Q1 2025 Knife River Corp Earnings Call
Trey Grooms,
Speaker Change: Good morning, ladies and gentlemen, and welcome to the Knife River Corporation. First quarter results conference call. At this time, note that all participants are now listening on the mode.
Following the presentation, we will conduct a question and answer session.
Speaker Change: And if at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Tuesday, May 6, 2025. And I would like to turn the conference over to Nathan Ring, Chief Financial Officer. Please go ahead, sir.
Nathan Ring: Thank you, and welcome to everyone joining us for the Knife River Corporation first quarter results conference call.
Nathan Ring: My name is Nathan Ring, Chief Financial Officer of Knife River, and I'm joined by our President and Chief Executive Officer, Brian Gray.
Nathan Ring: Actual results made different materially from those projected in today's forward looking statements.
Nathan Ring: For further detail, please refer to today's earnings release and the risk factors discussed in our most recent filings with the SEC, which are available on our website and the SEC website.
Nathan Ring: Accept is required by law, we undertake no obligation to update our forward-looking statements.
Nathan Ring: During this presentation, we will make references to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly comparable gap measure in today's earnings release and investor presentation. These materials are also available on our website.
Nathan Ring: Brian will begin today's call with an overview of our first quarter 2025 results, followed by an update on our competitive edge plan and a segment recap.
Speaker Change: Following his remarks, I will provide in product line summary a capital update in a review of our 2025 financial guidance.
Speaker Change: At the conclusion of our prepared remarks, we will open the line for a question and answer session. With that, I'll turn the call over to Brian .
Brian: Thank you Nathan, good morning everyone and thank you for joining us.
Brian: Our construction season is just getting started. As we look at the opportunities in the year ahead, we are excited about three key points.
Brian: First, Knife River is in a position to have our most profitable year in history, including Rack of Revenue, Net Income, and Adjusted Ivedad.
Brian: Second, our acquisition program is in full swing. We close on strata corporation and we have additional deals in our pipeline with the focus on materials led companies.
Brian: At third, we continue to invest in our competitive edge strategy to drive excellence and long-term, profitable growth.
Brian: While there are some macro-level uncertainties in the economy, we have been insulated from any direct impacts related to tariffs.
Brian: With our vertical integration and our ability to flex between public and private work, Knife River is a resilient business model.
Brian: We are focused on what we can control, including operational improvements and working hard to deliver results for our shareholders.
Brian: We are entering the construction season with confidence in our long-term strategy and we are forecasting record results for the full year.
Brian: The fundamentals of our business are strong, and we are excited about the acquisition program and edge initiatives.
Brian: We believe the investments we made during the first quarter will benefit Knife River this year and beyond.
Brian: On the year end call, we highlighted a step up in SGNA for 2025, as we invest in our business to drive future success.
Brian: We spent approximately $8 million in the first quarter, largely related to acquisitions and business development activity.
Nathan will provide more detail on SUNA in his remarks.
Brian: As we look at the first quarter overall, results were in line with our expectations.
Brian: Because of our unique footprint in northern states, Knife River has historically recorded a seasonal loss in the first quarter of approximately 5% of annual EBITDA.
Brian: With the addition of Stratton and Albina, which are also in northern states, we anticipate the 8% seasonal loss we experience this quarter to be more reflective of our first quarter results going forward.
Brian: We expect the investments we made in Strada and Albina to begin positively impacting our financial results in the second quarter. It's exciting to see the progress we're making integrating these two companies, including the efficiencies we're finding as we bring our teams together.
Brian: Also, during the first quarter, we close on the acquisition of the Kalamakori. This property includes 50 million tons of strategically located reserves and supports our ability to serve the growth corridor north of Vancouver, Washington.
Brian: Our business development team continues to be hard at work in each Knife River segment, evaluating potential materials like acquisitions in mid-sized high-growth markets.
Brian: In addition to our M&A growth, we continue to make progress on multiple organic investments in edge improvements. A few highlights of these projects include the continued build-out of an aggregate expansion project in South Dakota, along with a new asphalt plant in the Sioux Falls market.
Brian: A Greenfield Reddy Mix plant in Twin Falls, which is a new market for us in Southern Idaho, and the installation of larger silos or asphalt plant in Boise, which will increase capacity as we serve more third-party customers.
Brian: Respect each of these opportunities will help drive margin growth, which is a key component of our edge strategy.
Brian: Let me provide a quick update on other edge efforts. In the first quarter, our teams improve pricing on aggregates and rate of mix as we continue to focus on dynamic pricing.
Brian: We also deployed best-in-class pricing and analytics software for our materials operations.
