管理層發言
Good morning, everyone, and welcome to the Knife River Corporation Second Quarter Results Conference Call. Please be aware that this call is being recorded on Tuesday, August 5, 2025. I will now hand the conference over to Nathan Ring, CFO. Please proceed.
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 two 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 are all safe. They are actively repairing our Honey Creek quarry operations where floodwaters washed out our access roads. In addition, the rail line servicing our quarry 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 Knife 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.
Idaho 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 Farmway Road project 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 paving 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 Kraemer Trucking and Excavating in St. Cloud, Minnesota. Kramer provides infill growth for us in the central part of the state. It has 97 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 Crews, these crews are focused on self-help through standardization, cost control, price optimization and pushing towards excellence in all we do. This takes 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 in 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 EDGE strategy, and we are excited about our future. I would now like to open the call for questions.
分析師問答
Your first question will be from Brent Thielman at D.A. Davidson.
I appreciate the updates and the revisions to guidance. I was wondering about the Oregon market and what you expect for the second half of the year. What potential opportunities might arise in that market, Brian? I also wanted to confirm the status of Strata this year.
Yes, I'll address that first question. The integration of Strata is proceeding according to our expectations, and in fact, it is going very well. The original guidance we provided three months ago of an increase of $45 million is still on track. Regarding Oregon, a few things have changed since our last discussion, Brent. The Oregon legislature was attempting to pass a comprehensive transportation funding bill, which we were optimistic about. However, after a year’s work on it, they ended the session without passing a long-term funding bill. The governor has since called a special session at the end of this month, but I don't anticipate any positive impact on our paving work in Oregon this year; it will likely be too late. This seemly aims to prevent layoffs of DOT workers and allows them to continue working through the winter. We are hopeful that the condition of roads and bridges in Oregon, which are in poor shape, will prompt state officials to take action.
Like many states, they need to find funding through mechanisms such as gas taxes and registration fees, possibly achieving more comprehensive solutions in the special session or next year. This issue cannot be delayed much longer without resulting in even higher costs. On the DOT side, since our last update, we have several projects that were supposed to begin around June or July, but now, in August, only one of those projects has commenced. The majority are still on pause, with only one canceled and the rest on hold. This shift has influenced our guidance, as mentioned, with over 50% of our guidance revisions and quarterly year-to-date variances attributed to Oregon. Clearly, this situation is impacting us.
I appreciate that, Brian. It's good to see the record backlog. However, I have some concerns that margins may be somewhat lower. Is this due to the type of work we're taking on, or is it becoming more competitive? I'm curious about what factors might be causing the lower margins.
Yes. As we reallocate revenue across different regions, Oregon continues to be a key focus for our margins. There are still many positive developments in Oregon that will contribute positively to our overall margins. However, as we move revenue from Oregon to other areas, this contributes to the lower margins reflected in our backlog. Additionally, some of the larger, multiyear projects we've taken on can come with lower margins. Yet, these projects also present significant opportunities for value engineering and potential bonuses. We are enthusiastic about our $1.3 billion backlog, which explains the slight decrease in margins there.
Okay. Last one, I mean, the aggregates ASP really impressive here, 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 chalk it 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. I want to acknowledge our team for their strong implementation of dynamic pricing, which is gaining traction. The addition of Strata has positively impacted our average selling price. It's important to note that our average selling price includes freight and a variety of product mixes. Due to the ongoing momentum in dynamic pricing, we have increased our guidance from mid-single-digit pricing to high single digits. We are very pleased with these fundamentals, Brent, which we expect to sustain over the long term. This is a very encouraging sign for our aggregates division.
Next question will be from Kathryn Thompson at Thompson Research Group.
I wanted to follow up on your Strata, Albina 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.
Thank you, Kathryn. We are very excited about the progress we are making on both acquisitions. The integration is going smoothly, and these materials-led businesses align well with our EDGE strategy. They have contributed to our seasonality in the first half of the year. Strata, located in the northern part of our footprint, impacted our seasonality, particularly in the first quarter where we only had them for a few weeks. However, they significantly influenced our seasonality in the second quarter, along with Albina Asphalt, which sells liquid asphalt for paving projects in the Pacific Northwest. While we do not provide specific financial guidance for individual business units, it is helpful to illustrate the effects these two companies are having. Strata and Albina accounted for around 8% of our total revenue for the second quarter. It’s important to note their seasonal nature, as their contributions will increase in the third and fourth quarters.
