Knife River Corp (KNF)

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). Forward-looking statements are all statements other than statements of historical fact, including without limitation those statements that are identified by the words "anticipates," "estimates," "expects," "intends," "plans," "predicts" and similar expressions, and include statements concerning plans, projections, objectives, goals, strategies, future events or performance, and underlying assumptions (many of which are based, in turn, upon further assumptions) and other statements that are other than statements of historical facts. From time to time, Knife River Corporation ("Knife River," the "Company," "we," "our," or "us") may publish or otherwise make available forward-looking statements of this nature, including statements related to strategic initiatives aimed at generating long-term profitable growth, shareholder value creation, expected long-term goals, expected backlog margin, acquisitions, financing plans, expected federal and state funding for infrastructure or other proposed strategies.

Forward-looking statements involve risks and uncertainties, which could cause actual results or outcomes to differ materially from those expressed. Our expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis, including without limitation, management's examination of historical operating trends, data contained in our records and other data available from third parties. Nonetheless, our expectations, beliefs or projections may not be achieved or accomplished and changes in such assumptions and factors could cause actual future results to differ materially.

Any forward-looking statement contained in this document speaks only as of the date on which the statement is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events, except as required by law. New factors emerge from time to time, and it is not possible for management to predict all the factors, nor can it assess the effect of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement. All forward-looking statements, whether written or oral and whether made by or on behalf of our Company, are expressly qualified by the risk factors and cautionary statements reported in the section entitled "Item 1A. Risk Factors" in Part I of the Company's 2025 Annual Report on Form 10-K (Annual Report) and subsequent filings with the United States Securities and Exchange Commission (SEC).

Company Overview

At Knife River, we are a people-first construction materials and contracting services company. We provide construction materials and contracting services to build safe roads, bridges, airport runways and other critical infrastructure needs that connect people with where they want to go and with the supplies they need. We also champion a positive workplace culture by focusing on safety, training, compensation and work-life balance.

We are one of the leading providers of crushed stone and sand and gravel in the United States and operate through four reportable segments across 15 states: West, Mountain, Central and Energy Services. The geographic segments primarily provide aggregates, asphalt and ready-mix concrete, as well as related contracting services such as heavy-civil construction, asphalt paving, concrete construction, site development and grading. The Energy Services segment produces and supplies liquid asphalt and related services, primarily for use in asphalt road construction.

As an aggregates-based construction materials and contracting services company, we have 1.3 billion tons of aggregate reserves supporting our vertically integrated business strategy. About 35 percent of these aggregates are used internally to support value-added downstream products like ready-mix concrete and asphalt, as well as contracting services such as heavy-civil construction, asphalt paving, concrete construction, bridges and in some segments the manufacturing of prestressed concrete products. Our strategically located aggregate sites and associated asphalt and ready-mix plants near mid-sized, higher-growth markets offer transportation advantages, enabling competitive pricing and higher margins. We serve both public and private markets, with public projects making up most of our work and providing stability through economic cycles, which helps offset the cyclical nature of the private markets.

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We provide various products and services and operate a variety of facility types, including aggregate quarries and mines, ready-mix concrete plants, asphalt plants and distribution facilities, in the following states:

•West: Alaska, California, Hawaii, Oregon and Washington

•Mountain: Idaho, Montana, Utah and Wyoming

•Central: Iowa, Minnesota, North Dakota, South Dakota and Texas

•Energy Services: California, Iowa, Nebraska, Oregon, South Dakota, Texas, Washington and Wyoming

The following table presents a summary of products and services provided, as well as modes of transporting those products:

Market Conditions and Outlook

Federal and state funding remains strong for a majority of our markets with approximately 80 percent of our historical contracting services revenue each year coming from public-sector projects, enhancing stability through market cycles. For more information on factors that may negatively impact our business, see the section entitled "Item 1A. Risk Factors" in Part I of the Company's 2025 Annual Report.

Backlog. Our contracting services backlog was as follows:

Expected margins on backlog at June 30, 2026, were slightly lower compared to the expected margins on backlog at June 30, 2025. Of the $1.2 billion of backlog at June 30, 2026, we expect to complete approximately $984 million in the 12 months following June 30, 2026. Approximately 85 percent of our backlog at June 30, 2026, is related to publicly funded projects, including street and highway construction projects, which are driven primarily by public works projects for state departments of transportation (DOT). Further, there continues to be infrastructure development, as discussed in the following section on Public Funding, which is expected to continue to provide bidding opportunities in our markets.

Period-over-period increases or decreases in backlog may not be indicative of future revenues, margins, net income or earnings before interest, taxes, depreciation, depletion and amortization (EBITDA). See the section entitled “Item 1A. Risk Factors” in Part I of the Company's 2025 Annual Report for a list of factors that can cause revenues to be realized in periods and at levels that are different from originally projected.