Brian: By investing in cutting-edge technology for our sales teams, we aimed to optimize pricing, support margin growth, and provide exceptional customer service.
Brian: Also during the quarter, we identified operational improvements at multiple aggregate sites. Our pit crews identified opportunities to increase throughput and reduce production costs at plants in Hawaii, Oregon, Texas, and Wyoming. We fully expect to see the benefits of these first quarter expenses during the upcoming construction season.
Brian: The team is visiting several more operations this year across our footprint, focused on controlling our costs, increasing production capacity, and implementing best practices.
Brian: I look forward to sharing their additional successes throughout the year.
Brian: Lastly, in Edge, we are excited about the rollout of our new safety program, which is based on the belief that safety is a personal choice and that all injuries are preventable.
Brian: Safety is a core value at Knife River and part of our life at Knife Culture. We are committed to excellence, starting with the health and well-being of our team members.
Brian: As our operations ramp up for the year, we stand to benefit from infrastructure investment.
Brian: Rhodes, Bridges, and Runways need to be repaired. The funding is there to support it and Knife River's well-positioned to perform the work.
Brian: In March, the American Society of Civil Engineers publishes much anticipated report card for America's infrastructure, giving US roads a grade of D-plus.
Brian: The report estimates that the country will need $2.2 trillion in funding over the next decade to maintain the current roadway system. Budgets that the local, state, and federal levels remain at or near all time records.
Speaker Change: Knife River State still have about 60% of federal IAJ funding to spend. At the state level, we're tracking 51 transportation funding bills. In late April , Washington passed a fuel tax that is expected to raise $3 billion in transportation funding over the next six years.
Speaker Change: In Idaho, two transportation bills have been approved, tolling over a billion dollars in funding, primarily to relieve congestion and expand its current transportation system. And just a few days ago, North Dakota passed a $400 million dollar increase to its two-year DOT budget.
Speaker Change: Finally, the Oregon Legislature is currently working on a much needed funding plan for the state's infrastructure, which could benefit us yet this year. Public projects represent 87% of our backlog, and perfectly fit our vertically integrated business model.
Speaker Change: The give us the opportunity to not only perform the work as a prime or subcontractor, but to also utilize upstream materials. Back look at the end of the first quarter was near a record from a year ago and at similar expected margins.
Speaker Change: Starting in late March and throughout April , we saw increased bidding activity compared to last year and the work we secured in that time frame is not reflected in our first quarter backlog .
Speaker Change: This work included dozens of public projects, including three jobs showing $170 million of subcontract work that we expect will be awarded soon.
Speaker Change: As I've mentioned over the last year, we continue to see states letting larger multi-year projects
Speaker Change: However, we've remained disciplined in the bid room, fully vetting the type of projects we pursue. We are focused on materials pull-through opportunities on optimizing contracting margins and on minimizing our risk profile. We believe asphalt-paving projects are publicly funded where we remain the largest part of our backlog for the foreseeable future.
Speaker Change: The segments are now west, mountain, central, and energy services. In the west are uprisings in Hawaii and California to help drive revenue and EBITI increases.
Speaker Change: We saw higher demand in Hawaii for cement and raiding mix and we implemented price increases across the region in all product lines [inaudible]
Speaker Change: In California, we added to our public backlog and have seen an increase in residential and commercial work coming out for bid. This more than offset decreased demand in Oregon, which is mostly related to less highway funding and delayed private jobs that are impacting material sales.
Speaker Change: Real continue to track Oregon Spunny's solution and will make operational adjustments as needed.
Speaker Change: Overall, we believe the West's poise to have another solid year with meaningful improvements coming from our operations in Alaska, California, and Hawaii.
Speaker Change: The recent passing of two transportation bills in Idaho should support additional growth in this very strong market.
Speaker Change: Midlettings in Montana have been delayed this year, but we've seen more opportunities in the past few weeks that should positively impact our backlog going forward. And in Wyoming, we see good potential for data center jobs and related commercial construction in the second half of the year.
Speaker Change: In central, we've been actively integrating strata and look forward to the positive impact it will have on our financial performance. We continue to find synergies with this acquisition and the additional transportation funding in North Dakota both well for our combined operations.
Speaker Change: We've been securing public work in each of our markets, and we see strong commercial work ahead in Texas, specifically in the college station area.
Speaker Change: Finally, at Energy Services, we are excited about having a full year of contributions from the Albina acquisition that closed late last year.
Speaker Change: We also expect a benefit from the start-up in the second quarter of our new polymer modified plant in South Dakota. We had a slower start to the year related to weather impacts in Texas but we expect another strong year from energy services with margins that continue to lead our segments.
