Knife Riv Holding Co. · NYSE:KNF
Knife Riv — Knife River — Investor Day (May 2023)
62 slides from Knife Riv's investor day presentation, May 18, 2023
Slide 1: Investor Day
COMPETITIVE Investor Day May 18, 2023
Slide 2: Forward Looking Statements
Forward Looking Statements Certain statements and information in this presentation may constitute forward-looking statements. These forward-looking statements include, without limitation, statements concerning plans, objectives, goals, projections, strategies, future events or performance, and under
Slide 3: Agenda
Agenda Section Speakers Dave Goodin Welcome and Introductions President and Chief Executive Officer of MDU Resources Knife River’s EDGE Brian Gray Long-Term Value Creation Plan President and Chief Executive Officer Sarah Stevens Glenn Pladsen Life at Knife: Our Core Values Director of Human VP of Su
Slide 4: Welcome and Introductions
WELCOME AND INTRODUCTIONS 10 4
Slide 5: Knife River as an Independent Public Company
Knife River as an Independent Public Company EXECUTION Enhanced focus and accountability Strategic flexibility for FLEXIBILITY long-term value creation CAPITAL Disciplined and optimized ALLOCATION capital allocation Highly qualified executive team – MANAGEMENT average experience of 26 years BOARD De
Slide 6: Highly Qualified Board of Directors
Highly Qualified Board of Directors EXPERIENCED AND DIVERSE BOARD Karen Fagg (Chair) Brian Gray ▪ Former Vice President of DOWL HKM; ▪ President and CEO of Knife River Former Chair, CEO, and majority owner of HKM Engineering Inc. German Carmona Alvarez Patricia Moss ▪ Global President of Applied Int
Slide 7: Experienced Board and Strong Governance Practices
Experienced Board and Strong Governance Practices Board and governance practices establish a framework to ensure the effective oversight of strategic objectives following Knife River’s separation from MDU Resources Board and Governance Practices ✓ Highly qualified directors with deep institutional,
Slide 8: Long-Tenured Leadership Team With Exceptional Industry Knowledge
Long-Tenured Leadership Team With Exceptional Industry Knowledge STRONG, EXPERIENCED MANAGEMENT TEAM Brian Gray Karl Liepitz President and Chief Executive Officer Vice President, Chief Legal Officer, and ▪ 30 years at Knife River Secretary ▪ Former President of Knife River’s Northwest ▪ 19+ years at
Slide 9: Knife River's EDGE: Long-Term Value Creation Plan
KNIFE RIVER’S EDGE: LONG-TERM VALUE CREATION PLAN 4
Slide 10: Our History of Execution and Growth
Our History of Execution and Growth 1992: Acquired first aggregate site 2022: Announced spin off from MDU Resources 2008: Introduced Knife River branding 2023: Future of Independent Knife River Build to Scale Operational Sustainable EDGE Excellence Growth 1992 – 2007 2008 – 2017 2018 – 2022 2023 + E
Slide 11: Framework for Long-Term Shareholder Value Creation
Framework for Long-Term Shareholder Value Creation EBITDA Margin Discipline Growth Excellence Improvement EDGE 2025 Expectations Strong and Balanced Revenue Growth Significant Adj. EBITDA Margin Expansion Increasing Mix of Aggregates ~15% by 2025 Attractive Cash Flow Generation Sustain/Improve Indus
Slide 12: Today's Key Messages
Today’s Key Messages 1 Established company that is well positioned for profitable growth in an attractive industry 2 Aggregates-led, vertically integrated business model contributes to resiliency and industry- leading ROIC 3 Experienced leadership team with strong track record committed to executing
Slide 13: Attractive Industry with Structural Growth Drivers
Attractive Industry with Structural Growth Drivers US AGGREGATES VOLUMES1 US AGGREGATES VALUES1 (in mmT) (in mm USD) 3,500 100 $35,000 $800 90 Knife River Aggregates Volume 3,000 $700 Knife River Aggregates Revenue $30,000 Total US Aggregates Volume 80 Total US Aggregates Value 2,500 $600 70 $25,000
Slide 14: Further Upside from Approved Funding
Further Upside from Approved Funding INFRASTRUCTURE INVESTMENT AMERICAN RESCUE PLAN ACT STATE-LEVEL FUNDING AND JOBS ACT (IIJA) (ARPA) 11 of the 14 states where Knife River Amount for infrastructure ~$1.2trn ~$194bn operates have implemented new funding mechanisms for public projects New funding Tot
Slide 15: Leading Integrated Materials and Services Provider
Leading Integrated Materials and Services Provider Strong Competitive Position in Attractive High Growth Mid-sized Markets Top 101 US aggregates producer 3 3 Majority of Revenue from 3 our No. 1 markets2,3 75%+ 50%+ of Aggregate of Downstream Revenues Materials Revenues 70% of revenue from states gr
Slide 16: Strong Presence in Attractive High-Growth Markets
Strong Presence in Attractive High-Growth Markets 10-YR POPULATION CAGR OF STATES THAT KNIFE RIVER OPERATES IN (‘12–’22) 10-YR GROSS STATE PRODUCT2 CAGR (‘11–’21) State ’12–’22 population CAGR1 % of 2022 gross revenue 3.0% Idaho 2.0% 11% Texas 1.4% 7% 2.1% 1.6% Washington 1.2% - Comprises Montana 1.
