Core Insights - NWPX Infrastructure (NWPX) is currently more attractive to value investors compared to Knife River (KNF) based on various financial metrics and analyst outlooks [1][3][7] Valuation Metrics - NWPX has a forward P/E ratio of 16.82, while KNF has a significantly higher forward P/E of 27.81 [5] - The PEG ratio for NWPX is 3.36, indicating a more favorable expected EPS growth rate compared to KNF's PEG ratio of 6.44 [5] - NWPX's P/B ratio stands at 1.26, contrasting with KNF's P/B ratio of 3.43, suggesting that NWPX is undervalued relative to its book value [6] Analyst Outlook - NWPX holds a Zacks Rank of 2 (Buy), indicating positive earnings estimate revisions, while KNF has a Zacks Rank of 5 (Strong Sell), reflecting a less favorable analyst outlook [3][7] - The Value grade for NWPX is B, whereas KNF has a Value grade of F, further supporting the conclusion that NWPX is the superior option for value investors [6][7]

[Part I -- Financial Information](index=5&type=section&id=Part%20I%20--%20Financial%20Information) [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The unaudited consolidated financial statements for Q2 and YTD June 2025 show a net loss, significant asset growth, and increased debt, primarily due to recent acquisitions [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) For Q2 2025, total revenues increased, but gross profit, operating income, and net income declined, leading to a year-to-date net loss compared to prior-year income Consolidated Statements of Operations Highlights (In thousands, except per share amounts) | Metric | Q2 2025 | Q2 2024 | YTD 2025 | YTD 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total Revenue** | $833,759 | $806,906 | $1,187,231 | $1,136,496 | | **Gross Profit** | $157,246 | $176,220 | $147,652 | $182,713 | | **Operating Income** | $88,076 | $116,746 | $5,424 | $63,018 | | **Net Income (Loss)** | $50,603 | $77,929 | $(18,107) | $30,301 | | **Diluted EPS** | $0.89 | $1.37 | $(0.32) | $0.53 | [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets significantly increased to $3.63 billion, primarily due to acquisitions boosting property, plant, and equipment and goodwill, while long-term debt also rose to $1.34 billion Key Balance Sheet Items (In thousands) | Account | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Total Current Assets** | $1,103,280 | $987,668 | | **Net Property, Plant and Equipment** | $1,924,220 | $1,441,700 | | **Goodwill** | $464,133 | $297,225 | | **Total Assets** | $3,631,463 | $2,851,202 | | **Total Current Liabilities** | $397,206 | $370,037 | | **Long-term Debt** | $1,341,174 | $666,911 | | **Total Liabilities** | $2,170,346 | $1,375,117 | | **Total Stockholders' Equity** | $1,461,117 | $1,476,085 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the first half of 2025, cash usage significantly increased in operating and investing activities, primarily due to a net loss, working capital needs, and substantial acquisition-related spending, largely funded by new long-term debt Cash Flow Summary - Six Months Ended June 30 (In thousands) | Activity | 2025 | 2024 | | :--- | :--- | :--- | | **Net Cash Used in Operating Activities** | $(167,847) | $(89,777) | | **Net Cash Used in Investing Activities** | $(701,945) | $(110,198) | | **Net Cash Provided by (Used in) Financing Activities** | $666,326 | $(5,176) | | **Decrease in Cash** | $(203,466) | $(205,151) | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, segment reorganization, the significant Strata Corporation acquisition, credit agreement amendments for financing, and the company's $1.25 billion backlog - In January 2025, the company reorganized its business into **four new reportable segments: West, Mountain, Central, and Energy Services**. All prior period data has been recast to reflect this new structure[13](index=13&type=chunk)[32](index=32&type=chunk)[85](index=85&type=chunk) - On March 7, 2025, the company acquired **Strata Corporation** for a total purchase price of **$454.0 million**. The acquisition contributed **$49.8 million in revenue** and a **net loss of $7.0 million** for the period ended June 30, 2025[35](index=35&type=chunk)[59](index=59&type=chunk)[65](index=65&type=chunk) - As of June 30, 2025, the company's remaining performance obligations (backlog) totaled **$1.25 billion**, of which **$998.5 million** is expected to be recognized as revenue within the next 12 months[56](index=56&type=chunk) - The company amended its senior secured credit agreement in March 2025, increasing its **revolving credit facility to $500 million** and adding a **new $500 million Term Loan B** to fund acquisitions and other activities[82](index=82&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A)](index=27&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the year-to-date revenue increase to acquisitions and pricing, while gross profit and Adjusted EBITDA declined due to lower volumes, competitive pressures, and integration costs, with backlog growing due to public funding and capital focused on strategic growth and efficiency Consolidated Financial Overview (In millions) | Metric | YTD 2025 | YTD 2024 | % Change | | :--- | :--- | :--- | :--- | | **Revenue** | $1,187.2 | $1,136.5 | 4% | | **Gross Profit** | $147.6 | $182.7 | (19)% | | **Net Income (Loss)** | $(18.1) | $30.3 | (160)% | | **Adjusted EBITDA** | $102.8 | $136.6 | (25)% | - Contracting services backlog increased to **$1.25 billion** at June 30, 2025, up from **$988.5 million** a year prior. Approximately **91%** of the current backlog relates to publicly funded projects[114](index=114&type=chunk) - The company is focused on its **'EDGE' strategy** to improve margins through process improvement teams (PIT Crews), standardization, and commercial and operational excellence initiatives[119](index=119&type=chunk)[120](index=120&type=chunk) [Market Conditions and Outlook](index=28&type=section&id=Market%20Conditions%20and%20Outlook) The market outlook is positive due to strong infrastructure funding and increased backlog, despite challenges from project delays, Oregon's funding shortfall, and business seasonality, with the company pursuing growth through acquisitions and organic projects Contracting Services Backlog (In millions) | Segment | June 30, 2025 | June 30, 2024 | | :--- | :--- | :--- | | West | $282.4 | $320.8 | | Mountain | $483.4 | $365.5 | | Central | $487.6 | $302.2 | | **Total** | **$1,253.4** | **$988.5** | - Strong