Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Record first quarter revenue due to an earlier start to the construction season, demonstrating strong operational momentum.
- Backlog increased by nearly $423 million during the first quarter, a 66% increase from the previous year, with higher expected margins.
- Implementation of new bidding tools and strategies under the competitive edge plan, leading to disciplined bidding and improved margins.
- Strong financial position with $128 million of available cash and $329 million of available capacity on the revolving credit facility, supporting strategic growth and acquisitions.
- Reaffirmation of 2024 financial guidance, indicating confidence in the company's performance and market position for the remainder of the year.
Negative Points
- Adjusted EBITDA for the quarter was a loss of $17.7 million, influenced by increased pre-construction expenses and costs associated with being a standalone business.
- Higher repair and maintenance expenses, which increased by $8.6 million from the previous period, although these are expected to benefit future quarters.
- Seasonal variability in product volumes, with aggregates down 13% and ready-mix down 6%, although asphalt volumes were up significantly.
- The necessity to continue the rollout and implementation of dynamic pricing and other commercial excellence initiatives, which are still in early stages.
- Potential risks associated with the acquisition environment, including the need to maintain discipline in capital allocation and manage integration of new operations.
Q & A Highlights
Q: Can you quantify or further characterize the margin profile embedded in the backlogs relative to last year?
A: Brian Gray, President and CEO of Knife River, suggested looking at the annualized basis, pointing to last year's end results as a good indicator. He confirmed that the backlog is similar to last year but at higher expected margins, emphasizing the company's strong performance in contracting services in the fourth quarter and the first quarter.
Q: How do you attribute the significant improvement in aggregates average selling price this quarter?
A: Brian Gray credited the improvement to internal initiatives, including dynamic pricing and additional training, which have helped optimize pricing at a transactional level by customer and product. He noted that these efforts are part of the early stages of rolling out dynamic pricing.
Q: Can you discuss the variability in volumes across different product lines this quarter?
A: Brian Gray explained that small tonnages can cause large percentage variances in the first quarter, which is typically low in volume. He highlighted that increased paving activities in southern Oregon and Northern California contributed to higher asphalt volumes, whereas aggregates were down due to the absence of specific lower-priced projects from the previous year.
Q: Could you quantify the repair and maintenance expenses pulled forward into the first quarter?
A: Nathan Ring, CFO, mentioned that the $8.6 million variance in maintenance expenses year-over-year is expected to benefit the second and third quarters, as these expenses were pulled forward due to an earlier start to the construction season.
Q: What is the current acquisition environment for aggregates, and what multiples are you seeing?
A: Brian Gray highlighted Knife River's active pipeline for acquisitions, particularly in aggregates. He noted that the company is focused on pure-play aggregate sites and that multiples can vary significantly, ranging from five to twenty times, depending on the strategic and financial merits of each deal.
Q: How much of your book has moved to dynamic pricing, and how does this factor into your guidance?
A: Brian Gray stated that the implementation of dynamic pricing is an ongoing process across all segments and regions, with continued training and tool rollout to support sales teams. He confirmed that the progress and expectations from dynamic pricing are incorporated into their current financial guidance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
