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…

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…

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…

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.