public funding continues, with the **Infrastructure Investment and Jobs Act (IIJA)** providing a significant tailwind. However, **Oregon's DOT budget shortfall** is creating a headwind for 2025[118](index=118&type=chunk) - Growth initiatives include the recent acquisition of **Strata Corporation** and a subsequent acquisition in **Central Oregon**, alongside organic projects like an **aggregates expansion in South Dakota** and a **new ready-mix operation in Idaho**[122](index=122&type=chunk)[123](index=123&type=chunk) [Business Segment Financial and Operating Data](index=33&type=section&id=Business%20Segment%20Financial%20and%20Operating%20Data) Q2 2025 segment performance varied, with Central and Energy Services showing revenue growth driven by acquisitions, while West and Mountain segments experienced declines due to project timing and weather, and Energy Services' EBITDA margin compressed due to competitive pressures Segment EBITDA - Q2 2025 vs Q2 2024 (In millions) | Segment | Q2 2025 EBITDA | Q2 2024 EBITDA | % Change | | :--- | :--- | :--- | :--- | | West | $60.7 | $68.5 | (11)% | | Mountain | $30.9 | $43.1 | (28)% | | Central | $44.4 | $36.2 | 23% | | Energy Services | $17.1 | $19.4 | (12)% | | **Total Segment EBITDA** | **$153.1** | **$167.2** | **(8)%** | - The **Central segment's** performance was significantly boosted by the **Strata acquisition**, which contributed **$46.9 million in revenue** in Q2 2025[166](index=166&type=chunk) - The **West and Mountain segments** experienced **revenue and EBITDA declines** due to **reduced public-agency work in Oregon**, project timing, and unfavorable weather[156](index=156&type=chunk)[161](index=161&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2025, the company maintained liquidity with cash and credit availability, but cash used in operations increased, while significant capital expenditures and acquisitions were largely funded by a new $500 million Term Loan B - At June 30, 2025, the company had **total liquidity of approximately $320.6 million**, consisting of **$26.6 million in cash** and **$294.0 million in borrowing capacity**[178](index=178&type=chunk) - For the first six months of 2025, the company spent **$501.9 million on acquisitions** and **$228.6 million on total capital expenditures**[183](index=183&type=chunk)[186](index=186&type=chunk) - Long-term debt increased by approximately **$680.0 million** from year-end 2024, primarily from a **new $500 million Term Loan B** and **$183 million drawn on the revolving credit facility**[190](index=190&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate exposure from its variable-rate debt, where a 1.00% increase would raise annual interest expense by $9.4 million, with no material changes to commodity price risk - A hypothetical **1.00% increase in interest rates** would increase the company's annual interest expense by **$9.4 million** based on the **$944.8 million of variable-rate debt** outstanding at June 30, 2025[203](index=203&type=chunk) [Controls and Procedures](index=42&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with recent acquisitions, Albina Asphalt and Strata Corporation, temporarily excluded from internal control assessment during integration - The CEO and CFO concluded that disclosure controls and procedures were **effective** as of the end of the reporting period[206](index=206&type=chunk) - The internal controls of the recently acquired **Albina Asphalt and Strata Corporation** are currently **excluded from management's assessment of internal control over financial reporting**[207](index=207&type=chunk) [Part II -- Other Information](index=43&type=section&id=Part%20II%20--%20Other%20Information) [Legal Proceedings](index=43&type=section&id=Item%201.%20Legal%20Proceedings) The company reports no material changes to legal proceedings previously disclosed in its 2024 Annual Report on Form 10-K - There were **no material changes** to the Company's legal proceedings from the 2024 Annual Report[211](index=211&type=chunk) [Risk Factors](index=43&type=section&id=Item%201A.%20Risk%20Factors) The report refers investors to the risk factors disclosed in Part I, Item 1A of its 2024 Annual Report on Form 10-K for a comprehensive discussion of potential risks - The company directs readers to its **2024 Annual Report** for a full description of risk factors[212](index=212&type=chunk) [Mine Safety Disclosures](index=43&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Information regarding mine safety violations and other regulatory matters, as required by the Dodd-Frank Act, is provided in Exhibit 95 to this Form 10-Q - Mine safety disclosures are provided in **Exhibit 95** to the Form 10-Q[215](index=215&type=chunk)

Financial Data and Key Metrics Changes - The company reported a record backlog of $1,300 million, the highest in its history, with a $650 million increase in new projects secured during the quarter compared to the previous year [18][19] - Adjusted EBITDA guidance was lowered by $55 million, primarily due to a softer Oregon market and wet weather, with updated guidance for consolidated revenue between $3,100 million and $3,300 million [36][37] - The company ended the quarter with nearly $1,400 million of long-term debt, resulting in a net leverage position of 3.1 times, which is expected to decrease below the long-term target of 2.5 times by year-end [35][36] Business Line Data and Key Metrics Changes - Contracting services revenue declined by 8.5% year-over-year, while asphalt revenue volumes decreased by 9% [28][30] - Aggregate revenue increased due to the acquisition of Strata, with prices improving by almost 12%, although lower volumes impacted gross margins [30][31] - Ready mix volume and price improved, resulting in a 15% increase in revenue, with significant contributions from the Central segment and higher demand in Hawaii and Alaska [31] Market Data and Key Metrics Changes - In Oregon, aggregate volumes were down about 25% year-over-year, significantly impacting consolidated financial results, with over 50% of EBITDA variance attributed to this state [11][28] - The company noted strong demand in California, Hawaii, and Alaska, with aggregate volumes up almost 60% in Alaska and a 30% increase in contracting services revenue in California [12][31] - Record DOT budgets in the company's operating states are growing at 14% for fiscal year 2026, compared to just 3% for the U.S. average [19][80] Company