KNF - Earnings call 2 2023 | Knife River Corporation

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Operator

Good morning, ladies and gentlemen, and welcome to the Knife River Corporation Second Quarter Earnings Conference Call. [Operator Instructions] Following the presentation, we will conduct a question-and-answer session. [Operator Instructions] This call is being recorded today, Tuesday, August 8, 2023. I would now like to turn the conference over to Nathan Ring, Chief Financial Officer. Please go ahead.

Nathan Ring

morning. good and you, Thank as My name River, to Officer Knife very Chief second company. Nathan it's my Ring, first our and call, you XXXX Financial independent pleasure public quarter of earnings is an to our welcome as forward-looking events. securities future by the Today's laws statements United connection in discussion defined includes with States results materially. Knife River and risks differ to uncertainties that to is subject could cause actual from required, new under no future statements, obligation publicly legally update is as forward-looking or River otherwise. Knife whether or except resulting information, events any revise to,

our For associated more information with forward-looking about recent risks and statements, uncertainties please SEC refer most filings. to

reconciled and For SEC. defined release Commission we presentation, the the well make and most further legal non-GAAP the website.During available the These references with appendix and to filings, are will earnings to at Investors public our Securities today's are www.kniferiver.com which tab. the under website in comparable in website as Exchange supplemental to detail, other measures to information our as refer also on this available These GAAP filings disclaimers measures on non-GAAP the are materials please information. certain both our contained the and directly

guidance. Brian is quarter product financial a line results, Joining Chief me will position call second review and XXXX I then segment Gray. President He competitive today's Executive performance discussion today begin Officer, results, will our and with of EDGE and plan. leverage

will open turn the call operator now Brian. the session. prepared Following to will a over remarks, the for question-and-answer call I

Brian Gray

and momentum EDGE River strategies net are results present region from as income across the as I increases record joining EBITDA and saw year our record excited bidding and a strong to profitable Welcome, today. from We direct Nathan. targeted for revenue, second price our a in and even achieved lines. growth, I is result we earnings solid discuss for excited product to everyone, further improved quarter compiling and our you, first minute. record This Knight Thank also more benefited and our sustainable results operations quarterly call seeing. which while a record a last strategy competitive us all discuss public company backlog. you am thank consolidated in each will of

For the $XXX.X the revenue period quarter, we of a million, increase reported XXXX. XX% from in same

million, Our which increase EBITDA is XX% $XXX.X year-over-year. second was a quarter

with making EBITDA and our operations see of business we adjusted $XXX.X Our EBITDA plan. a the in detail discuss EDGE going progress XX% was you our fully revenue for significant so and execution we year-over-year.Nathan we and adjusted on the EBITDA EBITDA. our our guidance are increase raising in momentum the Based strong million, the are half forward, will our in appreciate first can tailwinds and more underlying

adjusted for addition, of are support the they midpoint strength growth X,XXX will of members guidance year-over-year In are million and our results, discuss further. implying the we million and $XXX EBITDA XX% are and the strong their are the demand to of to strategy. underscoring XXXX, we a $XXX These our initiating for Nathan seeing. of of very team EDGE testament at this

and business Our model. integrated our vertically also of the resiliency show results aggregates-led strength

expanding executing markets. business and markets midsized well a on to our company, of new While in an the as independent track goals high-growth with business our public our record established operations successfully are and

United in services billion to resiliency return of and provides XX aggregate tons and of are States reserves. our construction producer invested contracting the capital.We mix a proven X.X with materials top industry-leading on Our contributes

strong the states XX our name at in performed together which our our operate. also night, XX is people-first include asphalt, life Our of concrete major contracting downstream to all Tying and culture. across products we is ready-mix we which it we and give services

River balcony committed to together I've team years, to for care with our taking our a build we Knife thrill it as of XX communities. are been work being an on bell opening and on employer first We for for ring June and York time. Exchange choice the join and of New of shares traded was to X KNF to the leadership Stock me the watch our of were team the as stock

strategic Our strong capital more Resources aimed to at upon and company us and business The our platform.The plant. excellence. pursue and and stand-alone resources enables letters improvement, our our a River's strategic potential EDGE EDGE growth MDU margin efforts decision for full to Knife allowed discipline, separation value framework is growing from long-term competitive to and creating for our stand public effectively shareholders. in the into unlock allocate EDGE opportunity is expand has among spin-off sustainable efforts growth. Key the our for EBITDA us profitable

initiatives Our team on is objectively, laser-focused these have delivered. and we

