Knife River Corp Q3 FY2024 earnings call

• Pricing and Efficiency: Aggregates average sales prices improved 7.6% QoQ. Process improvement teams (PIT Crews) worked on 26 plants in Q3, identifying production bottlenecks and improving uptime.
• Acquisitions: Closed 6 deals in 2024, including Frank B. Markison, Rock Products Inc., Albina Asphalt, expanding market positions and vertical integration.
• Segment Performance: Geographic segments achieved record revenue. Central segment saw improved EBITDA margins, while Northwest region benefited from prestress plant operation.
• Edge Strategy: Focus on price optimization, cost controls, margin improvement, and growth through organic and acquisitions.

Aggregates: Average sales prices improved 7.6% from 2023. Year-to-date, average selling prices increased 8% with volume declining 5%. Ready-mix: Average selling prices up 10% year-to-date, volume declined 10%. Asphalt: Average selling prices up 2% year-to-date, volume declined 5%. Contracting Services: Gross profit margin improved 120 basis points in Q3 compared to 2023, with sixth consecutive quarter of year-over-year margin improvement. Energy Services (Liquid Asphalt): Revenue and EBITDA down from record highs in Q3 due to lower raw material costs and pricing, but strong book of business for 2025.

• Revised 2024 financial guidance: Consolidated revenue range $2.85B - $2.95B, adjusted EBITDA range $445M - $465M.
• Anticipate higher SG&A expenses in Q4 due to acquisition due diligence costs.
• Expect pricing momentum to continue into 2025 with price increases exceeding costs.

• Weather impacts on operations, e.g., wet weather in Texas affecting sales.
• Timing of projects, such as the Wyoming wind project delayed to 2025.
• Volatility in private work due to interest rates and market uncertainty.

Q: How did EBITDA margins perform in Q3 for geographies and year-to-date?

A: EBITDA margins in geographic segments improved 90 basis points in Q3 and 170 basis points year-to-date.

Q: Segment of SG&A related to M&A vs health care?

A: About half of SG&A increase related to acquisitions, half to health care claims.

Q: Drivers of volume guide revision?

A: Intentional focus on quality over quantity, project timing delays.

Q: Mix of acquisition targets?

A: Focus on materials-based, aggregates-led companies in existing or adjacent markets.

Q: Northwest backlog and Wyoming wind project?

A: Backlog healthy, Wyoming project delayed to 2025.

Q: Funding strategy for M&A?

A: Use cash on balance sheet, maintain net leverage target, open to stock in deals.

Q: Prestress activity and 2025 industry view?

A: Prestress plant performing well, agree with mid-single digit pricing increases in 2025.