Strategy and Development Direction - The company is focused on its competitive edge strategy, aiming for a long-term goal of a 20% adjusted EBITDA margin, with multiple paths identified to achieve this [20][100] - Recent acquisitions, including Kramer Trucking and High Desert Aggregates, align with the company's growth strategy and are expected to enhance its market presence [21][22] - The company continues to invest in process improvement teams to drive standardization, cost control, and pricing optimization [23] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of unfavorable weather and project delays in Oregon, but expressed confidence in the overall demand for infrastructure work and the company's ability to recover [5][36] - The integration of Strata is progressing well, and management remains optimistic about the contributions from recent acquisitions [41][58] - The company expects to see improved volumes and pricing in the second half of the year, driven by a strong backlog and favorable market conditions [20][30] Other Important Information - The company has maintained an active deal pipeline and continues to pursue acquisitions and organic growth opportunities that fit its strategic goals [23][90] - SG&A expenses increased by $9.7 million due to overhead costs from acquisitions and higher business development costs, but are still in line with expectations [32][33] - The company anticipates maintenance capital expenditures to be 5% to 7% of revenue for the full year [34] Q&A Session Summary Question: What are the expectations for the Oregon market in the second half of the year? - Management noted that the integration of Strata is on track, but the Oregon legislature's failure to pass a comprehensive transportation funding bill is a concern, impacting paving work for the year [41][42][43] Question: What factors might drive lower margins in the backlog? - Management indicated that shifting revenue from higher-margin Oregon to other regions and larger projects with lower margins are contributing to the lower margins observed [48][49] Question: How sustainable is the improvement in aggregate pricing? - Management credited the disciplined implementation of dynamic pricing and the acquisition of Strata for the improved average selling price, raising guidance for pricing increases to high single digits [50][51] Question: How are the Strata and Albina acquisitions performing? - Both acquisitions accounted for about 8% of total revenue for the quarter, with expectations for increased contributions in the second half of the year [59][60] Question: What is the company's appetite for M&A? - Management expressed a strong focus on integrating Strata while maintaining an active pipeline for future acquisitions that align with the company's growth strategy [90][91]

Financial Data and Key Metrics Changes - The company reported a record backlog of $1.3 billion, the highest in its history, with $650 million in new projects secured during the quarter, a $250 million increase from the same time last year [16][17]. - Adjusted EBITDA guidance was lowered by $55 million, primarily due to headwinds from a softer Oregon market and wet weather, with updated guidance for consolidated revenue between $3.1 billion and $3.3 billion [33][34]. Business Line Data and Key Metrics Changes - Contracting services revenue declined by 8.5% compared to last year, while asphalt revenue saw a 9% decline, although gross profit per ton improved by almost 8% [26][28]. - Aggregate revenue increased due to the acquisition of Strata, with prices rising by almost 12%, but lower volumes and production costs impacted gross margins [29]. - Ready mix volume and price improved, resulting in a 15% increase in revenue, with dynamic pricing contributing to an 8% price increase over last year [29]. Market Data and Key Metrics Changes - The Oregon market faced significant challenges, with aggregate volumes down about 25% year-over-year, impacting overall financial results [10]. - In contrast, the West region, particularly California, Hawaii, and Alaska, saw strong performance, with aggregate volumes up nearly 60% in Alaska and a 30% increase in contracting services revenue in California [11][12]. Company Strategy and Development Direction - The company is focused on a competitive edge strategy aimed at improving EBITDA margins, with a long-term goal of achieving a 20% adjusted EBITDA margin [19][98]. - Recent acquisitions, including Kramer Trucking and High Desert Aggregates, align with the company's growth strategy, targeting mid-sized high-growth markets [20][21][88]. Management's Comments on Operating Environment and Future Outlook - Management acknowledged the impact of unfavorable weather and project delays in Oregon, but expressed confidence in the overall demand for infrastructure work and the strength of DOT budgets in other states [5][9][27]. - The company remains optimistic about the second half of the year, expecting strong demand and volume growth driven by record backlog and ongoing infrastructure investments [19][24]. Other Important Information - The company has maintained a strong focus on dynamic pricing initiatives, which have contributed to improved pricing across product lines [23][96]. - SG&A expenses increased by $9.7 million due to overhead costs from recent acquisitions, but the company expects these costs to align with previous guidance for the year [30][31]. Q&A Session Summary Question: What are the expectations for the Oregon market in the second half of the year? - Management noted that the integration of Strata is on track, but the Oregon legislature's failure to pass a comprehensive transportation funding bill may delay paving work [39][40][41]. Question: What factors might drive lower margins in the backlog? - Management indicated that shifting revenue from higher-margin Oregon to other regions and the nature of larger projects could contribute to lower margins [46][47]. Question: How are the Strata and Albina acquisitions performing? - Both acquisitions are performing well, contributing about 8% to total revenue for the quarter, with expectations for increased contributions in the second half of the year [58][61]. Question: What is the company's approach to dynamic pricing? - The company is approximately 50% through the implementation of dynamic pricing, which has shown positive momentum and is expected to contribute to achieving the long-term EBITDA margin goal [96][98].