Speaker Change: Incinclusion, we're in a strong position to have another record year.
Speaker Change: We reinvest into our business during the first quarter as we prepare for the start of the construction season. Our acquisition program is active and we continue to invest in self-help through our edge initiatives. I'm proud of our team for all their efforts and I'm looking forward to what's ahead in 2025. With that, I'll turn the call over to Nathan.
Nathan Ring: Thank you, Brian . Next, I'd like to review our product line results, capital allocation, and updated guidance.
Nathan Ring: Starting with our aggregate product line, we perform more pre-production activities across the company to prepare for the upcoming construction season and pull some costs forward.
Nathan Ring: This work included stripping and harvesting in our aggregate sites as well as maintaining and mobilizing equipment.
Nathan Ring: As Brian mentioned, we also incurred costs implementing pit crew improvements across the number of our locations.
Nathan Ring: These initiatives and pre-production efforts were the primary reason for our lower profitability in aggregates during the quarter, but we believe they will benefit us for the remainder of the year as production volumes come online and sales volumes ramp up.
Nathan Ring: For the quarter volumes were down compared to the prior year, related to lower demand in Oregon and weather impacts in Montana and Wyoming, but as we look at the full year, including our recently completed acquisitions, we believe aggregate volumes will increase high single digits compared to the previous year [inaudible]
Nathan Ring: Reddy makes saw a 9% increase in revenue due to higher average selling prices and volume growth.
Nathan Ring: Pricing continues to benefit from our dynamic pricing and the higher volumes were driven by increased demand in California, Hawaii and Texas.
Nathan Ring: We expect full-year volumes to increase high teens and we are also reaffirming our pricing expectations of mid-single-digit increases for full-year 2025.
Nathan Ring: Moving to asphalt, the quarter had light activity as is typical for this product line. The first quarter historically accounts for less than 5% of the full year's volume. We expect activity to pick up as we enter the second quarter, and we maintain our guidance that volume and price will increase low single digits.
Nathan Ring: Contracting Services experienced higher revenues for the quarter, with the largest increase coming from our mountain segment, particularly Idaho, which continues to see steady growth.
Nathan Ring: However, the statement realized a lower gross profit compared to the first quarter last year due to the type of work and incentives recognized on key projects in the prior year.
Nathan Ring: Keep in mind, the first quarter generally represents less than 10% of our consolidated contracting services revenue.
Nathan Ring: Therefore, small changes in timing and the type of work we perform can have a disproportionate impact as we saw this quarter. For the full year, we anticipate contracting services margins to be in line with our 2024 results.
Nathan Ring: Switching to SGNA, as you heard from Brian , we have significant acquisition activity in the first quarter as we continue to fill the deal pipeline, perform due diligence and integrate acquired companies.
Nathan Ring: As anticipated, these activities contributed to a $13 million increase in SGNA over the prior year.
Nathan Ring: The increase primarily relates to SGNA from Straton and Albina of $3.5 million and higher business development costs of $6 million.
Nathan Ring: As discussed during our previous earnings call, we anticipated a $20 million step-up in SGNA for the full year, which will be front-loaded in the first half.
Nathan Ring: of that amount $8 million was invested in the first quarter for business development, acquisitions and other key edge initiatives. We anticipate that annual SGNA expenses will be in line with our guidance given earlier in the year plus the addition of Stratas SGNA.
Nathan Ring: In addition to those strategic investments, we have been disciplined into playing capital while retaining our strong balance sheet for future expansion. For the quarter, we have reinvested $64 million in our fixed assets for maintenance and improvements.
Nathan Ring: We anticipate that 2025 capital expenditures for this category will be similar to the prior years at 5% to 7% of expected revenue. Along with that, we have invested $11 million in organic growth during the first quarter. For the full year, we have approved $68 million for organic projects. We have approved $8 million for organic growth during the first quarter. We have approved $8 million for organic growth during the first quarter.
Nathan Ring: Additionally in the first quarter, we spent $429 million on acquisitions, including $10 million on the Calama Quarry, and $419 million on Stradah.
Nathan Ring: The cash paid for straddit includes adjustments for networking capital, proceeds from the divestiture of 4 ready-mixed plants and cash acquired.
Nathan Ring: To help finance the strategy transaction, we successfully issued $500 million in term loan beat debt. That puts our net leverage at 2.5 times, based on the trailing 12 month EBITDA at the end of the first quarter. This aligns with our long term net leverage target.
Nathan Ring: We ended the quarter with $86 million in unrestricted cash and no borrowings on a revolver which we recently increased from $350 million to $500 million.