Slide 17: Regional Overview
Regional Overview North Pacific Northwest Mountain All Other1 Company Central 2022 Revenue $469 MM $600 MM $542 MM $608 MM $353 MM $2,535 MM 23% 37% 44% 43% 18% 38% Business Mix 63% 57% 56% 77% 82% 62% Materials Contracting Services 2022 EBITDA 11.9% 17.3% 13.4% 10.7% 2.7% 11.7%2 Margin 3-yr Avg. EB
Slide 18: Differentiated Strategy for Attractive Returns and Profitable Growth
Differentiated Strategy for Attractive Returns and Profitable Growth BUSINESS STRATEGY RESERVES VERTICAL INTEGRATION CHOICE OF MARKETS ✓ High quality reserves in key fast- ✓ We are a ‘vendor of choice’ because ✓ Mid-sized, high-growth markets growing markets of our ability to deliver end-to-end ✓ Ta
Slide 19: Creating Value Through Vertical Integration
Creating Value Through Vertical Integration Reliable supply of high- ▪ Strategic high-quality reserves in key markets with above average population growth Aggregates quality materials and ▪ 75%+ of revenues from markets where we have No. 1 share1 services, a key (16%) ▪ Leading operational and logis
Slide 20: Diversified, Resilient, and Flexible with Attractive ROIC
Diversified, Resilient, and Flexible with Attractive ROIC INCREASING SCALE AND MARKET LEADERSHIP FOR PROFITABLE GROWTH 2022 Revenue 2022 EBITDA1 2022 Backlog2 $2,535 MM $296 MM $819 MM 5-Year Revenue CAGR3 5-Year EBITDA CAGR4 3-Year Average ROIC5 6.9% 10.5% 12.9% Geography Product Customer Concentra
Slide 21: Framework for Long-Term Shareholder Value Creation
Framework for Long-Term Shareholder Value Creation EBITDA Margin Discipline Growth Excellence Improvement Price increases: Focus and Commitment: Organic: Maintain best-in-class status: ▪ Optimize value of ▪ Companywide focus on ▪ Reinvest where we high-quality products executing with urgency are get
Slide 22: Northwest Region Provides Proven Roadmap to Execute our EDGE Plan
Northwest Region Provides Proven Roadmap to Execute our EDGE Plan Execution of the pre-EDGE “PLAN-GROW-ENJOY” Revenue1 EBITDA1 strategy led to rapid profitable growth and strong ROIs serving as an exemplary model for the EDGE plan $600.2 $103.9 EDGE - Key Expected Drivers: ▪ Deliver strong growth fr
Slide 23: Tailwinds and Expected EDGE Drivers by Region
Tailwinds and Expected EDGE Drivers by Region PACIFIC MOUNTAIN 2022 Revenue Mix1 2022 Revenue Mix1 16.2% Aggregates 12.8% Aggregates 32.2% 56.5% Ready Mix 16.4% Ready Mix Asphalt Asphalt 22.5% Contracting Services Contracting Services 22.8% Other 14.3% Other 6.3% Strong economic tailwinds: Strong ec
Slide 24: Tailwinds and Expected EDGE Drivers by Region (Cont'd)
Tailwinds and Expected EDGE Drivers by Region (Cont’d) NORTH CENTRAL ALL OTHER 2022 Revenue Mix1 2022 Revenue Mix1 3.1% 13.4% 11.9% Aggregates Aggregates 46.8% 19.6% Ready Mix 14.9% Ready Mix Asphalt Asphalt Contracting Services Contracting Services 6.8% 43.9% Other Other 21.5% 18.1% Strong economic
Slide 25: EDGE: Key Value Creation Priorities
EDGE: Key Value Creation Priorities Price Alignment ▪ Price increases to align with higher costs driven by inflation, and value of products & services ▪ Increase use of technology to be highly selective and sophisticated in bidding to optimize our vertically integrated business model Operational Imp
Slide 26: Life at Knife: Our Core Values / Environment, Social, and Governance
LIFE AT KNIFE: OUR CORE VALUES ENVIRONMENT, SOCIAL, AND GOVERNANCE 38
Slide 27: Experienced Leadership Committed to Core Life at Knife Values
Experienced Leadership Committed to Core "Life at Knife" Values LIFE AT KNIFE CORE VALUES PEOPLE SAFETY QUALITY ENVIRONMENT ▪ Experienced Board ▪ Commitment to team ▪ Product and Service ▪ Recycling of Directors Quality ▪ Fleet ▪ Fuel conservation ▪ People-First: ▪ Process Quality “Life at Knife” ▪