Financial Performance & Guidance - Q2 2025 revenue was $833.8 million[42], while adjusted EBITDA was $140.8 million[42], and adjusted EBITDA margin was 16.9%[8] - 2025 full-year revenue guidance is $3.10 billion to $3.30 billion[8], revised down from the previous guidance of $3.25 billion to $3.45 billion[8] - 2025 full-year adjusted EBITDA guidance is $475 million to $525 million[8], revised down from the previous guidance of $530 million to $580 million[8] - 2025 adjusted EBITDA margin guidance is 15.6%[8], revised down from the previous guidance of 16.6%[8] Factors Affecting Results - Wet weather impacted volumes and margins in Q2 2025, particularly in the Central and Mountain regions[7, 12] - The Oregon economy's reduced demand impacted results, with DOT construction budget diverted from asphalt paving to megaprojects[7, 15, 20] Backlog & Infrastructure Funding - Record backlog driven by infrastructure investment, with a 27% increase from Q2 2024 to Q2 2025, reaching $1.3 billion[22] - Secured backlog includes 91% dedicated public funding[22] - DOT budgets in KNF states are growing 14% for fiscal year 2026[32] Segment Performance - West segment revenue was $317.4 million, down 5%[42], with adjusted EBITDA of $60.7 million[42] and a TTM adjusted EBITDA margin of 17.6%[42] - Mountain segment revenue was $176.1 million, down 9%[42], with adjusted EBITDA of $30.9 million[42] and a TTM adjusted EBITDA margin of 14.0%[42] - Central segment revenue was $255.2 million, up 19%[42], with adjusted EBITDA of $44.4 million[42] and a TTM adjusted EBITDA margin of 15.5%[42] - Energy Services revenue was $97.4 million, up 28%[42], with adjusted EBITDA of $17.1 million[42] and a TTM adjusted EBITDA margin of 17.6%[42] Capital Management - Net debt is $1.3434 billion[51], with a net leverage ratio of 3.1x[51] - Available liquidity is $321 million, including $294 million from the revolver[51] Product Line Results - Aggregates volume decreased by 6% from 9.408 million tons in Q2 2024 to 8.826 million tons in Q2 2025, but average selling price increased by 12% from $16.84 per ton to $18.80 per ton[45] - Asphalt volume decreased by 9% from 1.813 million tons in Q2 2024 to 1.643 million tons in Q2 2025, but average selling price increased by 3% from $65.82 per ton to $67.45 per ton[45]

Knife River (KNF) came out with quarterly earnings of $0.89 per share, missing the Zacks Consensus Estimate of $1.27 per share. This compares to earnings of $1.37 per share a year ago. These figures are adjusted for non- recurring items. This quarterly report represents an earnings surprise of -29.92%. A quarter ago, it was expected that this construction materials company would post a loss of $0.89 per share when it actually produced a loss of $1.21, delivering a surprise of -35.96%. Over the last four qua ...

[Financial and Operational Highlights](index=1&type=section&id=Financial%20and%20Operational%20Highlights) [Q2 2025 Performance Summary](index=1&type=section&id=Q2%202025%20Performance%20Summary) Knife River's Q2 2025 revenue grew 3% to $833.8 million, but net income and Adjusted EBITDA declined significantly, impacted by weather Q2 2025 Financial Performance Summary | Metric | Q2 2025 | Q2 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $833.8M | $806.9M | 3% | | Net income | $50.6M | $77.9M | (35)% | | Net income margin | 6.1% | 9.7% | - | | Adjusted EBITDA | $140.8M | $154.3M | (9)% | | Adjusted EBITDA margin | 16.9% | 19.1% | - | | Net income per share | $0.89 | $1.37 | (35)% | - The company achieved a record backlog, acquired two aggregates-led companies, but experienced a slow start to the construction season due to unfavorable weather[1](index=1&type=chunk) [Management Commentary](index=1&type=section&id=Management%20Commentary) Management attributed Q2's underperformance to weather and project delays, while emphasizing a record backlog and strategic acquisitions for future growth - The company achieved a record backlog of **$1.3 billion**, nearly **30% higher** than the same period last year, with nearly **90%** being public work[3](index=3&type=chunk)[7](index=7&type=chunk)[10](index=10&type=chunk) - Significant challenges in Q2 included above-average precipitation impacting projects in Central, Mountain, and Energy Services segments, and reduced demand in Oregon due to state transportation funding issues and macroeconomic uncertainty[4](index=4&type=chunk)[5](index=5&type=chunk)[6](index=6&type=chunk) - Knife River continued its strategic growth by acquiring two aggregates-led companies: Kraemer Trucking and Excavating in Minnesota and High Desert Aggregate and Paving in Oregon[8](index=8&type=chunk)[10](index=10&type=chunk) - Through its EDGE initiatives, the company implemented price increases, with **low-double-digit** for aggregates, **high-single-digit** for ready-mix, and **low-single-digit** for asphalt[10](index=10&type=chunk) [Outlook and 2025 Financial Guidance](index=3&type=section&id=Outlook%20and%202025%20Financial%20Guidance) Knife River revised 2025 Adjusted EBITDA guidance to $475-$525 million due to weather and Oregon work, but remains committed to its 20% Adjusted EBITDA margin goal Full-Year 2025 Guidance | Metric | Low | High | | :--- | :--- | :--- | | Revenue | $3,100.0M | $3,300.0M | | Adjusted EBITDA | $475.0M | $525.0M | - Full-year 2025 guidance for Adjusted EBITDA was revised to **$475-$525 million** due to weather, decreased work in Oregon, and flooding impacts in Texas[11](index=11&type=chunk) - The company expects price increases of **high-single digits** for aggregates and **mid-single digits** for ready-mix, with flat asphalt pricing. Consolidated volume increases are projected at **mid-single-digits** for aggregates and **low-double-digits** for ready-mix[22](index=22&type=chunk) [Q2 2025 Financial Results](index=3&type=section&id=Q2%202025%20Financial%20Results) [Consolidated