In fact, without the revenues from Albina and Strata, our consolidated revenue for Knife River would have declined by 5% for the quarter. To elaborate further on Strata, which is aggregates-led and has a significant ready-mix presence, both companies represent about 10% of our annual sales based on last year's figures. This gives you an idea of the impact these volumes, added back in March, are having on our overall financials. Did that address your question, Kathryn?
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 right now, they have made up 8% in the quarter. They are more seasonal. I see that increasing, which would align with the aggregates and ready-mix contribution in the 10% range. When you consider our reconfirmed guidance on Strata, that falls within the 9% to 10% of our overall EBITDA for the year. If you examine the margins and contributions from those two acquisitions moving forward, we've previously indicated that Albina is likely to be slightly dilutive until it is fully integrated into our Energy Services model. However, we have stated that the Strata acquisition will be beneficial to our margins. Therefore, looking ahead, the EBITDA contribution in the second half of the year may provide you with further insights.
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 two acquisitions. Is that correct in hearing that?
Yes. For Strata, Albina is strictly a liquid asphalt supplier. However, all of that is from Strata. A larger part of this is the ongoing traction and implementation of our dynamic pricing across all regions. I'm 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, the positive aspect is that everyone recognizes the need for funding. The challenge lies in identifying the source, whether through gas taxes or registration fees, and ensuring accountability for the current funds allocated to ODD from gas taxes. They face some difficulties, including several major projects that have exceeded their budgets. Building trust with legislators and the public is essential. There is clear bipartisan support for infrastructure investment as everyone acknowledges the importance of the roads. They have been actively working on this for a year, engaging with the public and generating understanding surrounding infrastructure needs. Unfortunately, they were unable to finalize their efforts despite the progress made. We will closely monitor the upcoming special session later this month, and based on its outcomes, we will continue our efforts during the offseason to create a more meaningful approach.
Each state undergoes this cycle; however, we have states like North Dakota, Texas, Washington, and Idaho that have achieved success, which more than compensates for what is happening in Oregon. It’s important to note that we operate in 14 states, including Oregon, which we will discuss today due to its current impact. Nevertheless, we have a record backlog in Oregon, and the fundamentals regarding road repairs are consistent across all states. We need to secure the funding to address this, and we are committed to making it happen in Oregon.
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 believe the primary factor that affected the situation was the weather in those areas. It was quite wet in North Dakota and Minnesota, as well as in much of our Central operations in Texas. This certainly intensified the seasonal fluctuations. Additionally, the scale of the Strata acquisition had an estimated impact of about 200 to 300 basis points on our seasonality in the first quarter, and I expect a similar situation in the second quarter, perhaps affecting us by 100 to 200 basis points. It's important to note that we typically don't ramp up asphalt paving in the Pacific Northwest until around mid-second quarter, roughly in April or early May. Therefore, we've extended our seasonal curve, which will now carry into next year. This year's complications were exacerbated by the number of rain days that disrupted production and the scheduling of asphalt paving projects. Looking ahead, assuming normal weather patterns, I anticipate that our seasonal trends will reflect a decrease of 1% to 2% compared to our five-year historical average in the first quarter and by 1 to 2 percentage points in the second quarter, with most of that activity shifting to the third quarter and a slight increase in the fourth quarter. I hope this answers your question.
Yes, Brian, that's helpful. There has been a lot of discussion about Oregon, which I understand is important. However, as you mentioned earlier, you are present in many other locations besides Oregon. You mentioned Alaska, California, and Hawaii, where you are experiencing some positives. Could you discuss your overall presence and identify where you are seeing strengths, as well as what is driving these positives across your footprint compared to the challenges we are facing in Oregon?
