Knife Riv Holding Co.

we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. Also note that this call is being recorded on Tuesday, August 5th, 2025. And I would like to turn the conference over to Nathan Ring, CFO. Please go ahead.

Thank you. And welcome to everyone joining us for the Knife River Corporation second quarter results conference call. My name is Nathan Ring, Chief Financial Officer of Knife River. And I'm joined by our President and Chief Executive Officer, Brian Gray. Today's discussion will contain forward looking statements about future operational and financial expectations. After results may differ materially from those projected in today's forward looking statements. For further detail, please refer to today's earnings release and the risk factors disclosed in our most recent filings with the SEC, which are available on our website and the SEC website. Except as required by law, we undertake no obligation to update our forward looking statements. During this presentation, we will make references to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly comparable GAAP measure in today's earnings release and investor presentation. These materials are also available on our website. Brian will begin today's call with an overview of our second quarter, 2025 results, followed by a segment recap and an update on our competitive edge plan. Following his remarks, I will provide a product line summary, a capital update and a review of our 2025 financial guidance. At the conclusion of our prepared remarks, we will open the line for a question and answer session. With that, I'll now turn the call over to Brian.

Thank you, Nathan. Good morning, everyone. And thank you for joining us. Before I talk about our all time record backlog and the progress we're making on our growth strategies, I wanna address the slower start to the first half of 2025. Simply put, we had unfavorable weather throughout most of our footprint and we had fewer projects to bid and build in Oregon. Let me start with weather, where we had a difficult time getting out in the field to begin working through our record backlog. Rain plagued our operations throughout the central segment in pockets of Montana and Wyoming. In key markets across those regions, it rained on nearly 40% of the available workdays, impacting revenue, volumes, and gross profit. Not only did weather negatively affect our construction revenue and materials volumes, it also impacted our energy services operations as it reduced shipments of liquid asphalt. As we've discussed on previous earnings calls, we had favorable weather the past two construction seasons, but this year, it's causing substantial disruptions for our crews as they try to get to work. I'd like to pause for just a moment here and also recognize the tragic flooding that occurred in Texas over the 4th of July weekend. Torrential rain overwhelmed rivers and claimed innocent lives. Our hearts go out to the families who are coping without loss. I'd also like to thank first responders for their heroic actions. Thankfully, our Texas team members were all safe. They are actively repairing our Honey Creek quarry operations where floodwaters wash out our access roads. In addition, the rail line servicing our quarry was damaged and is currently under reconstruction. Sales volumes will be down for the third quarter at Honey Creek as repairs are made, but we expect to see strong demand once we start selling materials there again. This impact has been included in our revised guidance. The other factors for our slower start to the year was project availability in Oregon. On both the public and private side, we continue to see work being delayed. Over the past few years, the state DOT has heavily invested in several mega projects that are over budget. This has diverted funding from paving work we typically perform. The state legislature has been called into special session later this month to address additional DOT funding, which we're watching closely. On the private side, macroeconomic factors, including uncertainty around tariffs and high interest rates, continue to affect Oregon's manufacturing and import-export industries, prolonging delays on private projects. We continue to right-size our crews and equipment pool in Oregon and have been mobilizing our teams to where the work is as we manage through the current demand environment. To provide some -over-year context on Oregon, our aggregate volumes were down about 25% in the first half, or approximately 1.2 million tons. This is having a direct impact on our consolidated financial results. Over 50% of Knife River's EBITDA variance for the quarter, for the year to date, and to our updated guidance is directly related to Oregon. That said, we still expect the state to be a solid contributor. We anticipate Oregon's EBITDA margin, which has been Knife River's North Star for the past decade, will continue to be accreted to our overall results for the year. And while Oregon has its challenges at the moment, there are many good things happening in our other 13 states. Let me start with the West, where we got off to a faster start in California, Hawaii, and Alaska. Aggregate volumes were up almost 60% this quarter in Alaska, while ready-mix volumes were up in both Hawaii and Alaska. In California, asphalt volumes were up along with contracting services revenue, which improved 30% over last year. We expect contracting services will continue to have a strong year in California, and we further expect volumes in all product lines to be up in California, Hawaii, and Alaska. I've stated several times that these states, which make up our legacy Pacific segment, have historically been a top contributor for Knife River, and it's exciting to see their progress on our competitive edge initiatives. Finally, in the West, the state of Washington recently increased its transportation funding by over $2 billion, and we are seeing more opportunities to bid bridge work in that market out of our pre-stress division. Switching to Mountain, we anticipate another solid year. As you can see in our quarterly and -to-date performance, work was