Knife River pany(US:KNF)2025-08-05 16:00Financial 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].