Slide 28: People-First Company
People-First Company LIFE AT KNIFE ▪ "Life at Knife" is our common language and how we live our values ▪ People-first means success depends on each other ▪ Coaching philosophy ▪ Care ▪ Communication ▪ Consistency ▪ Challenge ▪ Commitment ▪ Culture ▪ Communicating ▪ “My Life at Knife” discussions ▪ L
Slide 29: Retention: Competitive Advantage
Retention: Competitive Advantage Annualized Turnover by Year Annualized Turnover by Year LOWER TURNOVER LEADS TO HIGHER PRODUCTIVITY Annualized Knife River US Total Private Mining/Logging Construction Turnover by Year 2017 31% 43% 48% 48% 62% 2018 31% 44% 49% 55% 58% 2019 30% 45% 50% 48% 65% 2020 28
Slide 30: Diversity and Recruitment
Diversity and Recruitment MORE PERSPECTIVES, BETTER IDEAS, BETTER RESULTS ▪ One Team: Stronger Together ▪ Partnership with National Association of Minority Contractors ▪ Exceed AAP benchmarks ▪ Committing to disclose EEO-1 data Employees Knife River US Benchmark Females 11.9% 6.9% Diversity Outreach
Slide 31: Diversity and Recruitment (Cont'd)
Diversity and Recruitment (Cont’d) RECRUITMENT ▪ Able to assemble best team possible hiring from strong applicant pool ▪ Hired 1,669 people in 2022; 420 in Q1 2023 ▪ Life at Knife brand & social media promotion ▪ Employee referral program ▪ Internships & Externships ▪ Career Expos ▪ High school and
Slide 32: Training
Training CLASSROOM EDUCATION + HANDS-ON LEARNING Increasing & 80,000ft² 16,000ft² Accredited Available to Diversifying CLASSROOM heated indoor EDUCATION + HANDS-ONReal-World office, classroom LEARNING CDL Training Third-Party Environment Construction arena and lab facility School Companies Workforce
Slide 33: Commitments to Safety and Culture
Commitments to Safety and Culture Our team is at the heart of everything we do. We invest in our employees with an active focus on safety. BUILDING A CULTURE OF SAFETY ▪ We invest in retaining and developing current employees, and recruiting new and diverse talent ▪ Focused on being an industry lead
Slide 34: Quality in All We Do
Quality in All We Do QUALITY WORK IS A COMPETITIVE ADVANTAGE Product quality Customer service Construction equipment that meets/exceeds specifications and customer expectations Top Drum Program and trucks Recruitment, Recognition Plants and job sites onboarding, coaching, In 2022, received the Liber
Slide 35: Sustainability is Integrated into our Strategy
Sustainability is Integrated into our Strategy Sustainable practices are closely integrated into our business strategy, driving competitive advantages and having a positive impact in the communities where we live and work. Recycling: Over last three years, recycled an average of 909,385 tons of asph
Slide 36: Sustainability Across the Supply Chain
Sustainability Across the Supply Chain Supporting our industry partners on lower carbon solutions. Knife River partners with suppliers ▪ Cement manufacturers producing type 1L cement ▪ Equipment manufacturers focused on hybrid construction equipment ▪ Renewable diesel becoming available Knife River
Slide 37: Financial Results and Outlook
FINANCIAL RESULTS AND OUTLOOK 47 37
Slide 38: Financial Highlights
Financial Highlights Track Record of Strong and Balanced Growth Resilient and Integrated Portfolio Across a Diversified Base of Operations Disciplined Capital Allocation Driving Growth and Long-term Value Creation Focused on Margin Expansion With Well-Defined Path To Achievement Compelling Guidance
Slide 39: Track Record of Strong and Balanced Growth