Nathan Ring: This increased capacity provides additional liquidity for working capital and seasonal needs as we grow the company, as well as short-term financing for smaller acquisitions.
Nathan Ring: Moving over to financial guidance. With the addition of strata, we are raising our full-year expectations.
Guidance includes consolidate a revenue between $3.25 billion and $3.45 billion.
Nathan Ring: Adjusted EBITDA between $530 million and $580 million, including geographic segments and corporate services between $465 million and $505 million, and energy services between $65 million and $75 million.
Nathan Ring: This guidance is based on normal weather, economic and operating conditions and does not include future acquisitions or any significant impacts related to tariffs.
Nathan Ring: The work we do is essential for America's infrastructure. As we enter the 2025 construction season, we anticipate another record year for Knife River. We have a strong funding backdrop, and we have made investments in our business to help drive our continued success.
I would now like to open the call for questions [inaudible]
Thank you, sir.
Speaker Change: Ladies and gentlemen, if you do have any questions at this time, please press star followed by one on your touch on the phone. You will hear a prompt that your hand has been raised, and should you wish to decline from the polling process? Please press star followed by two, and if using a speaker phone, you will need to lift the hands at first before pressing any keys.
Nathan Ring: Please go ahead and press star one now, if you have any questions.
Speaker Change: First we will hear from Brent Thielman at Davidson. Please go ahead Brent.
Hey, thanks. Good morning.
Morning Brent.
Speaker Change: Hey, Brian , when you look around your territories that you're operating in, could you talk about where you're seeing kind of more resiliency and private construction markets and then maybe where you're seeing some increased.
Speaker Change: Pressure, I would imagine, you know, maybe being more into your two cities, you avoid some of that pressure, but love to hear from you what you're seeing on that side of the business.
No, appreciate that, Brent. And certainly—
Speaker Change: with our footprint primarily being in mid-sized high growth markets. You're right. We're shielded to some of those pressures where we're seeing some positive activities on the private side. It's certainly in Hawaii. It would be...
in California, and then...
Speaker Change: Texas is strong right now, and then the other ones would be just throughout some of our north central region. Unfortunately, we're slow in the first quarter, and so it's hard to really see that in our volumes, but California, Hawaii, kind of that legacy-Pacific region that we had before.
There's really got some positive volumes on the private side.
where we're seeing some pressure downward on the private side.
Speaker Change: really would be not totally isolated but it's really magnified in Oregon right now.
Speaker Change: and then a little bit in Montana. But for the most part, Idaho is strong for us right now, both on the public and private side but probably Hawaii, California would be our strongest markets on the private.
Just an update there.
Speaker Change: Yeah, no, we're very excited and pleased how the integration is going. Obviously it came online during the lotter part of the winter and so we showed some.
Speaker Change: Seasonal losses in the first quarter associated to that. Obviously some integration and due diligence cost that...
Speaker Change: It's got an amazing great management team at the operations there. It's a great cultural fit. I mean, it's going to provide long-term value for Knife River for years to come.
Speaker Change: This year we could come in a better timing to close the deal, kind of as we get started in the construction season.
Speaker Change: and the Strata acquisition is looking very favorable for us. And that's why we upped our guidance to a record year for us from that 5'10 that we initially published up to 5'55.
Speaker Change: with the addition of strata. So right now everything is going well on the integration front Brent and very excited for a positive contribution this year.
Very good. Thank you.
Yep.
Speaker Change: Thank you. Next question will be from Trey Grooms at Stevens. Please go ahead Trey.
Trey Grooms: Thank you. Good morning, Brian and Nathan. Hope you're doing well. Good morning.
So, you know, the-
Trey Grooms: Okay, so recent M&A has changed the seasonality here, some with the business.
but can you talk about...
Trey Grooms: You know how volumes have been turning across your segments now that the weather is starting to cooperate and we're kind of getting more into the. [inaudible]
Trey Grooms: Maybe the early days still yet of the seasonal uptick, but in those markets, any color on how the start to the season has begun.
Trey Grooms: Typical seasonality, our five-year history before those acquisitions was that 5% loss of our annualized EBIDA and with those acquisitions to be closer to 8% as you pointed out Trey. But we do see some, I mean, positive signs and I think that's why we've increased.
Trey Grooms: Are aggregate volumes from low single digits up to the high single digits with the addition of strata, and also just some positive signs that we're seeing throughout our footprint. I mean, if I look at...
Trey Grooms: Our aggregate volumes for the quarter, I mean, they were down 9%, but if you, I mean, that's less than 400,000 tons which is right about, you know, a little over 1% of our annualized
Trey Grooms: Sales for all of aggregates, and so very small impact in that first quarter in the reality is that we have seen
Trey Grooms: aggregate volumes increase and 70% of our states that we operate in. And so we are seeing positive signs. We certainly have seen a fair share of private work that we have secured volumes on secured contracts.