I appreciate that. Over 90% of our backlog is funded by public sources, and we're experiencing record Department of Transportation funding in nearly all the states where we operate. Specifically, in the states we're involved with, aside from Oregon, DOT funding is expected to increase by 14% in 2026, compared to only 3% for the rest of the country. This reflects strong funding and demand in the public sector, which constitutes a significant portion of our backlog. Importantly, these funds are secured and dedicated. Even during challenging times in Oregon, we haven't seen any of our DOT projects in the backlog canceled, ensuring stable work. Additionally, around half of our total sales are directed towards private projects, particularly in our material sales, with most of our ready-mix products being sold. We are experiencing growth in California, Hawaii, and Alaska, and there are numerous opportunities arising in these product lines.
In Alaska, we continue to witness activity around gold mines and a significant airport project, while tourism in both Hawaii and Alaska is on the rise. We also have a substantial amount of multi-housing commercial work taking place in Hawaii, although the large dry dock project at Pearl Harbor has faced some delays. We have set up a ready-mix plant on site, but production hasn't yet commenced, delaying it until late in the third quarter or early in the fourth quarter. The legacy Pacific region, encompassing California, Hawaii, and Alaska, is performing well. Idaho has recorded its highest backlog, consistently securing funds for public works and awarding large jobs, including strong private sector work. The semiconductor industry is expanding in Boise, alongside data centers and wind projects in Wyoming, highlighting numerous opportunities. The Mountain region is emerging as one of our fastest-growing areas.
Central is making progress with the integration of Strata into Knife River’s operations. Funding from DOT in nearly all states has been favorable, particularly in Texas, which continues to see large projects that positively impact our materials business. Overall, private development remains robust throughout the central region, indicating activity across all our 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 Strata integration and just where we are in kind of the cycle?
Yes. We have been very focused on integrating Strata. Our COO and I have discussed the timeline for this integration, and we have developed a detailed schedule outlining the synergies we expect to achieve within 30, 60, 90, and 180 days. I'm pleased with our current progress and the momentum we're gaining. We have successfully completed over 90 acquisitions, so we have a reliable strategy in place. The two smaller acquisitions I mentioned, KTE in the St. Cloud, Minnesota area and Accorian I-94 servicing the Minneapolis suburbs, along with the High Desert paving operations in Central Oregon, align well with our approach. These acquisitions feature asphalt plants and paving operations, making them suitable for our business model. Each deal reflects our history of negotiating acquisitions at single-digit multiples within fast-growing markets. They complement our existing operations, focus on materials, and allow us to swiftly integrate and realize synergies. We are very enthusiastic about these opportunities, and our pipeline remains strong. Our business development team consistently seeks out deals that match our strategy, and we will continue to expand. I am excited about our progress and look forward to sharing future announcements.
Your next question will be from Ian Zaffino at Oppenheimer.
Question would be, I guess, the return to pricing. How far along are we in 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 guide 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, Ian. Regarding our pricing strategy, the situation with dynamic pricing is somewhat different from what we've discussed previously. We've honored the existing pricing with Strata and are beginning to incorporate dynamic pricing. A key aspect of our dynamic pricing approach is that we do not send out price increase notifications. Since we acquired Strata in March, we've just started the process of rolling out dynamic pricing across the company, which presents an opportunity for growth next year. While their pricing model is solid, it aligns more closely with traditional methods, and we are transitioning to dynamic pricing, particularly as this concept originated in the Northwest region. They are relatively far along in this process, while other areas are still in the early stages as we expand our sales team and implement new training along with our software tools. Generally speaking, Knife River is making progress with dynamic pricing, and the tools we are developing and monitoring are showing that we are about halfway there.
I am optimistic and feel that we can raise our pricing guidance from mid-single digits to high single digits to reflect this progress. However, it’s important to remember that the first and second quarters are typically less robust for us. Looking ahead to the third quarter, we expect increased volumes in the central region, which will likely shift our numbers. For same-store sales with a single product at the same pit, I believe high single-digit growth is a more accurate reflection than the low double digits we have experienced recently over the next six months. These numbers are impressive, and achieving high single digits in pricing demonstrates positive momentum. It's a vital step towards reaching the 20% target you mentioned. Our edge strategy aims to boost the percentage of revenue coming from aggregates while optimizing pricing and maximizing overall EBITDA contributions in this area.
