Good morning, ladies and gentlemen, and welcome to Knife River First Quarter Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Nathan Ring, Chief Financial Officer. Please go ahead.

Thank you, operator, and welcome to everyone joining us for the Knife River Corporation first 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 businesses and financial expectations. Actual results may differ significantly from those projected in today's forward-looking statements due to various risks and uncertainties, including the risks described in our periodic reports filed with the SEC. For further detail, please refer to the legal disclaimers contained in today's earnings release and other public filings, which are available on both our website and the SEC website. Except as required by law, we undertake no obligations 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 measures in the appendix to today's presentation. These materials are also available on our website under the Investors tab. Brian Gray will begin today's call with a high-level overview of our first quarter 2024 results, followed by an update on our competitive EDGE plan and a segment recap. Following his remarks, I will provide a product line summary, a balance sheet update, and a review of our 2024 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. Welcome everyone, and thank you for joining us today. After a record-breaking year in 2023, we continue to have momentum heading into the 2024 construction season. I'm going to talk about what we see ahead for 2024, including our strong markets, improved backlog, growth opportunities, and favorable materials pricing. Since this is our first time reporting first quarter results as a standalone company, we wanted to provide you with additional context for the quarter. Knife River traditionally spends the winter months preparing for the start of the construction season, which for us, ramps up in the second quarter. These preparations include maintenance under equipment, mobilization of portable plants, and training for our team members. Typically, these pre-construction activities begin in the fourth quarter and last into the second quarter. However, due to the extended construction season last year and an earlier start this year, these activities were largely compressed into the first quarter. This earlier start contributed to record first quarter revenue. While the additional pre-season expenses affected our adjusted EBITDA for the quarter, we fully anticipate we'll recoup most of these expenses in the second quarter. Adjusted EBITDA for the quarter was a loss of $17.7 million, compared to a loss of $13.7 million in the prior year period. The difference was expected as we had the increased pre-construction expenses I just mentioned, along with the additional cost of being a standalone business in the quarter that we didn't have in the first quarter of last year. Our crews and equipment are ready to get back to work. And we have a lot of work to go perform. As I mentioned during our year-end call, we noticed delayed bid lettings in the fourth quarter last year compared to normal, that contributed to an increase of lettings…

Thank you, Brian, and good morning everyone. I'll begin my remarks with a review of our performance for the quarter, followed by an update on our liquidity position and capital allocation priorities and then conclude by revisiting our 2024 guidance. As Brian mentioned, our first quarter generally contributes a smaller portion of our consolidated full year results. To put that into perspective, over the last 5 years from 2019 through 2023, our first quarter revenue provided an average of 12% of our annual results. And while we experienced record first quarter revenue in 2024, it only reflects an estimated 12% of our 2024 revenue at the midpoint of guidance. Similarly at the product line level, our first quarter revenues represent a relatively low percentage of our total annual revenues based on the last 3 years, first quarter aggregate revenue accounts for 16% of annual, revenue ready-mix 17% and asphalt just 4% of total revenue. Despite this being a nominal quarter relative to the full year, we have been actively preparing for the construction season and we are encouraged by the improvements made this quarter on our edge initiatives, particularly those related to pricing of materials, bidding margins in backlog and investment in growth projects. We continue to see traction with our pricing initiatives in the quarter with the average selling price for aggregates, up 15% and ready-mix, up 9%. Asphalt pricing was down slightly from last year, reflecting a reduction in input costs but we continue to see margin improvement. Our contracting services backlog of $959.5 million was higher than the prior year and increased by nearly $423 million during the quarter, up from the approximately $255 million we captured during the same period last year. It also includes higher expected margins as we continue our disciplined bidding strategy of…

[Operator Instructions] And your first question will be from Brent Thielman of D.A. Davidson.

I guess first question Brian or Nathan, the margin profile embedded in the backlogs here relative to last year. Any to it quantify that or characterize that further as we think about the impact to the business going forward?

Hey, Brent. This is Brian. So yes, I'd look at that really on an annualized basis. You can look at our year-end how we finished last year. And I think that would be a good indication. I mean I think we've mentioned that we have a backlog that's similar to last year the same period of time and we've stated it at higher margins. We've performed very well in the fourth quarter and this quarter and in the first quarter in contracting services. And so it is at higher margins. But I would look at that on an annualized basis. There's a lot of noise that goes on in the fourth quarter and the first quarter with relatively small volumes compared to the whole year. So I definitely would just kind of point you to the direction of how we ended last year for contracting services.

Okay. And then your aggregates average selling price saw pretty significant improvement this quarter and I guess Brian I'm just wondering how you would attribute that to the discipline some of the initiatives internally that you've been imposing versus kind of overall industry price increases we're seeing in the market today?