Results](index=3&type=section&id=Consolidated%20Results) Q2 2025 consolidated revenue increased 3% to $833.8 million, but gross profit and operating income declined due to rising costs - Consolidated revenue for Q2 2025 increased by **3%** to **$833.8 million**, primarily driven by contributions from Strata and Albina acquisitions and increased product pricing[12](index=12&type=chunk) - The revenue increase was partially offset by a decrease in contracting services workloads in Oregon and Montana[12](index=12&type=chunk) - All product lines experienced cost increases, with aggregates having the highest increase. Selling, general and administrative (SG&A) costs also rose, partly due to acquisitions and **$1.9 million** in corporate due diligence and integration expenses[12](index=12&type=chunk) - The company reorganized its operating segments in January 2025, combining former segments into four new reportable segments: West, Mountain, Central, and Energy Services[13](index=13&type=chunk) [Reporting Segment Performance](index=3&type=section&id=Reporting%20Segment%20Performance) Q2 2025 segment performance was mixed, with Central and Energy Services growing from acquisitions, but West and Mountain declining due to reduced activity Q2 2025 Segment Performance (vs Q2 2024) | Segment | Revenue | Revenue % Change | EBITDA | EBITDA % Change | | :--- | :--- | :--- | :--- | :--- | | West | $317.4M | (5)% | $60.7M | (11)% | | Mountain | $176.1M | (9)% | $30.9M | (28)% | | Central | $255.2M | 19% | $44.4M | 23% | | Energy Services | $97.4M | 28% | $17.1M | (12)% | - The West segment's revenue decline was driven by a **15% decrease** in Oregon, partially offset by **12% growth** in Alaska, California, and Hawaii[15](index=15&type=chunk) - The Mountain segment's performance was impacted by less contracting services activity, particularly asphalt paving and airport projects, and weather delays[16](index=16&type=chunk) - The Central segment's revenue and EBITDA growth was largely driven by the contribution of Strata's operations[17](index=17&type=chunk) - The Energy Services segment's revenue increased due to the Albina Asphalt acquisition, but EBITDA decreased due to competitive market conditions and planned maintenance[18](index=18&type=chunk) [Product Line Performance](index=10&type=section&id=Product%20Line%20Performance) Q2 2025 product line performance was mixed, with aggregates and asphalt volumes down, ready-mix up, and prices rising, but gross profit margins contracted Q2 Sales Volumes (in thousands) | Product | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Aggregates (tons) | 8,826 | 9,408 | | Ready-mix concrete (cubic yards) | 1,041 | 975 | | Asphalt (tons) | 1,643 | 1,813 | Q2 Average Selling Price | Product | Q2 2025 | Q2 2024 | | :--- | :--- | :--- | | Aggregates (per ton) | $18.80 | $16.84 | | Ready-mix concrete (per cubic yard) | $197.91 | $184.12 | | Asphalt (per ton) | $67.45 | $65.82 | Q2 Gross Profit by Product Line | Product Line | Gross Profit (M) | Gross Margin | | :--- | :--- | :--- | | Aggregates | $34.6 | 20.8% | | Ready-mix concrete | $32.4 | 15.7% | | Asphalt | $16.8 | 15.2% | | Liquid asphalt | $14.9 | 17.4% | | Contracting services | $40.8 | 12.0% | [Capital Allocation and Liquidity](index=4&type=section&id=Capital%20Allocation%20and%20Liquidity) [Capital Expenditures and Liquidity](index=4&type=section&id=Capital%20Expenditures%20and%20Liquidity) Knife River's H1 2025 capital expenditures included $111.0 million for maintenance and $619.5 million for growth, with $501.9 million for acquisitions; net leverage was 3.1x, targeting 2.5x by year-end - For the first six months of 2025, the company spent **$111.0 million** on maintenance capex and **$619.5 million** on growth initiatives, of which **$501.9 million** was for acquisitions[19](index=19&type=chunk) - Full-year 2025 maintenance and improvement capital expenditures are expected to be between **5% and 7% of revenue**[20](index=20&type=chunk) - As of June 30, 2025, the company had **$26.6 million** of unrestricted cash, **$1.4 billion** of gross debt, and **$294.0 million** of available capacity under its revolving credit facility[21](index=21&type=chunk) - Net leverage was **3.1x** at the end of Q2 2025, which is expected to return to the long-term target of at or below **2.5x** by year-end[21](index=21&type=chunk) [Financial Statements](index=6&type=section&id=Financial%20Statements) [Consolidated Statements of Operations](index=6&type=section&id=Consolidated%20Statements%20of%20Operations) Q2 2025 revenue was $833.8 million, a slight increase, but higher costs and SG&A led to operating income and net income declines Consolidated Statements of Operations (Three Months Ended June 30) | (In millions, except per share) | 2025 | 2024 | | :--- | :--- | :--- | | Total revenue | $833.8 | $806.9 | | Gross profit | $157.3 | $176.2 | | Operating income | $88.1 | $116.7 | | Net income | $50.6 | $77.9 | | Diluted EPS | $0.89 | $1.37 | [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2025, Knife River's total assets increased to $3.63 billion, driven by acquisitions, while total liabilities grew to $2.17 billion due to long-term debt Consolidated Balance Sheet Highlights (As of June 30) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Total current assets | $1,103.3 | $949.7 | | Net property, plant and equipment | $1,924.3 | $1,355.4 | | Total assets | $3,631.5 | $2,682.9 | | Total current liabilities | $397.2 | $378.3 | | Long-term debt | $1,341.2 | $672.5 | | Total liabilities | $2,170.4 | $1,384.2 | | Total stockholders' equity | $1,461.1 | $1,298.7 | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) H1 2025 saw net cash used in operating activities of $167.8 million, and $701.9 million in investing activities (mainly acquisitions); financing provided $666.3 