Track Record of Strong and Balanced Growth REVENUE ($MM) ADJ. EBITDA ($MM)2 Revenue1 Intercompany sales $3,129 $296 $2,716 $2,729 $2,730 $287 $278 $2,392 594 $240 526 551 501 466 $185 2,229 2,535 1,926 2,191 2,178 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 CAPEX ($MM) CASH FLOW ($MM)3 $174 $1
Slide 40: Vertically Integrated and Diversified Portfolio
Vertically Integrated and Diversified Portfolio GROSS REVENUE MIX (2022) COMMENTARY Geography Customer Concentration ▪ Strong position in attractive high- All Other 14% Top 15 North Central customers growth mid-sized markets 23% 20% ▪ Integrated model makes us Pacific 18% resilient through down cycl
Slide 41: Designed for Resilience Across Cycles
Designed for Resilience Across Cycles Strategically diversified customer base and business mix to ensure resilience through down cycles REVENUE GROWTH, PEAK TO TROUGH (2007-2012)1 EBITDA MARGIN, PEAK TO TROUGH (2007-2012)1 Knife River Peer Group Median Knife River Peer Group Median (480)bps (18%) (2
Slide 42: Disciplined and Balanced Capital Allocation to Maximize Long-Term Value Creation
Disciplined and Balanced Capital Allocation to Maximize Long-Term Value Creation Disciplined Investment for Sustainable Growth Organic Growth Inorganic Growth Portfolio Optimization Leverage & Liquidity ▪ Invest for growth to create ▪ Highly selective ▪ Divest or swap assets to ▪ Target average net
Slide 43: Established Framework for Investment
Established Framework for Investment EFFECTIVE ‘PLAYBOOK’ FOR PROFITABLE GROWTH Disciplined Approach Focused on strategic, attractively valued acquisitions and investments for market leadership Returns Focus Prioritize acquisitions and investment to achieve high returns on invested capital Utilize r
Slide 44: Industry-Leading Returns on Invested Capital
Industry-Leading Returns on Invested Capital Disciplined capital allocation to sustain attractive industry leading ROICs 3-YEAR AVERAGE ROIC (2020-2022) 12.9% 10.5% 7.2% Peer Range 2.7% Knife River Peer Group Median Source: Company filings. Note: Peers used for comparison: Construction Partners, Gra
Slide 45: Overcoming Inflation & EDGE in Action
Overcoming Inflation & EDGE in Action Inflation has been a significant headwind for the industry ▪ Recent inflationary pressures have increased cost of raw materials by over 10% relative to historical average annual increases of ~3%, creating a material headwind to profitability ▪ Our actions to mit
Slide 46: Overcoming Inflation & EDGE in Action (Cont'd)
Overcoming Inflation & EDGE in Action (Cont’d) Our decisive actions have resulted in margins inflecting upward CONTRACTING SERVICES TOTAL BACKLOG ($MM) CONSOLIDATED EBITDA MARGIN1 $959 12.5% 12.2% $778 9.5% $665 Q1 '21 Q1 '22 Q1 '23 Q4 '20 Q4 '21 Q4 '22 ▪ Record Backlog in Q1 2023 and has increased
Slide 47: Reiterating Our 2023 Guidance
Reiterating Our 2023 Guidance KEY EXPECTED DRIVERS INCOME STATEMENT GUIDANCE REVENUE Price Strategy to Align with Costs and Value of Products/Services $2.5 BN – $2.7 BN EBITDA Operational Discipline – Targeted Bid $300 MM – $350 MM Strategy, Cost Focus CASH USAGE Select Infrastructure Tailwinds Reco
Slide 48: EDGE: Our 2025 Targets & Long-term Vision
EDGE: Our 2025 Targets & Long-term Vision 20% ~15% Adjusted EBITDA Margin 11.7% 2022 2025 Guidance Long-Term Vision 5-7% of Capex $178 MM ~$170 MM Revenue EDGE: KEY NEAR-TERM DRIVERS KEY ASSUMPTIONS ▪ Pricing Strategy ▪ Increasing mix of aggregates relative to 2022 ▪ Targeted Bid Strategy ▪ Normal e
Slide 49: Closing Remarks
CLOSING REMARKS 4 49
Slide 50: Today's Key Messages
