Knife River Corp Q4 FY2024 earnings call

• 2024 was a record year for Knife River with record full year revenue, adjusted EBITDA, and adjusted EBITDA margin. Efforts to optimize prices led to 7% annual price increases for aggregates and 10% for ready mix, while cost control and process improvement teams drove margin improvements.
• The company invested $131 million in six acquisitions in 2024 with a focus on materials-led opportunities, expecting $16 million to $20 million in EBITDA contributions from these acquisitions in 2025.
• Knife River streamlined its segments from five to four in 2025, with the former Pacific and Northwest segments combining into the West segment to provide enhanced regional support.
• The company launched the position of Chief Excellence Officer to oversee excellence initiatives, including expanding PIT Crews and standardization efforts. A company-wide sales training program and new software for customer service and coating processes were also in progress.

In 2024, Knife River's geographic segments had a record year, achieving $455 million in EBITDA, a 15% increase year-over-year. The Pacific segment saw full year revenue and EBITDA both increase 7% due to price increases across product lines and strong contracting services in Northern California. The Northwest region improved its EBITDA by 24% to an all-time record of $150 million, with an EBITDA margin of 21.6%, a 340 basis point increase from the prior year. The Mountain region recorded record revenue and EBITDA, with a full year regional EBITDA margin of 17.1% driven by higher pricing and strong contracting services. The Central region achieved record EBITDA and EBITDA margin led by price increases and strong contracting services activity. Energy Services had revenue and EBITDA down from its 2023 record year but was expected to remain accretive to Knife River's overall adjusted EBITDA margins.

• Consolidated revenue for 2025 is expected to be between $3 billion and $3.2 billion, and adjusted EBITDA between $485 million and $535 million, including geographic segments and corporate services between $420 million and $460 million and Energy Services between $65 million and $75 million.
• Capital expenditures for maintenance and improvements in 2025 are expected to be between 5% and 7% of revenue. Approximately $20 million will be invested to support the acquisition program, PIT Crews, and other EDGE initiatives.
• The acquisition of Strata Corporation is expected to close in the first half of 2025, with the company in a strong financial position to finance the acquisition through additional debt.

Actual results may differ materially from forward-looking statements. Risks are discussed in the most recent filings with the SEC, available on the company's website and the SEC website.

Q: Which regions are expected to see more meaningful improvement in profitability and margins?

A: Brian Gray stated that all regions are improving, with the Pacific region having the most upside potential due to opportunities like military projects in Hawaii, energy development in Alaska, etc. Aggregates product line also has significant margin expansion opportunities.

Q: Could you expand on the $20 million step-up related to acquisition costs and SG&A?

A: Nathan Ring explained that the $20 million step-up is related to ongoing business development opportunities, accelerating Edge initiatives, staffing up teams, purchasing software, and other EDGE initiatives. SG&A increased 5% in 2024 due to higher labor and third-party expenses, with mid-single digit inflationary increases and the $20 million investment in 2025.

Q: What attracts to the Strata acquisition in terms of geographic markets?

A: Brian Gray mentioned Strata is aggregates-led, vertically integrated, in mid-size high-growth markets, accretive to margins, in known markets, has a qualified management team, cultural fit, and strong market reputation for high-quality materials, with opportunities to move aggregates multimodally.

Q: What's the outlook for ready-mix raw material inflation and pricing?

A: Brian Gray said ready-mix prices are expected to have mid-single digit increases, outpacing input cost increases. Aggregate price increases will benefit Knife River, cement suppliers have stabilized, and margin expansion in ready-mix is expected.

Q: How is the cadence of the year expected to play out and aggregates pricing timing?

A: Brian Gray noted traditionally first quarter has about 5% of annual EBITDA loss, more private opportunities in second half. Aggregates dynamic pricing continues with mid-single digit sustainable increases, using tools for real-time pricing based on job proximity and costs.