Knife River pany(KNF) - 2025 Q1 - Quarterly Report

Part I -- Financial Information Item 1. Financial Statements 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 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 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 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 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][81] - 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][58][62] - 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] - 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] Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] - 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][111] Consolidated Overview 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] - 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] Business Segment Financial and Operating Data 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] - 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] - The Central and Energy Services segments' performance was negatively impacted by costs associated with recent acquisitions (Strata and Albina, respectively)[144][147] Liquidity and Capital Resources 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] - 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][156] - 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][155] - 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] Quantitative and Qualitative Disclosures About Market Risk 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] - A hypothetical 1.00% increase in interest rates would increase annual interest expense by approximately $7.6 million[176][177] Controls and Procedures 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] - 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] Part II -- Other Information Legal Proceedings 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] Risk Factors 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] Mine Safety Disclosures 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]