of XX-month optimization. EBITDA margin increase adjusted result our was to price the this margin a deliver improved adjusted discipline through customers aligning trailing from XX.X%. in we of of Much the year-end First, we EBITDA to our our our XXXX value improvement XX.X%, significant

saw cement increases all liquid aggregates, our and we on including the asphalt. For double-digit quarter, materials, price ready-mix, asphalt,

project strong we improved with the regions our strong points in our hit by goal execution.Our enhancements margins by our pricing materials to pricing, demand implemented construction has basis improvement on XXX to margins adjusted teams we process track the the bidding and XX% underlying through quarter disciplined are by addition us efficiency XXXX. initiatives, strategies of our for EBITDA In the and coupled seeing being

flexibility. improve highly debt been cash, evidenced our and million have at managing financial capital in allocating paying by we Second, quarter in the $XX disciplined to down

Third, growth. we and acquisition-related continue prioritize to organic

will to has our sites team key new greenfield strategic for grow a position, several number a with objective and opportunities analyzing both us, of by busy been aggregates contributed along development activity. business Our the record that state has strong continue future, funding prospective acquisitions.Looking of funding to our to we billion. optimistic support local, construction $X.XX and This to federal backlog remain

starting number ways, in our year including our maintaining efforts historically do, everything safety, communities. excellence to in rates outreach outreach efforts. organizations we commitment our over our I'm underrepresented proud and we is to people our stat efforts measurable These this report our in culture. with X,XXX Finally, of are a retention A first to on are focused

term, our world-class training has will our We Our the heart balanced best-in-class expansion path this have in lines through higher on economy been to EDGE-related across build local gross We effort the Pacific details to and to over and revenue, XX% region return generating able momentum to to team industry-leading attractive drive margin achieving at our near- excellence. to to that EBITDA members and a of and our on demand EDGE regain continue on for initial be each long-term started, our segments provide Day outlined the to product of cash center saw and existing future our of workers. growth, contributed Nathan getting for our report financial quarterly XXXX sustaining to I'll initiatives. training EBITDA. the free adjusted reportable XX% for to Knife quickly Investor call profit the be increased our by continue in efforts our believe continues we capital.We a the to seen the before our in all we and pricing these momentum Hawaii results initiatives recap in goals tourism are successes. well-defined the flows, outreach performance. best-in-class I'm in May, of Ultimately, and revenue on just military maintaining balance sheet River continuous invested healthy and strong and long additional proud as Starting pursuit and At construction spending. some turning opportunities

California. Northern We demand also experienced material in higher

in aggregate asphalt contracting improved addition increased late for and the the our the the We resulting in from margins acquisition work, decrease centers parking enjoyed as with from services. structures. ready-mix region benefiting ready-mixed California, XX% initiatives also services work region. volumes demand based previous in by lower the volumes improved we Northwest than by in Modesto. and construction XXXX project in Partially more volumes in Northern EBITDA exceptional season.Moving part on the were region's increase decreased associated quarter, offset contracting XX%. In to data than driven and also more saw Higher the again years, strong and pricing our available product all Revenues services and agency asphalt public our across offsetting revenues contracting in lines both volumes Northwest start in year-over-year to to revenues, the improved results late timing is including

of X of are commissioning Washington. operation process new acquisitions We in the since the in made we We XXXX, Northwest facility in manufacturing in the have prepress acquired Spokane, XXXX. X our Spokane state-of-the-art

lines product other, a region, with service any impacting growth of and revenue our strong Mountain had of business XXXX. price percent X% We which ahead record of continues in this larger EBITDA Next was our as perform quarter XX%, and revenue.Our segment of than a region across in is saw it increases revenue all well. growth to year and contracting is positively

EBITDA implemented region and meaningful a process Most the region the pick they cross-section improved revenue the are crewss. side, year. than have a region an at improvement points the quarter implementation we backlog teams of as XX% X EDGE from strategy, mentioned of twice increases second price larger is identified pick material We last basis X% I bidding million, for increase of volumes. related EDGE-related $XXX.X notably operations. lower part internal of benefit crews of improvements record product and efficiencies. the line at margins The lower improved Mountain aggregate of our what call earlier, as This experts more North month, their the region increased the In week X a have improve production each initiatives EDGE strategies.On and The crewss EBITDA by their work help operating in individual and the to identify having to has costs units. region, quarter, pick offset Central business across per opportunities the approximately XXX region aggregate XX%. spent completing now, consultants to and embraced outside the

