Knife River Corporation — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; compared primarily with the three months ended March 31, 2023. Knife River is an aggregates-led construction materials and contracting services company operating in 14 states. Results are seasonal, with activity typically lower in winter and higher in summer. The 2023 comparison period preceded the May 2023 separation from MDU Resources, so certain costs and financing arrangements are not fully comparable.
Financial performance
| Metric | Q1 2024 | Q1 2023 |
|---|---|---|
| Revenue | $329.6 million | $307.9 million |
| Gross profit / margin | $6.5 million / 2.0% | $4.1 million / 1.3% |
| Operating loss | $(53.7) million | $(44.6) million |
| Net loss / diluted loss per share | $(47.6) million / $(0.84) | $(41.3) million / $(0.73) |
| EBITDA / Adjusted EBITDA | $(20.6) million / $(17.7) million | $(14.1) million / $(13.7) million |
| Net cash used in operating activities | $(43.2) million | $(79.3) million |
| Capital expenditures | $43.7 million | $42.4 million |
Revenue grew 7.1%, while gross profit increased $2.4 million and gross margin improved 70 basis points. Higher pricing contributed $24.5 million of revenue, offset in part by lower aggregate and ready-mix volumes, including project timing and the absence of a large prior-year data center project. Contracting services benefited from better weather and more winter work. SG&A rose $11.5 million to $60.2 million, including $9.5 million of recurring public-company costs and $1.5 million of one-time separation costs. Interest expense increased $4.4 million, mainly because new debt carried higher rates. The larger tax benefit reflected the higher pretax loss.
Operating cash use improved by $36.1 million year over year, primarily due to lower working-capital cash usage and collections on receivables; it remained negative. Cash, cash equivalents and restricted cash totaled $170.7 million at quarter end, including $128.4 million of cash and cash equivalents and $42.3 million of restricted cash. Working capital was $520.5 million, and available borrowing capacity under the revolving credit agreement was $329.0 million.
Long-term debt totaled $680.6 million before unamortized issuance costs, including $269.8 million of variable-rate term loans at 7.19% and $425.0 million of 7.75% senior notes due 2031. Management reported covenant compliance. A hypothetical 1 percentage-point increase in the term-loan rate would add approximately $2.7 million to interest expense over the next 12 months, based on quarter-end balances.
Operating trends and material changes
- Consolidated revenue increased $21.7 million. Aggregate and ready-mix sales volumes declined, while pricing, asphalt sales and contracting revenue supported growth.
- Contracting services gross profit improved; aggregate margins also benefited from pricing. Earlier pre-season maintenance, mobilization and training costs partly offset the gains.
- Northwest performed strongly: revenue was $120.3 million, EBITDA was $20.1 million, and EBITDA margin rose to 16.8% from 12.1%.
- Mountain and Central remained loss-making. Mountain EBITDA declined to $(6.1) million from $(3.8) million; Central EBITDA declined to $(18.7) million from $(16.9) million. Pacific EBITDA was $(0.7) million versus $0.1 million, while Energy Services improved to $(2.5) million from $(3.0) million.
- Consolidated EBITDA margin decreased to (6.2)% from (4.6)%, despite the improvement in gross margin. Higher corporate costs following the separation were a significant factor.
- Backlog was $959.5 million at March 31, 2024, versus $958.5 million a year earlier and $662.2 million at December 31, 2023. Management said expected backlog margins exceeded the prior-year level; approximately 85% related to publicly funded projects.
Outlook, risks and contingencies
Management described markets as resilient and construction activity as generally strong despite higher interest rates and inflation. It noted that product and service price increases had generally outpaced cost inflation and cited public infrastructure funding as a source of bidding opportunities. State transportation departments in Knife River’s 14 states increased 2024 spending authorizations by more than $9 billion, or 16%, from 2023. The company expects approximately $891.0 million of backlog to be completed within 12 months. These statements are not formal earnings guidance.
Estimated 2024 capital expenditures are $170 million to $180 million, excluding acquisitions; spending may be funded by internally generated cash and debt. The company acquired a small South Dakota ready-mix operation on April 3, 2024, and stated that future acquisitions or other growth opportunities could add to the capital program.
Key risks include weather and construction-season timing, project delays or cancellations, labor availability and costs, competition, and volatility in diesel, fuel, liquid asphalt, cement and other materials—particularly on fixed-price contracts. Backlog conversion and margins could be affected by supply delays or rising costs. The company reported litigation accruals of $1.2 million, with related insurance receivables of $0.4 million; it also participates in a Portland, Oregon, Superfund cleanup matter, with no material change reported. Outstanding surety bonds were approximately $902.3 million and are not reflected on the balance sheet. Fixed maximum guarantees of $11.5 million and letters of credit of $21.0 million had no amounts outstanding at quarter end. Management said liquidity was sufficient for at least the next 12 months, considering cash, operating cash flows and borrowing capacity.
Important facts for investors to verify
- Whether the seasonal cash outflow reverses as the construction season progresses, and whether working-capital needs remain manageable.
- Whether pricing and improved contracting margins can offset material, labor and pre-season operating costs.
- Backlog conversion, expected margins, project timing and the continued availability of public infrastructure funding.
- The trajectory of post-separation SG&A and interest costs, including variable-rate debt exposure.
- Execution and funding of the $170–$180 million 2024 capital program and any incremental acquisition or growth spending.
- Developments in litigation, environmental matters, surety obligations and other contingent commitments.
EBITDA and Adjusted EBITDA are non-GAAP measures; the filing cautions that they are not standardized and should not be viewed as substitutes for GAAP results.