Yes we're very pleased and excited with the momentum we've got going into this year Brent, where we did a lot of work last year and beginning to rollout what we call dynamic pricing. As you recall, we honored all of our prices last year from the traditional way of pricing that. So we've done a lot of additional training. We've put a lot of new tools in place, dashboards that really help us analyze at that transactional level by a customer level, which products, which customers are providing the best margins and opportunities to optimize pricing. So we're in the early innings again, rolling out that dynamic pricing. The first quarter, I mean yes, we're pleased with that momentum on aggregates to ready-mix in particular with our pricing initiatives. Keep in mind, as Nathan mentioned, our first quarter is small and it's about 12% of our total revenue and so some small fluctuations in product mix can actually have an impact on those percentages both on the volume side and on the pricing side. So I think you've got to put it into perspective and we still see that momentum going into this year in our pricing. And there is a lot of that self-help related to our edge initiatives and the training that we're doing on dynamic pricing and the rollout of the whole commercial excellence initiative. And so we stand to our mid to high single digit price increases for the full year.

Okay. Maybe just last one. I was a little surprised to see some of the variability and volumes across the different product lines. I know this is one of those quarters where I don't want to read too much into it. Aggregates down 13, ready-mix down 6, but your asphalt volumes are up quite a bit. Any way to parse out what may be driving that? Or is that just specific to some of the seasonality that you saw across the business?

Yes. I think our total revenue and asphalt for the first quarter typically is like 4% of our annualized revenues. So again, small tonnages, brand can have a pretty big impact on volumes in particular in asphalt paving this time of year. And so we were up -- we were busy paving in southern Oregon and Northern California. We certainly had some opportunities to do some paving in Texas and so we were predominately shut down in a lot of our markets for asphalt paving contracting services this time of year in the northern markets. But we've certainly got out in the field earlier in California, we had a strong backlog and continue to have good backlog in Oregon. So, the states that we could work and we did do some work more this year than we did last year. But I just again put that into perspective both on the aggregates being down and the asphalt being way up as such small volumes, they just have large percentage increases variances during that first quarter for us.

Next question will be from Garik Shmois of Loop Capital.

Congrats on the quarter. I wanted to ask just first off to some of the repair and maintenance expenses that you saw in the first quarter, it sounds like some of them were pulled forward. Is there any way to quantify how much was pulled forward into first? And I'm assuming that it's coming at the benefit of the second quarter?

Yes, that's right Garik. And so I'll let Nathan answer the specifics on that. But again we had that favorable weather in the last year. So, our crews are out working a little longer than we traditionally would and we would normally begin that winter maintenance in the fourth quarter. Because we had favorable weather in the first quarter, it really looks like maybe I'll get back to work a little bit earlier than we traditionally would in the second quarter. We did condense and compact that maintenance -- that winter maintenance into the first quarter. So, I'll let Nathan just answer to give you some specific on the dollar amounts there.

Yes, Garik, good morning. We did talk a little bit about the maintenance and also training getting the folks ready and mobilization. Of those 3 categories, as I noted in the prepared remarks, the maintenance is a larger piece of that, $8.6 million variance year-over-year. Your question is how much of that do we see is pulled through in the first quarter here that will benefit the future growth? I would say pretty much all of that we see is benefiting the second and third quarter. So, that $8.6 million with maybe some minor differences would be a tailwind for us going into the remainder of the year.

Okay, that's great. Also -- thanks for the information regarding the seasonal contribution of your businesses. Is there anything that you're seeing right now that would imply anything other than a seasonal ramp the rest of the way?

No, I think I mean we've got the backlog to go out and work. We've got the crews back to work, trained. We've got inventory. So, I think we're well-prepared to hit the ground running in the second quarter. There can be some seasonal impacts in the second quarter as we begin to work in some of those northern states. But right now, I would say that we're very well-prepared. Plants are where they need to be. We put some new plants and some sites that traditionally might be on the road traveling. I think it's important plants in the fixed payments and commercial sites. And so I think right now everything that we see with the backlog that we've got, pricing momentum that we've got that we're going to gear for a solid year again Garik.

Okay, great. And just lastly just wanted to follow up on Brent's question on aggregates pricing. Is there any way to parse out how much mix whether product or geographic mix benefited? Obviously, it's a seasonally slow quarter, I don't want to read too much into it but it was a fairly impressive year-over-year improvement, would I be reading too much into there could be potential upside to your aggregates pricing guidance. Just anything to kind of call out in the first quarter that might have been a bit more unusual than the underlying pricing in aggregate?