segment other all and includes Corporate ourÂ South Energy region Services Finally, our Services. region,

to year-over-year concrete, in revenue year-over-year and products XXXX Corporate average fully expect productivity. $X.X our Southeast divestiture our For prices for drive December be to as million selling recent million SG&A. as Texas. $X.X improved EBITDA perspective, we are a improved increased partially we by result ready-mix offset a asphalt analyzing able of from greater nonstrategic million diligently we second quarter, the of related the result higher increased assets timing a to dissynergies pricing. costs of spin, onboarded $X.X our and Once to have

our went As of some segments, of through across there highlights I common themes are the business. our

growth our of markets in Knife the us leadership high-growth midsized, demographic benefit River those markets our to we are shift from well position where choice seeing markets strongly and First, to profitable is EDGE to creation. laser it for believe already our focus continuing and exceptional will value delivering strategy implement long-term well and keep positioned.Second, us we and is results, our positioned

our can River future core our makes the look culture will the all people-first about to team of and a the to for members our me and results. deliver at for business turn value extremely Knife we commitment objectives Third, over Nathan and the Nathan? our our now detailed call financial to shareholders. I values optimistic

Nathan Ring

Thank you, Brian.

We and impressive the have level. an a quarter consolidated at basis on had segment

Next, focus initiatives. have product on which strategic benefited I'd lines, the like also to from our

progress on the we review let's First, pricing. made

the For XX%. selling well result average pressures These to and initiatives the direct Ready-mix EDGE XX% from the improved strong a the price XX%. increases asphalt inflationary year. as actions taken price for of increased concrete the aggregates as prior overcome quarter, are also improved

initiative entering moderate, we to to construction report continue the our delayed in are of the broad-based will demand. Although the heart see season internal expect operations in am reflected all aggregates are I we the pressures pricing impacted continue sales providing to season.External of our full the increased and we construction swing, we for The that start volumes. quarter margin sales pleased for quarter, dynamic of aggregates to as and inflationary the improvement. anticipate

teams XX-month targeted Our opportunities. initiatives of cost of dedicated debt capital Switching basis level our take Again, XXX pleased leverage measures targeting we have to financial points. our our net trailing with implement and across strategies financial done strong a margins to strong at pricing consolidated term, to capital and particularly work very in successful of market resulted priorities, product improvement are to our we as Long discipline, and allocation are the we improvement new and to to close approximately have X.Xx. allocation. all it the control advantage are lines gross in an EBITDA health for relates

spin since date, As Brian down mentioned, we $XX debt. have million paid the in

$XXX end million. So we that net were EBITDA. is the at balance the of of based debt on This X.Xx quarter,

helped ensure has adequate us use Our to and seasonal this EBITDA of to achieve the to strong million significant meet balance in our of funds $XXX place we have disciplined portion to debt revolver growth the needs. access cash improvement.A operating relates

season, room shareholders. XX, June capital long-term peak is our our key has utilized few debt near Growth to components. we of for component the us we managing for million, This a As another sustainable gives allocate EDGE our growth future our construction of key $XXX the approach value growth of opportunities. where leaving get to plan. ample flexibility best to Strategically

First, to we for approximately safety equipment our and of reinvest expect in maintenance our these and revenues. continue X% to strengthen into and account initiatives.We for growth and training CapEx actively organic with investments people-first annualized to to culture X% fleet

facility Creek our X about our Honey Creek margin full prestress improvement in Day mentioned anticipate both and operations from Investor our at come recently EBITDA the The to initiatives has production. We and online Honey As and facility May, in year. is Texas. examples, prestress this Washington in quarry started I

Second, pursue criteria. footprint. in we in that are a disciplined led the We our focusing midsized currently opportunities, also pursuing on growth actively aggregates markets M&A pipeline of our to opportunities current or businesses adjacent number meet within high-growth