affected by our ability to get in the field due to weather and project timing, both causing a delayed start to the construction season. Also causing lower revenue and profitability this quarter is the lack of asphalt paving in Montana, as the DOT is spending a larger portion of its budget on bridge structures. But this region has all-time record backlog. The DOT budgets are strong, and we continue to see more opportunities to bid private work. Idaho approved funding during the quarter focused on relieving congestion, and we are seeing shovel-ready projects already coming out for bid. We're currently working on the $95 million farm-wide road projects in Boise, and recently secured a $54 million interchange project in that same market. In Central, the acquisition of Strata drove record second-quarter volumes, revenue, and EBITDA, and our quarterly results could have been even better if not for the rain. The integration of Strata is going well, and the guidance we provided earlier this year related to Strata remains on track. In North Dakota, the state passed a spending bill in the second quarter that allocates $800 million a year over the next two years for road construction projects. This work is right in our wheelhouse. Meanwhile, we are also seeing exceptional infrastructure investment in Texas. We're preparing for a $118 million multi-year highway project in College Station, where we are a material supplier and paving subcontractor. Our Texas team also landed a $33 million paving subcontract for a highway project in Madison County. Even though these projects are larger in size than traditional projects in our backlog, they are work we typically perform and have similar risk profiles. And finally, at Energy Services, volumes increase year over year with the acquisition of Albina Asphalt and the addition of our new polymer-modified liquid asphalt plant in South Dakota. Wet weather in the Midwest and economic challenges in Oregon negatively impacted financial results in this segment for the quarter. However, we expect EBITDA margin at Energy Services to continue to be accretive to Knife River again this year. Looking ahead, we have many opportunities across our company as we move into the second half of the year. We have record backlog, a strong demand for our products, and several exciting edge updates. Our second quarter backlog of $1.3 billion is the highest of any quarter in Knife River history. And this wasn't just delayed work being pushed forward. We secured $650 million in new projects during the quarter, a $250 million increase from the same time last year. Record DOT budgets are driving record backlog. Approved budgets in Knife River states are growing 14% for fiscal year 2026, compared to just 3% for the US average. Our 14 states also have about 60% of IAJ funding still to spend. And we expect IAJ to continue to positively impact our markets well past the bills expiration. As we enter our busiest quarter, we have a lot of work that should carry us through this year and into 2026. We expect our record backlog to drive volume growth across all product lines in the second half of this year. On top of strong budgets and record backlog, we also remain focused on our competitive edge strategy of EBITDA margin improvement, discipline, growth and excellence. We are committed to achieving our long-term goal of 20% adjusted EBITDA margin. And we see multiple paths to get there. One of those paths is growth. And we have acquired two aggregates led companies since the first quarter. In May, we purchased Kramer Trucking and Excavating in St. Cloud, Minnesota. Kramer provides infill growth for us in the central part of the state. It has nine Santa Clara sites to support our current footprint, along with a strategically located granite quarry on Interstate 94 that can serve the suburbs of Minneapolis. Then in July, we acquired High Desert Aggregates and Paving in Bend, Oregon. Bend's population has grown 8% in the last five years. And we expect this market to continue to grow faster than the national average. High Desert adds aggregate reserves, along with downstream asphalt production and paving to help serve this area. Both these acquisitions align with our growth strategy. They are negotiated deals infilling our mid-size high growth markets. They are aggregates led, and they are able to quickly integrate into our system. We have maintained an active deal pipeline that will continue to pursue acquisitions, as well as organic growth opportunities that fit our strategic goals. We also continue to invest in long-term growth through our Process Improvement Teams, or PIT crews. These crews are focused on self-help through standardization, cost control, price optimization, and pushing toward excellence in all we do. This takes time. We are still in the early stages on many of these initiatives, but we absolutely expect this investment to have a strong and sustainable return for our shareholders. PIT crews are an important part of our edge strategy. Another integral part of our strategy is materials pricing. In the second quarter, our teams improved pricing on aggregates, ready mix, and asphalt. Nathan will talk more about this in his remarks, but we continue to gain traction with the implementation of our dynamic pricing initiative, along with new and improved technology to support it. All told, we have a lot of high quality work in front of us, improvement strategy, and positive market fundamentals. We have record backlogs of $1.3 billion that is secured work with dedicated public funding. There's bipartisan support at the federal, state, and local levels to continue the build out of America's infrastructure. This is exactly the type of work we perform. We also continue to drive pricing improvements on construction materials as we roll out our commercial excellence initiatives. And finally, we have an incredible team that's laser focused on working safely, controlling our costs, and becoming best in class in everything we do. All of this gives me great confidence in our ability to deliver long-term value for our shareholders. With that, I will turn the call over to Nathan.