million, resulting in a $203.4 million cash decrease Consolidated Cash Flows (Six Months Ended June 30) | (In millions) | 2025 | 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | $(167.8) | $(89.7) | | Net cash used in investing activities | $(701.9) | $(110.2) | | Net cash provided by (used in) financing activities | $666.3 | $(5.2) | | Decrease in cash | $(203.4) | $(205.1) | [Non-GAAP Financial Measures](index=11&type=section&id=Non-GAAP%20Financial%20Measures) [Reconciliation of Non-GAAP Measures](index=11&type=section&id=Reconciliation%20of%20Non-GAAP%20Measures) The company provides non-GAAP reconciliations for EBITDA, Adjusted EBITDA, and net leverage, with Q2 2025 Net Income of $50.6 million reconciling to Adjusted EBITDA of $140.8 million - The company uses non-GAAP measures like EBITDA, Adjusted EBITDA, and net leverage to provide investors with information about operational efficiency and for internal evaluation[40](index=40&type=chunk)[41](index=41&type=chunk) Reconciliation of Net Income to Adjusted EBITDA (Q2 2025, in millions) | Line Item | Amount | | :--- | :--- | | Net income | $50.6 | | Depreciation, depletion and amortization | $50.2 | | Interest expense, net | $21.5 | | Income taxes | $17.4 | | **EBITDA** | **$139.7** | | Unrealized gains on benefit plan investments | $(1.8) | | Stock-based compensation expense | $2.9 | | **Adjusted EBITDA** | **$140.8** | Net Leverage Calculation (As of June 30, 2025) | (In millions, except ratio) | Amount | | :--- | :--- | | Total debt, net | $1,343.4 | | Trailing-twelve-months Adjusted EBITDA | $429.2 | | **Net leverage** | **3.1x** |

Summary of Key Points Core Viewpoint - Knife River Corporation (NYSE: KNF) is rated as a "Hold" due to slow growth despite a likely rebound, leading to a neutral valuation after a recent sell-off [1]. Company Analysis - The recent sell-off has negatively impacted the valuation of Knife River Corporation, making it appear neutral [1]. - The analyst expresses a belief in a potential rebound for the company, but slow growth is a significant concern [1].

[Part I -- Financial Information](index=5&type=section&id=Part%20I%20--%20Financial%20Information) [Item 1. Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Knife River Corporation reported a net loss of $68.7 million in Q1 2025, widening from $47.6 million in Q1 2024, as revenue growth was offset by increased costs and acquisition-driven asset expansion [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Knife River reported Q1 2025 total revenues of $353.5 million, but a gross loss of $9.6 million and a net loss of $68.7 million, significantly worsening from Q1 2024 due to increased costs Consolidated Statements of Operations (Q1 2025 vs Q1 2024) (In thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | **Total revenue** | **$353,471** | **$329,590** | | Construction materials revenue | $213,407 | $204,095 | | Contracting services revenue | $140,064 | $125,495 | | **Gross profit (loss)** | **($9,595)** | **$6,494** | | Selling, general and administrative expenses | $73,058 | $60,221 | | **Operating loss** | **($82,653)** | **($53,727)** | | **Net loss** | **($68,710)** | **($47,629)** | | **Net loss per share (Basic & Diluted)** | **($1.21)** | **($0.84)** | [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) Total assets increased to $3.28 billion as of March 31, 2025, primarily due to acquisition-driven growth in property, plant, and equipment and goodwill, alongside a rise in long-term debt Consolidated Balance Sheet Highlights (In thousands) | Metric | March 31, 2025 | March 31, 2024 | December 31, 2024 | | :--- | :--- | :--- | :--- | | Cash, cash equivalents and restricted cash | $138,482 | $170,658 | $281,134 | | Total current assets | $946,704 | $817,759 | $987,668 | | Net property, plant and equipment | $1,743,513 | $1,320,612 | $1,441,700 | | Goodwill | $449,554 | $274,478 | $297,225 | | **Total assets** | **$3,280,707** | **$2,513,643** | **$2,851,202** | | Long-term debt | $1,160,385 | $673,539 | $666,911 | | **Total liabilities** | **$1,873,123** | **$1,295,016** | **$1,375,117** | | **Total stockholders' equity** | **$1,407,584** | **$1,218,627** | **$1,476,085** | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities significantly increased to $125.3 million in Q1 2025, while investing activities surged to $503.6 million due to acquisitions, partially offset by $486.3 million from new debt Consolidated Cash Flow Summary (Q1 2025 vs Q1 2024) (In thousands) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash used in operating activities | ($125,277) | ($43,210) | | Net cash used in investing activities | ($503,633) | ($45,069) | | Net cash provided by (used in) financing activities | $486,258 | ($3,383) | | **Decrease in cash, cash equivalents and restricted cash** | **($142,652)** | **($91,662)** | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail segment reorganization, the **$454.0 million** Strata Corporation acquisition, related credit agreement amendments, and a **$938.7 million** backlog as of March 31, 2025 - In January 2025, the company reorganized its business segments, combining former Pacific and Northwest into the new West segment, and former North Central and South into the new Central segment, resulting in four reportable segments: West, Mountain, Central, and Energy Services[31](index=31&type=chunk)[81](index=81&type=chunk) - On March 7, 2025, Knife River acquired Strata Corporation for a total purchase price of **$454.0 million**, expanding operations in North Dakota and Minnesota, with a preliminary allocation adding **$152.3 million** to goodwill[34](index=34&type=chunk)[58](index=58&type=chunk)[62](index=62&type=chunk) - The company's remaining performance obligations (backlog) were **$938.7 million** at March 31, 2025, with approximately **$820.6 million** expected to be recognized