Trey Grooms: Paused for a while right now so that had an impact on us our volumes for the quarter, but we are seeing very good.
Trey Grooms: Shipments out of our honey creek facility on Texas. Like I said, you know 70% of our states we actually had volumes that were up and aggregates and are ready to make volumes overall for the company are up for the quarter as well. So even though it's a small quarter for us, it's the least meaningful quarter for us.
Trey Grooms: Certainly seeing some nice signs that we can hit our guidance numbers.
Great. On that, you mentioned kind of the...
Trey Grooms: Private earlier, you mentioned private and versus public. You know, with the addition of the recent acquisition, can you run this? What is that in market mix? You guys have always been
Trey Grooms: Much more exposed to the public side of things, but any change to that mix now as you've added the Strata and other other deals over the last 12 months or so.
Trey Grooms: Yeah, so our construction revenue is about 49 to 40 percent of our total revenue for the year and the majority of that work in that bucket of that construction contracting revenue.
Trey Grooms: You know, 87% of that is public works projects. Now, the addition of strata, there are more of a materials driven company. Their aggregates are, I'm sorry, they're contracting revenue.
Trey Grooms: would be a little bit closer at 30% for their revenue, total revenue.
Trey Grooms: and Aggregus. We do have more influence in those two product lines on the private side. So, overall, you look at all of our revenue trade.
Trey Grooms: We certainly have more influence from public funding and as you know, that backdrop to that funding is very strong and it continues to get stronger in our state so we operate in and we have less exposure to private but that certainly would impact aggregates and rate of mix more than the others.
Trey Grooms: Got it. Okay, thanks a lot. That's it for me. I'll pass it on. That's a lot. Thanks, Fred.
Speaker Change: Next question will be from Kathryn Thompson at Thompson Research Group. Please go ahead, Kathryn.
Catherine Thompson: Hi, thank you for taking my questions today. First, just wanted to circle back and get some clarification on your S-G-N-A.
Catherine Thompson: for the quarter and then also how we should think about it for the year of the 8 million and Q-1. How much of that is the...
Catherine Thompson: from Acquisitions for M&A Activity versus Others, and for when we look at the balance of the $20 million for the full-year guidance.
Catherine Thompson: How much of this is maybe help us differentiate what is step up, that includes strata and then
Catherine Thompson: What are the dollars that are just due to residual cost related to accessions and comp?
I appreciate that, Kathryn, and I'll just say the high level...
Primarily...
Catherine Thompson: Focus on our business development and our edge initiatives to become best in class and all that we do and execute our excellence initiatives along with business development. So we had announced that $20 million that you're referencing.
Catherine Thompson: Certainly saw and projected that we would see a lot of that activity.
Catherine Thompson: in the first quarter. And so we did see a total of $13 million more SGNA.
in that first quarter.
Nathan Ring: And so I always let Nathan kind of talk specifically about what was made up in that $13 million increase in yesterday that was anticipated, very much in line with management's plan that we had put in place. And so Nathan, I'll let you do that and maybe you can just touch on maybe on a run rate going forward as well. Yeah, for sure. Good morning, Kathryn. Good to hear from you.
Nathan Ring: Probably the easiest way to do it is to put that 13 million that we had in variants year or year for the first quarter into three buckets, and I'll put it into the buckets, Kathryn, that you were trying to understand the pieces too. So, Brian , mention the $20 million in step-up.
Nathan Ring: So of the 13, 8 of that 13 relates to the 20 million step-up.
Nathan Ring: and you kind of wanted a breakdown of that too, so I'll give you just the quick pieces.
Nathan Ring: Six of that eight million relates to business acquisition costs, business development, due diligence integration, and then the other two relates to other edge initiatives such as pit crew activities, operations for our segments.
Nathan Ring: So again, 8 million of the 13 million relates to the step-up.
Nathan Ring: And then we had about three and a half million, almost four million that relates to SNA for the acquisition. So as you recall, we did Elbina late last year and then we had of course, Strouda here recently.
Nathan Ring: The SGNA that those two companies bring on was approximately four million, three and a half million for the first quarter
Nathan Ring: Just as we shared before, inflationary costs year over year and then offset by some gains and some insurance. But most of that is a small amount. So really, again, three buckets, the step up, eight million, almost four million for history and eight for acquisitions and then the rest, kind of, ongoing costs for inflation. So I'll pause there, Kathryn, to make sure that kind of answers the question on the quarter and that I'll get into the full year.
