Knife River Corporation Q1 FY2026 earnings call

• Markets: Strong position in mid-sized, higher growth markets with population growth outpacing non-Knife River states. DOT budgets in Knife River states increased, and there are diverse structural drivers for heavy materials demand. Nearly 90% of aggregate volume comes from markets where Knife River has a leading position. Substantial runway for growth through M&A with fragmented markets and attractive multiples.
• Vertical integration: Aggregates-based, end-to-end operating model enhances financial performance as a profit multiplier through capturing higher margins on pull-through of upstream materials and creating synergies across business units. Provides a one-stop shop for customers, more opportunities to win profitable work on construction projects, and flexibility for growth both organically and through M&A.
• Acquisitions: Completed three aggregates-based acquisitions during the quarter, expanding into Utah and strengthening footprint in Montana, with Morgan Asphalt in Salt Lake City being a significant opportunity.

In the first quarter, revenue improved by 16% and adjusted EBITDA by 16% year-over-year, with adjusted EBITDA margins expanding by 290 basis points. For the West segment, over the next 25 years, the market is expected to grow its population by approximately 12%, and in 2026, state DOT budgets across the segment are approximately $34 billion, a 13% year-over-year increase. The Mountain segment benefits from strong demographic trends with population expected to grow 26% by 2050, and had higher available backlog, better weather, and solid execution in the quarter. The Central segment reflected impacts from acquisitions completed in 2025, with the addition of Texcrete helping the region nearly double its ready mix volumes. Aggregates had 26% volume growth, ReadyMix saw 33% increase in volumes, asphalt volumes increased 42% year over year, and contracting services delivered higher revenues with contributions from all segments.

Reaffirming the guidance presented in February, based on the good start to 2026 and addition of three aggregates-based acquisitions, confident that 2026 will trend toward the upper half of the revenue and adjusted EBITDA ranges for the year. Expect to end 2026 with no borrowing on a revolving credit facility of $500 million and have cash on hand, resulting in an anticipated net leverage near the long-term target of 2.5 times.

Energy costs such as diesel inflation pose risks, but mitigation practices like fuel surcharges, energy escalation clauses, and dynamic pricing are in place. Concerns about gas tax holidays are considered immaterial as Knife River has record backlog and strong DOT budgets in its markets.

Q: Talk about puts and takes around aggregates pricing in the quarter, including geographic and product mix and mid-single digit pricing guide for the year.

A: Reported prices up about 1% for the quarter, normalizing for segment mix, average selling price up 4.1%. Mountain region had nearly 70% higher aggregates revenue, and confident in mid-single digit pricing improvement for the year.

Q: Clarify contribution and cadence of recently acquired companies and profit multiplier thesis.

A: Texcrete acquisition more than doubled ready mix volumes in Texas by allowing self-supply of aggregates. Morgan Asphalt provides multiple opportunities to earn profit through being vertically integrated. Synergies include purchase price power, operational efficiencies, and SG&A synergies.

Q: Update on dynamic pricing and confidence in 200 basis points of margin improvement despite diesel headwinds.

A: Pit crews' good work, existing mitigation practices like fuel surcharges and escalation clauses, and dynamic pricing help navigate higher costs and are confident in 200 basis points of margin improvement.

Q: Impact of gas tax holidays on future infrastructure spending and materiality to Knife River.

A: Considered immaterial as Knife River has record backlog and strong DOT budgets in its markets.

Q: Cadence of EBITDA guidance for 2026 quarters.

A: First quarter around 10% of revenues, second quarter maybe about 25%, third quarter higher revenues, fourth quarter depending on duration, with latter half of the year seeing higher portion of revenues and EBITDA positively impacted by asphalt paving job site incentives and quality bonuses.