within the next 12 months[55](index=55&type=chunk) - On March 7, 2025, the company amended its credit agreement, increasing its revolving credit facility to **$500 million** and adding a new **$500 million** Term Loan B, which was used to fund the Strata acquisition[78](index=78&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=24&type=section&id=Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes Q1 2025 revenue growth to contracting services and price increases, but gross profit declined due to higher pre-production and acquisition-related costs, while maintaining a strong backlog and pursuing strategic growth initiatives [Market Conditions and Outlook](index=25&type=section&id=Market%20Conditions%20and%20Outlook) Resilient market conditions, strong public funding, and a **$938.7 million** contracting services backlog support the company's focus on profitability initiatives and strategic growth through acquisitions Contracting Services Backlog (in millions) | Segment | March 31, 2025 | March 31, 2024 | December 31, 2024 | | :--- | :--- | :--- | :--- | | West | $242.1 | $297.1 | $230.2 | | Mountain | $418.3 | $383.2 | $339.9 | | Central | $278.3 | $279.2 | $175.5 | | **Total** | **$938.7** | **$959.5** | **$745.6** | - Public funding remains strong, with over **60%** of IIJA formula funding yet to be spent in the company's 14 operating states as of January 2025, which is expected to provide continued bidding opportunities[107](index=107&type=chunk) - The company continues to pursue growth, highlighted by the March 2025 acquisition of Strata Corporation and an aggregate quarry in Washington, along with organic projects in South Dakota and Idaho[110](index=110&type=chunk)[111](index=111&type=chunk) [Consolidated Overview](index=27&type=section&id=Consolidated%20Overview) Q1 2025 consolidated revenue grew **7%** to **$353.5 million**, but gross profit declined to a **$9.6 million** loss, widening net loss to **$68.7 million** and Adjusted EBITDA loss to **$38.0 million** due to increased costs Consolidated Financial Summary (Q1 2025 vs Q1 2024) (In millions) | Metric | Q1 2025 | Q1 2024 | % Change | | :--- | :--- | :--- | :--- | | Revenue | $353.5 | $329.6 | 7% | | Gross profit (loss) | ($9.6) | $6.5 | (248)% | | Operating loss | ($82.7) | ($53.7) | (54)% | | Net loss | ($68.7) | ($47.6) | (44)% | | Adjusted EBITDA | ($38.0) | ($17.7) | (115)% | - The increase in revenue was driven by additional contracting services activity and mid-single-digit price increases across asphalt, aggregate, and ready-mix product lines[127](index=127&type=chunk) - The decrease in gross profit was attributed to higher pre-production costs in the aggregates line, seasonal costs at the newly acquired Albina operations, and lower margins on contracting services in the Mountain segment[128](index=128&type=chunk) [Business Segment Financial and Operating Data](index=30&type=section&id=Business%20Segment%20Financial%20and%20Operating%20Data) In Q1 2025, the West segment was profitable with **$24.9 million** EBITDA, while Mountain, Central, and Energy Services segments reported increased EBITDA losses due to higher costs and acquisition impacts Segment Revenue and EBITDA (Q1 2025) (In millions) | Segment | Revenue | EBITDA | EBITDA Margin | | :--- | :--- | :--- | :--- | | West | $208.3 | $24.9 | 12.0% | | Mountain | $66.0 | ($16.3) | (24.6)% | | Central | $67.9 | ($24.3) | (35.8)% | | Energy Services | $13.9 | ($7.8) | (56.0)% | - The West segment's EBITDA improved by **$5.5 million**, benefiting from strong market demand in Hawaii, favorable project execution in California, and a **$3.5 million** gain on a bargain purchase acquisition[138](index=138&type=chunk) - The Mountain segment's EBITDA decreased by **$10.2 million**, primarily due to **$7.6 million** in additional aggregate pre-production costs and lower contracting services margins[141](index=141&type=chunk) - The Central and Energy Services segments' performance was negatively impacted by costs associated with recent acquisitions (Strata and Albina, respectively)[144](index=144&type=chunk)[147](index=147&type=chunk) [Liquidity and Capital Resources](index=33&type=section&id=Liquidity%20and%20Capital%20Resources) As of March 31, 2025, the company maintained **$86.1 million** in cash and **$477.1 million** in borrowing capacity, having amended its credit agreement to fund the Strata acquisition, with significant capital expenditures planned for 2025 - At March 31, 2025, liquidity consisted of **$86.1 million** in cash and **$477.1 million** available on its revolving credit facility[150](index=150&type=chunk) - The company amended its credit agreement on March 7, 2025, increasing its revolver to **$500 million** and adding a new **$500 million** Term Loan B to fund the Strata acquisition[153](index=153&type=chunk)[156](index=156&type=chunk) - Total estimated capital expenditures for 2025 are between **$155 million** and **$215 million** for maintenance and improvement, with an additional **$57 million** planned for organic growth[154](index=154&type=chunk)[155](index=155&type=chunk) - Cash used in operating activities increased to **$125.3 million** in Q1 2025 from **$43.2 million** in Q1 2024, mainly due to higher working capital needs[158](index=158&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=37&type=section&id=Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risk from interest rate fluctuations on its **$764.7 million** variable-rate debt, where a **1.00%** increase would raise annual interest expense by **$7.6 million** - The company has **$764.7 million** in variable-rate term loans outstanding as of March 31, 2025[176](index=176&type=chunk) - A hypothetical **1.00%** increase in interest rates would increase annual interest expense by approximately **$7.6 million**[176](index=176&type=chunk)[177](index=177&type=chunk) [Controls