The Desk
Okay, perfect. Then for the year.
Nathan Ring: Yeah, I'll go ahead, sorry. Yeah, no, no, no, go for the full year. Yeah, for the full year then.
Nathan Ring: What I'll do is I'll just back up one step because we're really just making one change to get to what we look at for the full year of S.G.A. So as you recall back in February we shared that to determine what S.G.A. would be for 2025 we said let's start with 2024's full year S.G.A. And that was about 255 million.
and we said you'd grow that by mid-single digits.
Alfred Flation,
Nathan Ring: and then add the 20 million that Brian just mentioned. So really we just talked about three things.
Back in February , Star of the 24.
Inflation, and then the 20-mind step-up
Nathan Ring: The only additional item that you would need to use to determine what the full year 2025 would look like.
Nathan Ring: is to add in strata. And for strata I think a fair estimate is to look at their SG&A as a percent of revenue is currently comparable to Knife River. So as you calculate Knife River you can extrapolate that to strata and get to a full year for the full company.
Nathan Ring: Okay, perfect. Alright, that's helpful. Very good. Switching gears to your aggregate volume guidance.
Nathan Ring: of the quarter. It was down high single digits, but you've guided for up low single digits.
Speaker Change: and what makes you comfortable with your prior, low single digit?
Guidance
Speaker Change: and then also how is that changed with the inclusion of strata, because as you noted earlier, they have our little bit more materials heavy in their mix.
Thanks. Yeah.
Speaker Change: I appreciate that, Kathryn, and so certainly the combined operations, Knife River Legacy Operations Plus Stratup, we do feel comfortable with a high single digit guide for aggregate volumes and then the high teens for ready-mix.
Speaker Change: and that's certainly that increases on top of a guide that we're maintaining of low single digits.
for our organic growth, both for ready-mix and aggregates.
Speaker Change: You know, as you mentioned, and as I said a little earlier, [inaudible]
Speaker Change: Our first quarter is really a very small quarter, it's 10 to 15% of our revenue as it relates to aggregate. So we literally have 90% of the year still in front of us.
Speaker Change: and although we were down 9% for the quarter, again, that number is right around 1% of our total sales for aggregates, so not a huge impact, plenty of time to make those jobs up.
Speaker Change: A lot of the work that was postponed in the first quarter, I mean, we have contracts for them, they just were delayed whether that's because of weather and we certainly...
Speaker Change: Had less favorable weather this year than we had last year, and so part of this is...
Speaker Change: A difficult comp of looking at last year's favourable weather versus less favourable this year, but another part of it is what I've mentioned is there's been some projects that have been delayed and put on pause that had an impact on our sales, specifically an aggregate. Yeah, it's so...
Speaker Change: I'm excited that 70% of our states had actually increases in volumes and certainly see very reasonable guide in that high single digits that we can hit this year.
Okay, great. Thanks very much. Good luck. Thank you.
Speaker Change: Next question will be from Garik Shmois at Loop Capital. Please go ahead, Garik.
Garrick Shimua: Hi, thank you. First question is on contracting services. I wonder if you could talk a little bit about how...
Speaker Change: You're balancing the revenue opportunity versus margins moving forward, you've spoken to some like flatish margins.
Speaker Change: for the year has this threshold changed at all, has a type of projects that you're bidding on, has that changed. So I need, you know, kind of incremental color on that segment.
Garrick Shimua: I appreciate that, Garik. So, yeah, we have good backlog right now. We're very near our record backlog that we had a year ago, and as we announced it, that's similar margins.
Garrick Shimua: The recent passage of the Idaho Transportation Bill, the North Dakota Transportation Bill.
That should be some upside for us this year.
Garrick Shimua: And so, you know, as far as bit dynamics, I mean, and maintaining our margins, I would say that we are short on some work in a few of our markets, and I'd highlight Oregon and Montana, part of that being timing a project, part of that being some short...
Garrick Shimua: Balls that they're having in Oregon that the current legislature is trying to fix as we speak.
and fully expect and hope that they solve that problem.
Garrick Shimua: So in a few of our markets, we're still looking for some work and that could put some downward pressure.
Garrick Shimua: on margins as we pick up the amount of work we need to get.
Garrick Shimua: But I can also tell you that we've been patient and some of our competitors are filled up and some other markets that are...
Very good markets right now with very good strong funding.
which would allow us to have higher margins. And so...
Garrick Shimua: We also mentioned strata, it'll be about 30% of their revenue is contracting margins.
Garrick Shimua: We certainly have mentioned and see that those margins are accretive to our Knife River margins so...