This is evident in our largest acquisition, Strata, as well as in KT and High Desert. We are actively seeking further opportunities in this regard. We have identified several different ways to achieve our 20% goal. Although Oregon poses a temporary setback, our geographic and product line diversity strengthens our strategy. We are confident we can reach 20%, even with Oregon's current situation, as it has its ups and downs. I've previously mentioned that I've always regarded the legacy Pacific region, including California, Hawaii, and Alaska, as a significant benchmark for us. The progress we are making in these states, along with their overall economic performance, has been impressive. The West segment's success greatly overshadows what's happening in Oregon, which is a positive sign. There are multiple pathways to reach our 20% target, which remains a long-term objective we are committed to. I assure you that our management team and the entire Knife River field team are intensely focused on every aspect of the EDGE strategy to achieve this long-term goal.
Next question will be from Garik Shmois at Loop Capital Markets.
Sorry if some of these questions are redundant. My 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, there hasn't been a change in our strategy. Most of our backlog consists of projects under $5 million. This trend is due to departments of transportation opting to manage larger projects more efficiently with a single set of schedules and contractors at a site. Additionally, there is still a significant amount of IIJA funds that need to be spent on these larger projects, of which we are acting as subcontractors on some. For instance, in Texas, we are involved in asphalt paving and supplying materials. Our risk profile for these projects has been anticipated for some time. We've mentioned over the last few quarters that we see an increase in larger projects from DOTs, and we are looking into those opportunities. We have submitted bids for some of these as prime contractors. The nature of the work and the associated risk profiles remain consistent with what we typically do. A benefit of these multiyear projects is the opportunity to secure price protections through pre-purchasing materials and establishing escalations, which also ensures backlog visibility for the coming years. Consequently, there has been a shift in the amount of backlog that we are managing, which is now approximately 80% for the year.
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, except for our Honey Creek facility, which has been shut down for most of July and will remain closed into part of August, demand remains strong. The backlog is healthy. Although we've experienced mixed weather in July, with some areas enjoying favorable conditions and others facing rain, the overall demand is robust. Typically, this time of year sees reduced rainfall, with thunderstorms occasionally bringing rain that we can usually manage. I'm pleased with our volumes for July, which reflects the guidance we provided for all product lines. We accounted for July's performance in our 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 aid 2025 very much. But do you expect sort of Oregon state conditions to revert to normal for 2026?
Yes, I'm hopeful, Chris. However, typically, comprehensive transportation funding doesn't pass during a short special session. I suspect there will be some temporary funding achieved in this session, and since the legislature meets every year in Oregon, they'll reconvene at the beginning of next year. I'm more optimistic that they'll find a solution. What I can share is that there is a significant need. Analysis by the DOT has identified nearly $1 billion, specifically $988 million, required to bring the roads and bridges up to acceptable condition. Currently, the DOT reports that the cycle for maintaining and replacing bridges is every 900 years, while these structures were designed to last 50 to 75 years. This issue needs to be addressed. As you know, Chris, delaying infrastructure maintenance only escalates the costs for repairs and upkeep, which means more materials are needed. This is a pressing concern.
I believe there will be challenges in securing funding for the transportation bill, but it will happen. I don't anticipate this occurring during the special session at the end of the month, but it will be addressed eventually. As for the impact on 2026, I can't say for certain just yet. I'll have more information by the end of this month, and we’ll provide an update during our next quarterly call regarding the progress on DOT funding in Oregon. Yes. I mean, we definitely have seen a positive trend in the legacy Pacific region down in California that is continuing, where we've seen some larger projects are still putting Aspen view and that did good season going right now with a projects that are starting in that state moving down into Alaska with the large Goldmine projects while staying up there. We have also seen consistent strength in Idaho. And it is catching up with what we saw last year during similar periods of weather.
So we are looking forward to a good next couple of quarters because the backlog looks strong across the board. Thank you all once 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.