Ultimately, goal operations we nimble long-term ensure and of financially are net strategy not Third, have allocated annualized would future planned included of fit the of X.Xx our initiatives. projects they long-term to remain approximately million committed approximately our to are be our portfolio invested Note our for look $XXX far, and maintaining review debt of and EBITDA.So to to plan. million EDGE consistently we incremental $XX that with the the acquisitions equipment. capital to XXXX, majority to we capital

our guidance. to Moving

very and well to year-end, our momentum revenue strong through million reporting record to operational our to conditions, updating guidance quarter As billion release we $XXX are to presented visibility as $X.X our excited in and EBITDA as the as highlighted results we guidance press second billion be Based million. on Brian results. earlier, to and market are those $X.X $XXX

additional strong adjusted initiating changes. record strategies, are the $XXX our first detail and of on We million.Let EBITDA our EBITDA bidding of to driven are our some outcomes and provide and guidance half pricing levels million by $XXX from guidance these increases to backlog. me revenue The results

onetime Further, For guidance to the we as a nonrecurring comparative the plans. losses adjusted increase to spin better reflect independent of XX% our to public transition as stock-based company, events, well from costs as core EBITDA purposes, an transitioning this compensation is are profitability related by midpoint XXXX gains new adjusting as such for and or to benefit EBITDA our on guidance. our

XXXX, For million. approximately costs onetime further spin-related clarity, will $X.X in be we estimate that

have back of full have and execution it infrastructure. reinvestment support rollout to our would in to our team strong work our ongoing that momentum ahead with done transparent what our We we to believe and and presented core to so I provide committed with questions. our comparison prior going underlying our million and guidance EBITDA strong We adjusted and a excitement and For open underscores now like country's investors see essential in to $XXX America's forward. being XX on in purposes, for our our had and operator shareholders. to the you strategy Investor and of quarter, XXXX turn midpoint the year the strategy, This growth needs to value Day. momentum XX% a up strength of in an equivalent as business.We skilled importantly, members continue that our the can was share to reflects the Form it the are range infrastructure long-term get will new the we EDGE

Operator

from come at [Operator Instructions] first Thielman Brent Davidson. will Your question

Brent Thielman

the we see you half second across you opportunity Congrats mean, a around overhang Do here volume Nathan, Brian this year? quarter. any back company. Maybe half? to returns, on look, into the move or quarter? solid what just the I profitability pricing thoughts great as the Or of into to on if snap reversing the that could for speak was volume the second

Brian Gray

Yes, Brent, this Brian. is

asphalt aggregates, to and ready-mix the declines start will explain the saw I'll aggregates. downstream that So Yes, with the volume quarter. I small and we on take in think for go products question. that I'll

and the would For without the I so and the primary region, ready-mix had really just have the in Southeast the that and construction first that. first really, the quarter, far Pacific Texas up. season been start of divestiture work now ready-mix, second our we quarter quarter so that talked mean, in the this divested actually ourselves second, we as of delayed. in impacts in Texas, should was it's got operations driver asphalt, about region year. of the getting have is volumes started a late Then as the done We this been Mountain to

delayed our the total. So aggregates in really impact of start that

actually volumes materials aggregate selling all plants ready-mix were and really for Brent. and the so to internal customers Our asphalt quarter our up third-party plants to it downstream, our came our from

time So work I record construction backlog. our with work We've to got that that yes, done. get think overall,

see So I coming volumes those do back.

Brent Thielman

Great. seeing XX% talk I you've fairness, this other just other the mean you up shows a the margin things this some that about guys been you driving strong could versus profitability of here I little quarter, in while. quarter. with various the that are progress kind really practices, Brian? think role mean, guess, about that understand to around in maybe of objective. much you results Okay. have its a I trying this I'm how in got, for Then the only more specifically little of as internal pricing, objectives bidding you're some initiatives if maybe

Brian Gray

have a does with Yes. EDGE lot We initiatives. quarter, appreciate a the fantastic of to recognition, our it and do Brent,

customers. had XX% initiatives, success our driven both construction last so and of telling through really have being integrated success and materials this our getting story primary downstream markets of vertically and that for in and by a XXXX, price materials EBITDA pricing of there's are good our double-digit all quarter to driver has and date the increases. our So contracting patient in become value the customers identifying lines by services. chain, really crews, margins. been services really see the we that by the the our the The strategic, well also product our of We allowed all there that's supplying translated that our our We've is at has us for value transitioned sites, in disciplined, materials our in that. our availability backlog, bid much been jobs that received our our quality, the fit more on fit service, That's raise

saw the that into We've margins can tell to in completely had You our record for that construction in much well. initiatives, rest year we get quarter and week got the better region president of this were cost XX%, has you, them Bismarck controls. last initiative and pick literally and EDGE going our not a backlog month. embraced.We I week, raising have as prices, and improvements, the so some visits road pick implemented been of on meaningful. out X hundreds by operational We've our far crews more have also made a of just the small crews but a identified been the They've for

there. ways So get it's to multiple

We opportunities go operations. to refueling acquisitions aggregates continue and to through our look for