Garrick Shimua: Overall, I think that we are poised to have a very solid year in contracting services, the funding, the backdrop just continues to be at record.
Garrick Shimua: Levels and our teams are very good at going out and executing the work and overperforming and gaining margins when they're out executing that work. So set up to have a very solid year in contracting services.
Speaker Change: You know, thanks for that. Follow-up question is just on costs, you know, with the decline in oil, has there been any change in your unit cost expectations across your segments, particularly interested in aggregates asphalt and liquid asphalt?
Speaker Change: Yeah, I would say that it's not been material that we would change our guide at that mid-single digit that we provided just three months ago. We're monitoring that situation obviously on energy services. They buy a lot of liquid asphalt to resell to third-party customers.
Speaker Change: and a lot of that liquid asphalt, the crude comes from Canada and so we're monitoring that very closely and talking to our customers.
around any potential impacts at tariffs. You're right, Diesel. You know, it has been...
Speaker Change: Little bit of a tailwind, but this time of year we don't use a lot of diesel and so I would say that's not been that material and we kind of see that just as a stable number going forward. That's how we've modeled it in our guidance.
Okay, thank you very much, I'll have a look [inaudible]
Okay, thanks, Garik.
Speaker Change: Next question will be from Ian Zaffino at Oppenheimer. Please go ahead Ian.
Hi, Gray. Thank you very much.
Speaker Change: I wanted to ask you on the investment. I guess we saw some of that last year creep up and I guess we're seeing investment again. Are we kind of done with investment cycle? Is there anything else we need to do from an SGA or an investment perspective?
Speaker Change: and with that said, is that enough investment at this point to get to your 20% margin target? Thanks.
Speaker Change: So Ian, I assume you're talking about the step up in this, you know, the $20 million that we had that we would consider an investment in our future. Is that what you're referencing?
Good luck.
Speaker Change: Yeah, I think that step-up really is 24 going into 25. We definitely have filled our pipeline a business development and so the majority of that $20 million step-up.
Speaker Change: is related to our business development activity that we see as kind of an ongoing
Speaker Change: Investment in Future Years and so it's not going to be a $20 million step up next year but we do see that run rate that we currently have this year and really we want the perfect world you would try to do as much due diligence and integration of those acquisitions during the winter months
Speaker Change: So I can see that being a little bit in the fourth quarter. It's certainly front loaded in the first half of the year as we bring those operations.
on to Knife River for the summer benefit.
Speaker Change: As far as additional money is beyond that step up at this point in time, we feel like the $20 million investment that we're making, a majority business development activity, and then also...
Speaker Change: Just staffing our edge initiatives, whether that's dynamic pricing, pit crews, our regional structure to support the growth that we've got in mind. We do see that kind of as a one-time step up this year that could support our future growth and get to that 20% long-term margin.
Speaker Change: Okay, good. And then, you know, just as far as a little bit more color on the projects that you said are being delayed on the private side. You know, what type of contracts are those and what type of projects are those?
Speaker Change: That you're seeing them in is there any kind of scene you could draw across it or is it more just kind of episodic and one-offs thanks?
Yeah, I would say that, uh, the...
Speaker Change: All private jobs for the most part. We've seen very little to, frankly, I don't know of any public contracts that we have signed that are...
Ben Delayed, and Orr.
Speaker Change: We have less exposure to the private side than we do on the public side.
Speaker Change: But that impacts our aggregates and radiomix the most and so these would be more materials driven projects and so it would be impacting our aggregates and radiomix the most. And it's just a wide range of, you know, whether it's subdivision projects.
Speaker Change: Hospital Project. There are a number of just, you know, these are decent size 100 to 200,000 ton projects that in any one quarter could have an impact on us. The good news, Ian that
Speaker Change: are telling us that they hope to see those volumes kick off again back in the third quarter and so that is something that we anticipate but as you know with the economic uncertainties.
Speaker Change: There's quite some volatility to that and that confidence is maybe a little bit strained at this point in time on that but I think what we're being told is those jobs should start going again the third and fourth quarter. I would say that...
It's a little bit under West Coast. I mean...
Speaker Change: being from Oregon. I mean, I say the headlines often. You know, we are an exporter, whether that's with Intel, Nike, Boeing. So, some of those drive are the local economy in Oregon, and certainly the tariffs maybe have slowed some of those projects down. And, um...
Speaker Change: But I'd say that gives you a little bit of color on what we're seeing as far as the type of jobs that are been delayed.
Okay, great. Thank you very much.
Speaker Change: Thank you. As a reminder, ladies and gentlemen, if you do have any questions, please press star followed by one on your touch on phone.
Speaker Change: Next we will hear from Gabe Hudge, Hudge Day at Wells Fargo. Please go ahead Gabe.