and Procedures](index=38&type=section&id=Controls%20and%20Procedures) Management concluded disclosure controls were effective as of March 31, 2025, while integrating internal controls for recently acquired Albina Asphalt and Strata Corporation, which are temporarily excluded from assessment - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[179](index=179&type=chunk) - The company is currently integrating the internal controls of the recently acquired Albina Asphalt (Nov 2024) and Strata Corporation (Mar 2025) and has excluded them from its assessment of internal control over financial reporting for this period[180](index=180&type=chunk) [Part II -- Other Information](index=39&type=section&id=Part%20II%20--%20Other%20Information) [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) No material changes to the company's legal proceedings were reported from those in the 2024 Annual Report - No material changes to legal proceedings were reported during the quarter[184](index=184&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) The company refers to risk factors in its 2024 Annual Report on Form 10-K, with no material changes or new significant risks reported for the quarter - The company directs investors to the risk factors section of its 2024 Annual Report, implying no material updates for the quarter[185](index=185&type=chunk) [Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) Mine safety disclosures, including violations and regulatory matters, are provided in Exhibit 95 of the Form 10-Q - Mine safety disclosures are available in Exhibit 95 of the report[188](index=188&type=chunk)

Financial Data and Key Metrics Changes - The company is positioned for its most profitable year in history, forecasting record revenue, net income, and adjusted EBITDA [6][9] - The first quarter results were in line with expectations, with a seasonal loss of approximately 8% of annual EBITDA, which is an increase from the historical 5% due to recent acquisitions [10][11] - The company spent approximately $8 million in the first quarter on SG&A, primarily related to acquisitions and business development activities [10][30] Business Line Data and Key Metrics Changes - Aggregate volumes are expected to increase by high single digits for the full year, despite a 9% decline in the first quarter due to lower demand in Oregon and weather impacts [26][50] - Ready mix revenue increased by 9% due to higher average selling prices and volume growth, with expectations for high teens volume growth for the full year [28] - Asphalt activity was light in the first quarter, which typically accounts for less than 5% of the full year's volume, but is expected to pick up in the second quarter [28] Market Data and Key Metrics Changes - The company has a strong backlog, with public projects representing 87% of it, and has seen increased bidding activity compared to last year [18][19] - The company is tracking 51 transportation funding bills at the state level, with significant funding approved in states like Idaho and North Dakota [16][17] - The company is experiencing pressure in private construction markets, particularly in Oregon and Montana, while seeing strength in Hawaii, California, and Texas [41][42] Company Strategy and Development Direction - The company is actively pursuing an acquisition program, having closed on Strata Corporation and evaluating additional deals [7][11] - Investments in operational improvements and competitive edge strategies are ongoing, including dynamic pricing initiatives and technology deployment [12][13] - The company is focused on maintaining a disciplined approach to bidding and project selection to optimize margins and minimize risk [19][84] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term strategy and the potential for record results in 2025, despite macroeconomic uncertainties [7][9] - The company is well-positioned to benefit from infrastructure investments, with significant funding available for public projects [15][34] - Management noted that while private projects have seen some delays, they expect many to resume in the second half of the year [96] Other Important Information - The company has raised its full-year guidance, expecting consolidated revenue between $3.25 billion and $3.45 billion, and adjusted EBITDA between $530 million and $580 million [33] - SG&A expenses are expected to increase by $20 million for the full year, primarily due to acquisition-related costs and business development activities [30][60] Q&A Session Summary Question: Resiliency in private construction markets - Management noted that private construction is strong in Hawaii, California, and Texas, while facing pressure in Oregon and Montana [41][42] Question: Update on Strata integration - Integration is going well, with expectations for positive contributions to margins and overall operations [44] Question: Volumes across segments - Management indicated that aggregate volumes were down 9% in the first quarter but are expected to increase in the coming months [50][51] Question: End market mix post-acquisitions - The company remains heavily exposed to public works, with 87% of construction revenue coming from public projects [52][54] Question: SG&A breakdown for the quarter - SG&A increased by $13 million, with $8 million related to the step-up in investment and $4 million from acquisitions [62][63] Question: Impact of oil price decline on costs - Management stated that the decline in oil prices has not materially changed cost expectations across segments [86] Question: Future investment cycles - The company views the current $20 million step-up in SG&A as a one-time investment to support future growth [94] Question: Delayed private projects - Delays are primarily in private contracts, with expectations for many to resume in the third quarter [96][97]