Knife River pany(KNF) - 2025 Q2 - Quarterly Results

Financial and Operational Highlights Q2 2025 Performance Summary 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] Management Commentary 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][7][10] - 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][5][6] - 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][10] - 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] Outlook and 2025 Financial Guidance 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] - 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] Q2 2025 Financial Results Consolidated Results 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] - The revenue increase was partially offset by a decrease in contracting services workloads in Oregon and Montana[12] - 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] - The company reorganized its operating segments in January 2025, combining former segments into four new reportable segments: West, Mountain, Central, and Energy Services[13] Reporting Segment Performance 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] - The Mountain segment's performance was impacted by less contracting services activity, particularly asphalt paving and airport projects, and weather delays[16] - The Central segment's revenue and EBITDA growth was largely driven by the contribution of Strata's operations[17] - 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] Product Line Performance 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 Capital Expenditures and Liquidity 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] - Full-year 2025 maintenance and improvement capital expenditures are expected to be between 5% and 7% of revenue[20] - 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] - 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] Financial Statements Consolidated Statements of Operations 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 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 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 Reconciliation of Non-GAAP Measures 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][41] 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 |