Knife River Corporation Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Acquisitions: Core component of EDGE strategy, recent acquisitions contributed to record revenue and adjusted EBITDA, with multiple deals in the pipeline.
• Pricing and Cost Control: Optimized prices and controlled costs, achieving adjusted EBITDA margin of 22.7% and improved gross margins across aggregate, ready-mix, and asphalt.
• Process Improvements: Process improvement teams and field personnel implementing efficiencies, sales teams emphasizing dynamic pricing model.
• Safety Performance: Progress on I Choose Safety program, with a safe and engaged team vital to success.
• History and Goals: 30-year history with 4 phases, accomplished first 3 phases, on track for EDGE goals with 22% revenue growth, 56% adjusted EBITDA growth, and 320 basis points adjusted EBITDA margin growth over past 3 years.

Segment Performance

• Oregon: Saw year-over-year improvements in third quarter, with financial results higher than last year. Current contracting services backlog ~90% of last year's, expected 2026 results similar to 2025.
• Mountain: Fast-growing area with record backlog, but third quarter impacted by less asphalt paving due to project timing, weather, etc., though adding capacity for 2026.
• West (California, Hawaii, Alaska): Healthy demand, pricing discipline, strong execution; increased ready-mix volumes/pricing in California, increased aggregate/ready-mix volumes in Hawaii/Alaska.
• Central: Supported by Strata integration, third quarter revenue and EBITDA up substantially, EBITDA margin 23% (all-time record) despite wet weather.
• Energy Services: Strong quarter with revenue up 34% and EBITDA up 18% due to Albina Asphalt acquisition and new plant.

Guidance

• Full Year 2025: Consolidated revenue expected between $3.1 billion and $3.15 billion, adjusted EBITDA between $475 million and $500 million.
• 2026 Oregon: Anticipate overall 2026 results in Oregon will be similar to 2025.
• Fourth Quarter: SG&A expected to be higher than last year by mid-single digits plus increases from recent acquisitions; weather a key factor in hitting guidance range.

Risks

• Weather: Impacted project timelines, paving work, and operating conditions in various segments.
• Competitive Bid Dynamics: Affected asphalt paving in Mountain region, timing and type of work leading to less paving than anticipated.
• Economic Headwinds: Sluggish Oregon economy, wet weather in Central region delaying projects.

Question and Answer

Q: Brent Thielman asked about fourth quarter EBITDA growth confidence, Oregon rebound, and Strata performance.

A: Brian Gray responded on Oregon stabilization, strong backlog, and Strata performing as modeled despite weather challenges.

Q: Kathryn Thompson inquired about backlog type of projects and product margins.

A: Brian Gray discussed backlog margins, more asphalt paving in backlog offsetting slight declines, and strong backlog with large jobs.

Q: Trey Grooms asked about asphalt paving challenges in Mountain, ready-mix margins, and aggregates pricing.

A: Brian Gray addressed competitive bid dynamics in Mountain, ready-mix margins due to dynamic pricing and acquisitions, and sustainable aggregates pricing.

Q: Garik Shmois asked about fourth quarter guidance and private construction projects.

A: Brian Gray mentioned weather as a key factor and private projects resuming construction in Oregon.

Q: Ian Zaffino asked about Oregon pricing and M&A activity.

A: Nathan Ring and Brian Gray discussed Oregon pricing momentum and M&A focus on infilling existing markets and adjacent areas with higher-margin materials-led companies.

Q: Ivan Yi asked about organic aggregate volumes/pricing and Oregon 4Q volumes.

A: Brian Gray provided insights on organic aggregate pricing and volume, and Oregon 4Q volumes showing stabilization.