Today’s Key Messages 1 Established company that is well positioned for profitable growth in an attractive industry 2 Aggregates-led, vertically integrated business model contributes to resiliency and industry- leading ROIC 3 Experienced leadership team with strong track record committed to executing
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Slide 52: Appendix
APPENDIX 10 52
Slide 53: Today's Speakers
Today’s Speakers Dave Goodin President and Chief Executive Officer of MDU Resources Brian Gray President and Chief Executive Officer Sarah Stevens Director of Human Resources Glenn Pladsen VP of Support Services Nathan Ring Chief Financial Officer 53
Slide 54: Regional Presidents
Regional Presidents Steve Essoyan Andy Cramer Pacific North Central 39+ yrs. Experience at Knife River 16+ yrs. Experience at Knife River Stratos Flanders Bob Kober Northwest All Other (South) 17+ yrs. Experience at Knife River 28+ yrs. Experience at Knife River David Zinke Bob Cheever Mountain All
Slide 55: Ongoing Disclosure for Transparent Execution
Ongoing Disclosure for Transparent Execution DISCLOSURES BY REGION AGGREGATES OTHER Aggregate Number of Total Annual Ready-Mix Plants Asphalt Plants Project Mix in Backlog Reserves (tons) Aggregate Sites Aggregates Production Contracting Services DISCLOSURES ON COMPANYWIDE BASIS AGGREGATES CONCRETE
Slide 56: Regional Details
Regional Details PACIFIC REGION NORTHWEST REGION FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE 2022 2020-2022 2022 2020-2022 Revenue $469mm 1.6% CAGR Revenue $600mm 20.1% CAGR Gross Margin 14.5% 17.2% AVG. Gross Margin 17.7% 18.4% AVG. EBITDA Margin 11.9% 15.0% AVG. EBITDA Margin 17.3% 17.3% AVG. REVE
Slide 57: Regional Details (Cont'd)
Regional Details (Cont’d) MOUNTAIN REGION NORTH CENTRAL REGION FINANCIAL PERFORMANCE FINANCIAL PERFORMANCE 2022 2020-2022 2022 2020-2022 Revenue $542mm 9.6% CAGR Revenue $608mm 3.2% CAGR Gross Margin 14.3% 14.3% AVG. Gross Margin 11.8% 13.4% AVG. EBITDA Margin 13.4% 12.9% AVG. EBITDA Margin 10.7% 12
Slide 58: All Other Region
Regional Details (Cont’d) ALL OTHER REGION FINANCIAL PERFORMANCE 2022 2020-2022 Revenue $353mm 4.1% CAGR Gross Margin 10.6% 13.0% AVG. EBITDA Margin 2.7% 4.6% AVG. REVENUE MIX (2022)1 13.4% 46.8% Aggregates 14.9% Ready Mix Asphalt 6.8% Contracting Services Other 18.1% Note: Pie chart numbers are rou
Slide 59: Non-GAAP Financial Guidance
Non-GAAP Financial Guidance Our forward-looking guidance for EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures that exclude or otherwise have been adjusted for special items from our U.S. GAAP financial statements. We are unable to reconcile forward-looking non-GAAP guidance measures
Slide 60: Non-GAAP EBITDA Reconciliation
Non-GAAP EBITDA Reconciliation (in thousands, except for margin values) Pro Forma Historical Twelve Months Ended Dec 31, 2022 2022 2021 2020 2019 2018 Net income $72,916 $116,220 $129,755 $147,325 $120,371 $92,647 Adjustments: Income taxes 26,503 42,601 43,459 47,431 37,389 28,357 Depreciation, depl
Slide 61: Non-GAAP Cash Flow Reconciliation
Non-GAAP Cash Flow Reconciliation (in thousands) Pro Forma Historical Twelve Months Ended Dec 31, 2022 2022 2021 2020 2019 2018 Adjusted EBITDA $296,423 $296,423 $277,759 $287,300 $240,229 $184,976 Capital Expenditure 178,162 178,162 174,229 135,860 154,260 90,613 Cash Flow $118,261 $118,261 $103,53
Slide 62: Non-GAAP Return On Invested Capital (ROIC) Reconciliation
Non-GAAP Return On Invested Capital (ROIC) Reconciliation (in thousands, except for ROIC value) Historical Twelve Months Ended Dec 31, 2022 2021 2020 Operating Income 194,295 191,077 214,498 Dis-synergy costs (16,991) (16,991) (16,991) Operating Income post dis-synergies $177,304 $174,086 $197,507 A