Ethan

Ethan asked for more color on the puts and takes of the margin outlook for 2026, considering modest overall improvement despite strong materials and services margins, and when Oregon could return to year-over-year growth, emphasizing funding clarity and private market performance.

Answer

Brian Gray, President and CEO, noted a modest EBITDA margin increase for 2026, driven by gross profit improvements across all product lines from dynamic pricing and Pit Crew initiatives, but tempered by a geographic shift to lower-margin regions. For Oregon, he expects 2026 performance to be in line with 2025 due to stable DOT budgets and a rebound in the private market, with legislative discussions for long-term funding anticipated in 2027.

Ethan asked for more color on the puts and takes of the 2026 margin outlook, noting the relatively modest implied improvement despite expected strong materials and services margins, and followed up on when Oregon could return to year-over-year growth, emphasizing the importance of funding clarity and private market activity.

Answer

Brian Gray (President and CEO, Knife River) stated that the midpoint EBITDA margin for 2026 implies a 10-20 basis point improvement, with expected gross profit margin improvements across all product lines due to dynamic pricing and Pit Crew initiatives. The modest overall margin improvement is attributed to a geographic shift in EBITDA contribution towards the Mountain and Central regions, which have slightly lower margins than the West. For Oregon, Brian Gray noted that private market activity rebounded in Q3/Q4 2025 and expects 2026 performance to be in line with 2025 due to a stable DOT budget and flat asphalt paving tonnage. He anticipates a larger, longer-term infrastructure bill from the Oregon legislature in 2027.

Ethan asked how to view the mid-single-digit growth outlook for 2026 in terms of pricing versus volume contribution, especially considering the 1% impact from fire services delays, and whether pricing due to tariffs would flow through primarily in the first half.

Answer

President and CEO Steve Blanco and Stephanie Sciullo (President, Americas Segment) indicated that both pricing and volume would contribute to growth, with a slight lean towards pricing. They confirmed that pricing actions from 2025 and early 2026, including those related to tariffs, are expected to flow through and be realized primarily in the first half of the year.

Ethan, on behalf of Tomo Sano, inquired about the composition of the mid-single-digit growth outlook for 2026, specifically the balance between pricing and volume, and how the 1% contribution from fire services delays factors in. He also asked about the timing of pricing flow-through, particularly related to tariffs, in the first half of 2026.

Answer

President and CEO Steve Blanco indicated that both pricing and volume would contribute to growth, with a slight lean towards pricing. Stephanie Sciullo, President of Americas Segment, added that pricing actions from the previous year and early 2026 would flow through significantly in the first half, contributing to price-cost neutrality.

Ethan, on behalf of Tomo Sano from JPMorgan Chase & Co., inquired about the current status of APi Group's M&A pipeline, including any prioritization of specific geographies or service lines for future bolt-on acquisitions. He also asked about labor availability, technician retention, wage pressures, and capacity constraints, particularly concerning investments in the sales team.

Answer

President and CEO Russ Becker indicated a consistent M&A cadence, prioritizing culture and fit, with a primary focus on North America safety (fire protection, electronic security, and elevators) due to market readiness, while also pursuing international opportunities based on country-specific capabilities and larger strategic deals. Regarding labor, Mr. Becker reported strong retention (over 90%) attributed to the company's purpose and investment in its workforce. He emphasized proactive recruitment from non-traditional sources and robust training programs, asserting that labor availability should not be an excuse for growth limitations.