Knife River Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter earnings release; the filing text does not provide clear fourth-quarter financial results separately.
Business context
Knife River is an aggregates-led construction materials and contracting services company operating across 14 U.S. states. Its vertically integrated offerings include aggregates, ready-mix concrete, asphalt, liquid asphalt and infrastructure contracting. The company had approximately 1.1 billion tons of aggregate reserves and used about 37% of aggregates internally in 2023.
Knife River became an independent public company on May 31, 2023, in a tax-free spin-off from MDU Resources. Accordingly, 2023 includes both pre-separation carve-out reporting and post-separation standalone operations; pre-separation costs and financing may not represent standalone economics. The company also reorganized its segment reporting in the fourth quarter; prior periods were recast.
Key financial results
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Revenue | $2,830.3 million | $2,534.7 million | +12% |
| Gross profit / gross margin | $538.9 million / 19.0% | $360.9 million / 14.2% | Margin +4.8 percentage points |
| Operating income | $296.4 million | $194.3 million | +53% |
| Net income | $182.9 million | $116.2 million | +57% |
| Diluted EPS | $3.23 | $2.05 | +58% |
| EBITDA (non-GAAP) | $422.0 million | $306.7 million | +38% |
| Adjusted EBITDA (non-GAAP) | $432.4 million | $313.4 million | +38% |
| Operating cash flow | $335.7 million | $207.5 million | +$128.2 million |
| Free cash flow (non-GAAP) | $219.7 million | $52.2 million | +$167.5 million |
Revenue growth was led by approximately $217.3 million of higher pricing across regions and products, alongside stronger contracting services demand in several markets. Lower sales volumes in aggregates, ready-mix and asphalt partly offset growth. Gross-margin gains reflected pricing outpacing costs, improved contracting bid margins and productivity, and stronger liquid-asphalt results.
SG&A rose $75.9 million to $242.5 million. The increase included higher recurring costs of operating independently, $10.0 million of one-time separation costs, increased incentive compensation and $5.8 million of non-cash aggregate-site impairments. Interest expense increased to $58.1 million from $30.1 million, principally reflecting the post-separation debt structure and higher rates.
Liquidity, debt and capital
- Year-end unrestricted cash and cash equivalents were $219.3 million; total cash, cash equivalents and restricted cash were $262.3 million, including $43.0 million of restricted cash.
- Working capital was $566.3 million. Management said available liquidity, operating cash flow and borrowing capacity should meet commitments and anticipated capital expenditures for at least 12 months.
- Gross debt was $697.0 million: $425.0 million of 7.75% senior notes due 2031 and approximately $271.6 million of variable-rate term loans, plus other notes. The term-loan rate was 7.24% at year-end.
- The $350 million revolving facility had no borrowings at year-end and $329.0 million available after letters of credit. The company was in compliance with debt covenants.
- Capital expenditures were $124.3 million in 2023, compared with $178.2 million in 2022. Planned 2024 capital expenditures are $170–$180 million, excluding acquisitions.
Material changes and operating outlook
- Contracting-services backlog was $662.2 million at year-end, down from $818.9 million in 2022. Management said expected margins were higher; $610.8 million was expected to be completed in 2024. About 84% of backlog was publicly funded.
- Management described markets as resilient and construction activity as generally strong despite higher interest rates, inflation, transportation disruptions and supply constraints. Public work accounted for about 77% of contracting-services revenue.
- Knife River introduced its Competitive EDGE strategy, emphasizing margin improvement, capital discipline, growth and operational excellence. Pricing initiatives and targeting higher-margin work are key elements.
- The filing provides no specific 2024 revenue, earnings or EBITDA guidance. Management cited public infrastructure funding, including the IIJA, as a source of potential project opportunities, while noting that project timing and funding are uncertain.
- The company has not paid cash dividends and does not anticipate doing so in the foreseeable future.
Risks, contingencies and unusual items
- Results are seasonal and weather-sensitive; most northern-region activity occurs during warmer months. Input-cost volatility—especially diesel, liquid asphalt and cement—could pressure margins. A 10% change in these input costs would have affected operating results by an estimated $43.2 million over the next 12 months, based on 2023 costs.
- Other material risks include competition, labor availability and costs, permitting and replacement of aggregate reserves, dependence on public infrastructure spending, interest-rate exposure, customer collections, and the costs and execution risks of operating independently after the spin-off.
- Knife River is a potentially responsible party in the Portland Harbor Superfund matter. The company said it does not believe it is responsible and does not consider material remediation costs or damages probable; the ultimate exposure cannot be clearly quantified in the filing.
- Year-end asset-retirement obligations were $41.8 million. Outstanding surety bonds were approximately $597.5 million and were not recorded on the balance sheet; letters of credit totaled $21.0 million. Accrued liabilities for contingencies were $873,000.
- The separation involved $10.0 million of one-time costs, higher ongoing standalone expenses and continuing transition services from MDU Resources, expected to wind down mostly within one year and no later than two years after separation.
- The auditor issued an unqualified opinion on the financial statements. The filing does not include an auditor attestation or management assessment of internal control over financial reporting because of the new-public-company transition period. Management concluded disclosure controls were effective at a reasonable-assurance level.
Important facts for investors to verify
- Whether pricing, productivity and improved bid margins can be sustained as input costs, volumes and project mix change.
- How much of the $662.2 million backlog converts to 2024 revenue and at the margins management expects; backlog may be delayed, changed or canceled.
- The cash-flow and leverage impact of planned capital expenditures, variable-rate debt and any future acquisitions.
- Whether standalone costs, IT-system transitions and remaining MDU Resources arrangements develop as expected.
- Future developments in the Portland Harbor matter, reserve permitting and lease renewals, and the potential costs of environmental and reclamation obligations.
- The quality of cost-to-complete estimates for contracting-services revenue, identified by the auditor as a critical audit matter.