XX% track, by to Brent, well to we're So that on XXXX. get

Brent Thielman

than for just contributing some is pocket and now negative could demand states. maybe revenue comment Okay. an markets larger bigger more think right if about housing, Brian, among demand your there Appreciate that. we I just mean as in of of are some positive on the you? there air the business climate the trends, you trends, maybe

Brian Gray

the not around a in residential. We're geographic residential slowdown focused really been and of on in because midsized There's conversations Yes. a of footprint we markets lot seeing big operate in the markets. higher-growth our

on suppliers there's our of The residential. side the residential are that target booming that services see we of the but Valley, of mind, more our us. Northern backlog in Treasure public Brent, even material do we on that. XX% on a in the related had many has not the impact big a very our keep residential Now large as that we're operate markets Obviously, right that directly do is for far California, is in really our markets backlog and the residential as of strong and or contracts percent not funded regional now, to area there, markets smaller in, competitors so and that remains

right solid military Hawaii, in than that others. markets tourism, seeing I for have lot warehousing. a been mean the We rebound now very seeing Hawaii the strong of has are a spending us. bigger We're commercial

we're board, the markets. in tailwinds seeing across of think in strength those I most

Operator

[Operator Instructions] have follow-up at Davidson. from Thielman Brent We questions

Brent Thielman

have I'm conservatism into the very implied for do second markets you fourth Okay. can Nathan. Have guess, the for that the be Brian, or When particularly of some some outlook I about seasonal. upgraded think you that guidance, you embedded about element half, the quarter, thinking

Brian Gray

happen strong We're kept range can on, that season tier at second that into quarter. right yes, the construction We we've have still but it's going something year and million, We and of approximately add revenue the backlog half Yes. the on impact Northern the right our and guidance. XX% to have Nathan our But our Maybe so into now. in got led $XX that exposure has there. you're early an into the will Brent.Â in fourth momentum of early

Nathan Ring

Â Yes.

relate, we relates our remarks, see and second that the of transition. this year costs does of we'll from the to in Brent, the mentioned half part, Another incremental the

Form costs the about indicate didn't probably from recall of year, we to $XX that that. see for in $XX a you relation If million, we'll recurring full XX, million

year, to of about of a the $X the rest about the million incremental see spin. related $XX month, additional we'll For million an costs

Brent Thielman

just Maybe strategic. one, Yes. last just

rather would thoughts that internally? to curious as think guys some I'd as you expansion the initiatives been I'm today at to on putting still internally focused things of the we very appetite guess your focused little you've later eventually. about for a in You of there the here see you're curious acquisitions, your on. looking be business I have been work

Brian Gray

Business We've past President in a part that and We've of got our of is and it's EDGE DNA component and key Development focused both and spin opportunities. our our absolutely, taken of been a and Vice that's A focused our attention. organic line, big initiative obviously finish now Yes. right Brent. is across inorganic growth, on resources of lot the getting on the very a

that during sellers. been prospective time, talking to However, we've busy

we we care of people-first company, markets our a the good our acquirer and relationships primarily our in. strong I an markets take customers, in we we and and think have of that operate we're are employees, in choice in, neighbors, reputations those operate because we

at are So very that much think I very acquisitions. active we looking

I a do think could to grow. about little on Nathan, touch Nathan possibly bit that? of our Maybe, to available want talk funds you

Nathan Ring

Yes.

part other those just they The too, to when the we're to that pipeline. that, of prepared Brent, pursue is come

we we As the Really and we've remarks, of pursuing leverage, that Development in can while X.Xx President we at cash half second half support or to us. maintain a Business we're that of with the and the X.X% performance the leverage noted helps very first within that the to had X.X% is team the net growth the the to sitting where year, indicate opportunities, the flows for which these X% at. strong funds expectations of year looking growth prepared spend have Vice exciting for the

Operator

to There will the turn Gray Brian the conference are questions I so remarks. closing any further for phone, on no back

Brian Gray

EDGE raised and plan environment Well, posted for by robust where excited to time demand today our the taking our for join results, footprint. the record We're full thank the you implementing year. guidance our we for the across call results early our from us

and leading with We create your day. position in our strategy, our our markets for our a you to Knife support culture midsized long-term a people-first Have positioned EDGE continued River. durable are great for value for Thank high-growth shareholders. well

Operator

thank this and We call for and Ladies conference lines. your to morning. you all conclude this like ask to your does disconnect participating for gentlemen, would please you

Knife River (KNF) 8 Aug 232023 Q2 Earnings call transcript