Yes, I mean I'll just give you one example. So, our volumes were up -- I'm sorry volumes were down by a little over 400,000 tons and 200,000 of those tons were from -- there was a pit run project that we had last year in Idaho. And as you know our pit run basically raw material is sold at a lower price. And so just that alone -- that one job with the volumes we're talking about can have a pretty significant impact both on our volumes being down by 13% and yet our prices are up by 15%. And so as we look at it on an annualized basis, we still feel very committed and strong that our aggregate volumes should be flat to slightly down, maybe a low single-digits and that our pricing should be in that mid to high single-digits. So, that's one example. I mean there's other examples. There was a project that last year in Hawaii, we're doing some contract crushing again at a lower selling price. And this year, we don't have. That was the tune of about 130,000 tons, so that would impact. That's just timing of projects. I mean it's not that large. We're concerned that those jobs are going away. They're just impact jobs that you have one quarter versus the other quarter. And in the first quarter, those can have more significant swings as a percentage of the total. So, that's kind of -- those are 2 examples that led to the higher 15% improvement in pricing and the lower volumes down by 13%.

Okay, that's great color. Appreciate it. And I guess I'll stop there and pass it on.

[Operator Instructions] And your next question will be from Ian Zaffino at Oppenheimer.

I wanted to ask on the pricing outlook, how much of your book have you moved to call it, dynamic pricing versus annual or some annual letters? And how are you thinking about that inside your guidance for the up pricing?

We've talked about that -- rolling out dynamic pricing, it's a process and you don't do it overnight. You don't do it one quarter and frankly, you don't do it in one year. And so we are in the process of implementing that throughout all of our segments, all of our regions. We're in the process of continuing to do training, continue to roll out tools to assist our sales teams to provide that commercial excellence to optimize pricing and implement that dynamic pricing. Frankly, in some of our markets we're still hiring the sales professionals to help us implement that that dynamic pricing, which as you know, is we're asking our customers for all their projects they recall and we would quote those materials just in time to take in consideration our current cost structure. Look at our current backlog, look at the proximity of that job to our locations and optimized pricing. And so, that process, I mean there's some training done with our customers. And so, we are in the early phases of that. It's been built into our guidance when we gave our guidance in February. So we can know where we're at in the process. We certainly had some good traction. It would be during last year that led to our hitting our adjusted EBITDA goals 2 years earlier. And so commercial excellence, dynamic pricing and certainly was a part of that. But we are in the early innings of that rollout. So that -- but that is baked into our guidance.

Okay. Understood. And then, can you maybe talk about the acquisition environment for rock at the moment aggregates and whatever multiples you're seeing and what should we expect here, because there's been organic growth and then you did ready-mix deal. But how are we thinking about just in general multiples and sort of where they've gone and the likelihood of seeing something sometime in the next quarter?

Yes. No, we're really excited about the growth opportunities this year at Knife River both the organic growth and we're certainly adding reserves. Strategic reserve increases next to our existing sites as part of our organic. But the M&A, we have an active pipeline. And we certainly have bolstered our corporate development team and continue to add resources in that area and tell you that Management and our Board all of us are very focused on those opportunities. And there are a lot of them that we're working on and many of those are pure-play aggregate sites, pure-play aggregate locations and businesses that are existing right now in the markets that we serve. We certainly are very focused in those markets that we can continue to bolt-on and tuck-in operations that have those immediate synergies within the region that we're operating in today. We're looking adjacent to the regions that we operate in but we are absolutely committed to growing our product line in aggregates and those opportunities are out there. As far as multiples, we've talked in the past that we operate in a unique part of the United States where we don't have a lot of overlap with our national peers. And we are we have strong market positions and a lot of those states and we are the logical a preferred acquirer in those states. And so, many of those opportunities that we've done out of those 85 acquisitions that we've done, many of them fall in that $30 million to $40 million range, which a lot of times are not brokered and negotiated deals, and so we continue. Our pipeline is full of those opportunities along with the opportunities that are being brokered some larger platform businesses that are absolutely aggregates based and Knife River's in the hunt on those projects. We will be competitive on those projects. We'll stay disciplined to our strategy and that is to grow margins and maintain our industry-leading return on invested capital and continue to look at a balanced portfolio that supports our vertical integration and aggregates lead strategy. And so, those options are out there. Ian, it would be -- those multiples can range literally from a 5 to a 20. I mean there's no one answer for that. It really is every deal is different. Every deal has its own financial or strategic justification and so, each deal is different.

[Operator Instructions] And at this time, we have no other questions registered. Please proceed with closing remarks.

Again, thank you for joining us today. Our business is fundamentally strong, and we feel we are poised to take advantage of our momentum. We have a strong backlog of work and a talented team to go performance. I'm looking forward to what we have ahead of us as we head into the construction season. We are focused on working safely, continually improving our margins and delivering long-term profitable growth for our investors. We appreciate the interest and support, and we'll now turn the call back over to the operator. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. At this time, we ask that you please disconnect your lines. Enjoy the rest of your day.