Michael Dudas: So following up on some discussion on competition and discipline. Maybe you could share like maybe on a regional basis, given the exposure you have towards public markets and also the competition that might be occurring because of all the activity on the on the construction side, which areas seem to be more contributory towards the growth outlook you’re looking at, which ones be tagged a little bit slower in that front? And is the market, you’re talking about discipline on bidding on your contracting but also on the side, is the volumes of work opportunities increasing at a much greater rate than you’d be witness the last 6 to 12 months? Is there a lot more opportunities to bid and gives you a better chance to be selective?
Brian Gray: Yes. I will take that, and I’ll start with the volume question is, yes, there is — I’ll tell you, it’s been a little bit — Michael, it’s been a little bit slow to let this year. And I think that the extended season for us in the fourth quarter was also extended seasons for the DOTs. And so I would say that they were out inspecting work being built instead about designing and getting it let. And so I think part of it, again, our lower backlog is a timing issue, but what we see in the horizon and the pipeline and our bid schedules is strong. And so the volume of work is just not dollars because of inflation. There is more work to go out and bid. And again, that really does allow us to look at how can we maximize, optimize the upstream materials.
And when we bid work, we don’t just bid it as a prime contractor. We’re going to try to get many bites at that apple as we possibly can to get work. And so we may bid one of those DOT jobs as a prime contractor. We certainly would bid as a subcontractor, and will absolutely always be it as a material supplier. And so we’re going to try to get as many bites of that apple as we can. As far as the markets, I would say that it’s early in the season, and I would say it’s not that different than it has been in the past. I mean, to bid federal, state highway work, there are some nuances that go into that, you’ve got to know what you’re doing. And you just don’t jump from the private market to the public markets. And so we see the same kind of the typical bidders and each region, each state, each bid will range in the number of bidders on that.
Early in the year, we obviously see more bidders and we are in the early parts of the bidding season right now. And that typically is where you’re going to see some of the lower margin work that goes out as well. And so we’re going to be patient or going to be disciplined, and we will get the amount of work that we need to be successful in 2024.
Michael Dudas: And my follow-up would be back to the acquisition discussion, as you’re targeting, let’s call it, the bolt-on ones as opposed to platform enhancing, is there a focus on leveraging your contracting business with materials or if the bolt-ons are potent if the returns are there in the markets there for just selling the material as opposed to not having a downstream, which do you lean towards? Or is there a difference in which ones would you rather focus on as you execute this plan over the next couple of years?
Brian Gray: Yes. So we’re going to absolutely focus on aggregates-led companies. And we may — because it’s a bolt-on, we may have a local pit to where we go out and look at one of those downstream products or contracting services if we were able to sell more of our rocks somewhere else. And so we would go out and do a pure-play downstream acquisition if we had a quarry that could supply that. Typically, the synergies that we get from bolting on those operations, obviously, all the back-office functions, we get immediate synergies on. But we also — we can move jobs around and customers around. And we may be delivering to a project that was at a 20, 30-minute disadvantaged from the pit that we just purchased. And so a lot of times because the cost of delivering these materials, whether that’s asphalt, ready-mix or aggregates is a bulk — is a large part of getting and being competitive and getting work.
That’s one of the big opportunities that we have when we do these bolt-ons. So we also — frankly, we have a lot of internal expertise when it comes to our technical resources team. And we’re very effective at going into a site that may be nearing depletion and meet with the local regulators and take our technical services team and be able to expand those reserves. So there’s a number of different strategic opportunities for us. That’s one of the reasons we really do target those bolt-on operations. Again, we’re not afraid of platform operations. We’ve done platform operations in the past, and we certainly would do them again.
Operator: [Operator Instructions] your next question comes from the line of Ian Zaffino from Oppenheimer.
Ian Zaffino: All right. Sorry, I don’t know what happened there. As far as the aggregate mix, and I guess this is maybe answered a little bit. But when you think about expanding your aggregate mix, how much is that going to come from M&A? And then how much can come from just organic activity? And what might that be? And how do you kind of get there?
Brian Gray: Yes. We are certainly focused as we target that 20%-plus long-term EBITDA margin is to grow that aggregate mix. And we can do it both ways. We can do it organically. We have the capacity at our sites to continue to sell more rock and be more competitive by different delivery methods. So whether that’s by rail, by barge, we have a large fleet of our own trucks. We can control that supply chain and be competitive and provide a service that the customers really want. And so we can, and we have been and we will continue to increase organically. But yes, I think when you’re selling $16, $17 a time material, you need a lot more of that to move that dial as we move that 16% of our total revenue in aggregates up. And so that will be through acquisitions. And so Ian, as we grow our product mix and grow that revenue on aggregates, it will be both organic and through acquisitions.
Ian Zaffino: Okay. And then maybe a region that’s kind of deal to you is the Northwest, continue to see margins go up there. What’s going on there? And I guess my understanding is that the playbook that was implemented there is what will be kind of implemented across system-wide, which then brings you to your margin expansion targets. Given what you’re seeing maybe there, that gives me even more confidence in hitting that 20% number and then maybe even exceeding that 20% number?
Brian Gray: Yes, absolutely. And I think the road map of EDGE really did come from the framework around Northwest regions. So there’s a couple of things we did in Northwest region. They grew their aggregates from 18% to 24% over a 10-year period. And so they certainly had more of their revenue geared towards aggregates. And that was both organic and through acquisitions. So that helped. I mean we remain to be vertically integrated in the Northwest region. And so it’s very important that we take those rocks and we sell approximately 40% of those to ourselves to make concrete and asphalt. We take those materials, we go perform contracting services in the Northwest region, we also do prestress, which is also another margin accretive opportunity for us.
And so it’s — we’re committed to the vertical integration. That model that we have in the Northwest region is the same that we’ll have in those other regions as well. The dynamic pricing, they have been effective at doing that for the last eight years. And I think that’s had a lot to do with their success. And then just the team that we’ve got in the Northwest, similar to all the teams that we’ve got throughout all of the segments, we’ve got unbelievable talent and they’re committed to margin expansion. They talked about it at meetings we go to right now, they’re learning about it, and they’re all focused on that. And that region is no different than the rest of our other regions. So we’re going to get there. There’s multiple paths that we get to the top of the mountain for that 20%.
And it’s not just doing exactly what the Northwest region did, but that certainly is the framework of what we built the edge model around.
Operator: And there are no further questions at this time. I would like to turn it back to Brian Gray, President and CEO, for closing remarks.
Brian Gray: Thank you. Well, thank you for joining us today. 2023 was a historic year for Knife River from bringing the belt on New York Stock Exchange on our first day of trading to delivering record results. I am very proud of the team that got us here and that will help us continue to grow. Our business is fundamentally strong, and we are focused on delivering long-term profitable growth for our investors. We appreciate the interest and support. And now, I’ll turn the call back over to the operator. Thank you.
Operator: Thank you, presenters. And ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.
