . You take Odot gets half of that gas tax , the other half of that $4.3 billion .

Speaker #7: So over ten years and you start doing the math . It's 430 million . If you just did it evenly . It's not always exactly even , you know , half that goes to the states .

Speaker #7: 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.

Speaker #7: Those are real jobs , real benefits in small communities , midsize markets that we operate in throughout the entire state . And those are those 2 to $5 million overlay type of projects .

Speaker #7: Some some small bridge repairs that are 2 to $5 million . That is really our bread and butter . We do a lot of that work in a lot of our states .

Speaker #7: Frankly . So that will have an immediate impact to us next year , not as much as we had hoped with the larger bill at $12.1 billion .

Speaker #7: But meaningful that 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 .

Speaker #7: 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 .

Speaker #7: So I would say I would look at the $4.3 billion as a stopgap 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 budgets through another transportation bill in order to start making progress on the deferred maintenance that's been happening in Oregon for years ?

Speaker #7: 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 .

Speaker #7: 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 .

Speaker #4: Good morning Ian , good to hear from you on the pricing . First . This is 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 .

Speaker #4: 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 .

Speaker #4: And if you look at Oregon overall , including both the the larger key markets where he mentioned in the Portland area , but even the other ones , you'll see that Oregon overall is up in its pricing .

Speaker #4: So an indication that that dynamic pricing model is working , even in those markets where we may see downward volumes .

Speaker #12: Okay . Thank you . And then maybe just touch on M&A , you know , as you look kind of at the landscape over the next 12 months , you know , what type of M&A activity do you think we'd see from you guys .

Speaker #12: And you know , 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 ?

Speaker #12: Thanks .

Speaker #7: Yeah , I would say that 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 .

Speaker #7: 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 .

Speaker #7: In that there are more opportunities . Our business , our corporate development team , I talk about a robust pipeline and there are ample opportunities in the markets that we're currently in .

Speaker #7: Our number one priority is to continue to infill our existing markets, but also look at markets that are adjacent to our current states.

Speaker #7: We're going to be focused on the higher margin materials led type of companies , specifically aggregates . We continue to like the midsize high growth markets that we're in .

Speaker #7: 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 .

Speaker #7: 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 .

Speaker #7: All of the deals we've done so far have been negotiated. The deals have all been with multiples, have been very attractive, and kind of meet our disciplined modeling criteria.

Speaker #7: 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 .

Speaker #7: 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 .

Speaker #12: All right . Thank you very much .

Speaker #7: Yep .

Speaker #3: Ladies and gentlemen , as a reminder , if you would like to ask a question , please press star , followed by the number one on your touch tone phone .

Speaker #3: If you are using a speakerphone , please make sure to lift your handset before you press any case . Your next question comes from the line of Ivan E from Wolfe Research .

Speaker #3: Please go ahead .

Speaker #13: Hey . Hey , Guy . Good morning . Thanks for taking my question . First , can you discuss what were . Organic aggregate volumes and pricing in three ?

Speaker #13: Q x ? Any acquisitions ? Thanks .

Speaker #7: Yeah , I would say so . On the pricing , we 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 .

Speaker #7: 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 .

Speaker #7: We like that mid-single. And we enjoy that in most of the markets that we're in right now, on a volume, we showed for the quarter that we were up 4%.

Speaker #7: I would say that if you look at legacy operations because of the headwinds related to the lack of asphalt paving , whether and the organ headwinds that we faced , the first half of this year , we are down and we continue to be down with those legacy operations .

Speaker #7: 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.

Speaker #7: And just with some , you know , normal weather , I think you've seen our aggregate business lines performing much better from a volume standpoint .

Speaker #13: Great . That's helpful . And also , we appreciate that you're breaking out the the Oregon volumes by quarter . Any insight into for Q at all ?

Speaker #13: Have we reached an inflection here, given the nice improvement we saw in Q3?

Speaker #7: Q yeah , I think that , you know , when we say that Oregon has stabilized , I'm certainly looking at what happened in October and what we project , you know , continuing to to move forward .

Speaker #7: 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 , you know , kind of where crews were stationed and moving into 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 .

Speaker #7: We had an acquisition in in July that performed better than we actually had , even modeled . And so that's a strong momentum .

Speaker #7: It's a nice little paving company in central Oregon . Central Oregon is one of the hottest spots within Oregon . So yeah , there's a number of things that we like that's going on in Oregon that gives us confidence .

Speaker #7: To talk about the stability that that state is now enjoying, and then kind of look ahead into 2024 or 2026.

Speaker #13: Thank you .

Speaker #7: Yep .

Speaker #3: Thank you very much . There are no further questions at this time . So I'd like to turn the call back to Mr. Brian Gray for closing comments .

Speaker #3: Sir, please go ahead.

Speaker #7: Yes . Want to thank you all again for joining us today . Just equally important , I want to thank our team for delivering record results in the third quarter .

Speaker #7: Our edge plan is working. The fundamentals of our business are strong, and we believe we're well positioned for long-term success. We appreciate your continued interest and support.

Speaker #7: And with that , we'll turn the call back over to the operator .

Speaker #3: Thank you sir . Ladies and gentlemen , this concludes today's conference call . Thank you very much for your participation . You may now disconnect .