Speaker Change: Brian Nathan, thanks for all the detail and taking the question.
Speaker Change: I'm just curious how that relates to maybe prior year's spend.
Speaker Change: and really what I'm trying to understand is I think you kind of talked about strata as being
Speaker Change: Maybe towards the upper end in terms of size and scope.
Speaker Change: of sort of deals that were in the pipeline. A, if you can confirm that, B, maybe give us a sense for what you're seeing today in terms of price expectations if anything has changed. From a seller by a standpoint, it would be helpful. Thank you.
Speaker Change: So of that six million, again, and you talked about, okay, how does that compare with the prior year?
Speaker Change: We really did start up the acquisition process in 2024, and towards the beginning of that year the amount of SG&A costs that would fit within this step-up bucket were nominal.
Speaker Change: Now we did have some cost later in the year that was kind of mid-single digits, I think 6 to 8 million. So we did have some in the latter part of last year. As we look into this year, that 6 million that is related to
Speaker Change: To the acquisition cost, most of that actually does pertain to strata.
Speaker Change: within the quarter. And within our guidance, in that 20-million-step-up, we do incorporate what we expect for the full year on acquisition costs, which again would be due diligence on projects that have gotten the pipeline integration for those that we close on, but also the build-up of the business development team, which is essentially there.
Speaker Change: So I think what we've got out there for you today gave in terms of guidance and what we've shared with the $20 million step up captures the increase that we would have seen from 24 to 25.
Speaker Change: Does that help answer the first part of your question, Gabe?
Absolutely does. Thank you.
Speaker Change: We'll take the second part as far as the pipeline. Yeah, our pipeline continues to be full. Our business development team has been busy out there. If you look at the eight deals that we've done, the sixth that we did last year and the two that we got across the finish line in the first quarter, Strada being the largest, as you mentioned, Strada being the largest that we've ever done at Knife River.
Speaker Change: But all eight of those acquisitions were in the range of mid-single digit to high-single digit multiples.
Speaker Change: All eight of those deals were in a non-brokered, in a relationship negotiated.
Speaker Change: Aria, and so that is continues to be our focus. We have a very good position in these mid-size high-growth markets in a unique part of the United States that we like to do business in, the mid-size or high-growth markets.
Speaker Change: We continue to look at materials-led businesses. We continue to not be afraid if they're vertically integrated. We like that part of the model.
Speaker Change: and we really are oftentimes just the acquire of choice because of the local relationships that we've got by managing our teams and our regions at the local level.
Speaker Change: The Life at Knife culture that we've got and so we continue to see a lot of opportunities.
Speaker Change: of these family-owned companies, maybe multi-generational companies that want to be part of Knife River, and so that continues to be our targets, and I would just say that there are a lot of...
Speaker Change: opportunities out there to go out and execute our proven playbook. We are good at integrating these companies into our structure and look forward to having more deals yet this year.
Speaker Change: I appreciate that. If I can ask one sort of in-the-weeds accounting question...
Speaker Change: Is there anything odd as it relates to inventory step-up that you didn't call out as a one-time item?
Speaker Change: in your press release. And then, are you willing to, I mean, I guess the increase in eBITDA guide for this year, that 45 million that you called out, are we safe to assume all of that is related to strata? Thank you.
Speaker Change: Okay, yeah, as far as unique inventory items related to accounting, so yes, you're right at times when you do an acquisition of a company you'll have a markup to the fair value of what the inventory is as well. Strat, it does have some of that. There was none of that that related to our first quarter results, or a be a nominal amount.
Speaker Change: And really when you look to the full year of how much that markup was, I would say overall to the company it would be an immaterial amount, low single digits in terms of millions. So, not something that I would consider large enough to say, hey, we need to take a closer look at what that markup was for the inventory.
as it relates to the strata acquisition.
Speaker Change: and GBS, the entire $45 million bump from 510 up to a midpoint of 5505 is reflective of our expected earnings from the strata acquisition.
Thank you and good luck.
Thanks, Gabe.
Speaker Change: and at this time Mr. Gray, it appears we have no further questions, please proceed sir.
Gabe Hajde: I just want to thank everyone again for joining us today. We made strategic investments in the first quarter that we believe will lead to another record year for Knife River. We continue to make good progress on our edge goals and our well position to grow our company and deliver long term value for our shareholders.
Speaker Change: We appreciate the interest and support Knife River, and we'll now turn the call back over to the operator [inaudible]
Speaker Change: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending and at this time we ask that you please disconnect your lines. Enjoy the rest of your day.
Trey Grooms,
Trey Grooms,
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