Knife Riv Holding Co.

Good morning, ladies and gentlemen, and welcome to the Knife River Corporation's third quarter results conference call. At this time, all lines are in listen-only mode. Following the presentation, 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. This call is being recorded on Tuesday, November 4th, 2025. I would now like to turn the conference over to Nathan Ring.

Please go ahead. Thank you, and welcome to everyone joining us for the Knife River Corporation third 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. Actual 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 third 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. The third quarters typically are most profitable, and we're pleased to report record financial results. Our revenue of $1.2 billion and adjusted EBITDA of $273 million were all-time quarterly highs, thanks to strong contributions from our recent acquisitions. M&A is a core component of our competitive edge strategy to drive long-term value. Another pillar of our EDGE plan is to optimize prices and control costs. I'd like to thank our Knife River team members for making important strides in this area during the quarter. Their efforts helped us grow adjusted EBITDA margin to 22.7% for the quarter. And equally impressive, we also improved gross margins across our aggregate, ready mix, and asphalt product lines. We did all this while facing headwinds that we didn't have last year, including wet weather, a sluggish Oregon economy, and less asphalt paving across our segments. Delivering improved results in adverse conditions points to the fundamental strength of our business. Even without the addition of Strata Corporation, which is our largest acquisition ever, our third quarter revenue and adjusted EBITDA would have been records. Looking ahead, we're excited about our future. We're still in the early innings of our self-help initiatives, and we certainly expect the organic business to continue to grow as we fully implement dynamic pricing and operational improvements. We also continue to pursue strategic acquisitions, and our team currently has multiple deals in the pipeline. We have record third quarter backlog with more pull through of higher margin asphalt paving materials than we did last year. And our states continue to invest in public infrastructure at record levels. All in all, we expect a combination of our edge strategy and market fundamentals will continue to allow us to achieve profitable growth for our shareholders. As we look more closely at our third quarter results, I'll start with an update on Oregon. We don't typically provide financial results for an individual state, but there's been a lot of attention on Oregon. So I wanted to follow up with some additional detail. During the quarter, I'm pleased to say we saw year-over-year improvements in the state. As previously reported, this market was down in the first half of the year, and during that time we moved quickly to right-size our team and reposition our crews to where the work is. We continued to optimize pricing and control costs, and we benefited from the financial contributions of recent acquisitions. In addition, we began to see aggregate volumes improve as third-party sales resumed on several jobs that had been delayed earlier in the year. Finally, Our current contracting services backlog in Oregon is approximately 90% of where it was last year at this time. These factors led to third quarter financial results in Oregon that were higher than last year, suggesting the headwinds are beginning to calm. In addition, the recent passing of a 10-year $4.3 billion transportation funding package helped provide additional clarity in Oregon. While not the long-term fix lawmakers originally proposed, we expect the bill, at a minimum, will help maintain current funding levels and improve upcoming bid schedules at the local agencies. Half of the funding is earmarked for cities and counties for the types of projects we most often perform. The other half of the new revenue stream will be added to Oregon's DOT budget. Total funding for the next biennium is now projected to be $6.1 billion, slightly below the record $6.2 billion from the previous two-year cycle. Given the new funding, our improving aggregate sales, management's commitment to keeping costs in check, and ongoing contributions from M&A, we expect the stabilization to continue and currently anticipate overall 2026 results in Oregon will be similar to this year. Switching from Oregon to Mountain, this segment remains one of the fastest growing areas in our footprint, and we continue to enjoy record backlog here. However, third quarter results were impacted by less asphalt paving related to project timing, type of work, competitive bid dynamics, and delays caused by weather and project phasing. We experienced more scheduling delays this year than last year. The overall decrease in asphalt paving in the segment not only impacted contracting services, We also had a ripple effect through hot mix asphalt, aggregates, and the utilization of our equipment pool. Fortunately, this work remains in our backlog, and we continue to add paving times for next year. DOT budgets are strong, backlog is at record levels, and we've added capacity in an effort to capture even more work heading into 2026. Continuing with our segments recap, let me move to the west. Since I already touched on Oregon, I'll focus on California, Hawaii, and Alaska. In these states, we saw healthy demand, with pricing discipline and strong execution driving our results. We had increased rate of mix volumes and pricing in California, where we added capacity and improved delivery efficiency. We also had higher contracting revenue margin in California, where we continue to see strong public agency demand. In Hawaii and Alaska, we had increased aggregate and rate of mix volumes, and we stand to benefit in both states from some large impact projects that are just beginning construction. With the stabilization in Oregon, we are optimistic about continued growth in the West in 2026. In the Central segment, our results were supported by the integration of Strata, which contributed to volume and margin improvement. Third quarter revenue and EBITDA were up substantially, and EBITDA margin was 23%, an all-time record. The strong quarter in Central could have been even better if not for the rain. The wet weather we reported in the second quarter continued in the third, particularly in July and September, which delayed projects and negatively impacted operating conditions. Still, we achieved a record quarter and are excited about the year ahead. Backlog in this segment is up 83% year-over-year, driven primarily by an increase in Texas. We are seeing strong commercial and public work opportunities in our Texas footprint, and our teams there have secured major highway projects in the College Station area. In North Dakota, we are also set up favorably for 2026, with new infrastructure funding driving bidding opportunities and supporting the Knife River and Strata combined operations. The North Dakota State DOT intends to bid about $750 million of construction work in 2026, which is more than twice the $345 million they put out for bid in 2025. Throughout the central segment, our markets appear poised for growth, and our expanded teams are working closely together. And finally, in energy services, the segment delivered a strong quarter, with revenue up 34% and EBITDA up 18%, primarily due to the acquisition of Albina Asphalt and the new polymer-modified liquid asphalt plant in South Dakota. The segment continues to benefit from vertical integration and disciplined bidding and is on track to have another solid year. While 2025 has had its share of challenges, we continue to focus on our edge strategy and the opportunities we have to improve our performance and finish the year strong. As mentioned, edge includes acquisition growth, which contributed to our improved results for the quarter. M&A will remain an integral part of our strategy, and our corporate development team continues to add quality opportunities to the pipeline. We are focused on aggregates-led, margin-accretive targets in our mid-size, high-growth markets. But M&A is just one component of EDGE. During the quarter, our process improvement teams and field personnel were also hard at work, implementing efficiencies across our operations. At the same time, our sales teams continued to emphasize our dynamic pricing model, helping to better capture the full value of our products. These tandem efforts resulted in third-quarter improvements to our aggregates, ready-to-mix, and asphalt gross margin. While we were improving our processes, we were also improving our safety performance, I'm proud of the advances our team continues to make on the I Choose Safety program. We believe a safe and engaged team is vital to our success. Combined, we expect each of the ongoing efforts in our competitive edge plan will help drive consistent EBITDA growth and enable us to achieve our long-term goal of 20% adjusted EBITDA margin. Before I turn the call over to Nathan, I'd like to take just a moment to reinforce our track record of meeting our goals. In our 30-year history, we have had four distinct periods. The first was to build scale. The second was to enhance our vertical integration and generate industry-leading return on invested capital. The third was to position Knife River to become an independent, publicly traded company. And the fourth is where we are today, implementing our competitive edge strategy in an effort to grow EBITDA and improve margins. We accomplished our goals in each of the first three phases, and we are on track to meet our edge goals as well. Over the past three years, on a trailing 12-month basis, we have grown revenue by 22%, adjusted EBITDA by 56%, and adjust the EBITDA margin by 320 basis points. Edge is working, and the fundamentals of our business are only getting stronger. All this gives me great confidence that our dedicated team members will continue delivering profitable growth and create long-term value for our shareholders. With that, I'll turn the call over to Nathan.