Public Funding. Funding for public projects is dependent on federal and state funding, such as appropriations to the Federal Highway Administration. Currently, states have continued moving forward with allocating funds from federal programs, such as the Infrastructure Investment and Jobs Act (IIJA), which is authorized to provide $1.2 trillion in funding from 2022 through September 30, 2026. As of May 2026, approximately 38 percent of IIJA formula funding had yet to be spent in our 15 state operating market. While each market is unique, the DOT budgets in most of the states where we operate remain strong. Eleven of our 15 states have record DOT budgets for the 2026 fiscal year, representing a combined 15 percent increase over 2025.

In 2025, the American Society of Civil Engineers published its 2025 Report Card for America's Infrastructure, assigning the United States roads a "D+" grade and estimating that between 2024 and 2033, the country will require more funding than what is currently authorized. It is estimated that a total of $2.2 trillion in funding will be needed for our roadway systems to reach a state of good repair during that time period.

Profitability. The management team consistently monitors profit margins and has adopted a proactive approach in supporting long-term profitability objectives and creating shareholder value. In 2023, we launched our EDGE initiatives and established specialized

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teams to deliver training, support higher-margin bidding opportunities across regions and pursue targeted growth opportunities. Process Improvement Teams ("PIT Crews") have focused on improving operational efficiencies, reducing production costs across our materials product lines and optimizing product quality. In addition, we are rolling out new technologies designed to increase productivity and provide enhanced, real-time visibility into daily operations.

We are subject to downward pressure on our margins due to competitive market dynamics and fluctuations in the prices of raw materials, including diesel fuel, gasoline, natural gas, liquid asphalt, cement and steel. We are experiencing competitive market dynamics, primarily within contracting services, which is resulting in projects being more competitively bid and in turn compressing our contracting services margins.

To counteract the effects of raw material price fluctuations, we have utilized various mitigating strategies, such as dynamic pricing; energy escalation clauses in our contracting services contracts; securing materials in advance including the prepurchasing of diesel; fuel surcharges and pursuing other cost-saving measures. Energy escalation adjustments within contracting services are often subject to a recognition delay of a few months and are not reflected immediately in our results of operations. During the first half of 2026, our teams were successful with these mitigating controls, however, our results of operations were still impacted, largely as a result of the timing of contract billings. We will continue to monitor the effects these economic conditions have on our business.

Pursuing our strategic growth goals through targeted acquisitions is expected to drive an increase in selling, general and administrative expenses on a year-over-year basis. In the initial year of an acquisition, additional payroll-related costs associated with the acquired company, third-party consulting commitments, and newly recognized intangible assets contributing to elevated amortization expense are all anticipated. Upon complete integration of the acquired entities, operational synergies with our existing business can be realized, generating cost efficiencies.

Growth. Our management team continues to evaluate growth opportunities, both through organic growth and acquisitions they believe will generate shareholder value. Our business development team is

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read together with our audited consolidated financial statements and related notes included elsewhere in this Annual Report. Among other things, those financial statements include more detailed information regarding the basis of presentation for the financial data included in the following discussion. Certain percentages presented in this discussion and analysis are calculated from the underlying whole-dollar amounts and therefore may not recalculate from the rounded numbers used for disclosure purposes. This discussion contains forward-looking statements about our business, operations and industry that involve risks and uncertainties, such as statements regarding management’s plans, objectives, expectations and intentions. Future results and financial condition may differ materially from those currently anticipated as a result of the factors described under the sections entitled “Forward-Looking Statements” and “Item 1A. Risk Factors.”

Overview

At Knife River, we are a people-first construction materials and contracting services company. We provide construction materials and contracting services to build safe roads, bridges and airport runways, and other critical infrastructure needs that connect people with where they want to go and with the supplies they need. We also champion a positive workplace culture by focusing on safety, training, compensation and work-life balance.

We are one of the leading providers of crushed stone and sand and gravel in the United States and operate through four reportable segments, across 14 states: West, Mountain, Central and Energy Services. The geographic segments primarily provide aggregates, asphalt and ready-mix concrete, as well as related contracting services such as heavy-civil construction, asphalt paving, concrete construction, site development and grading. The Energy Services segment produces and supplies liquid asphalt and related services, primarily for use in asphalt road construction.

As an aggregates-based construction materials and contracting services provider in the United States, our 1.3 billion tons of aggregate reserves provide the foundation for a vertically integrated business strategy, with approximately 35 percent of our aggregates in 2025 being used internally to support value-added downstream products (ready-mix concrete and asphalt) and contracting services (heavy-civil construction, laydown, asphalt paving, concrete construction, site development and grading services, bridges, and in some segments the manufacturing of prestressed concrete products). Our aggregate sites and associated asphalt and ready-mix plants are primarily in strategic locations near mid-sized, higher-growth markets, providing us with a transportation advantage for our materials that supports competitive pricing and increased margins. We provide our products and services to both public and private markets, with public markets tending to be more stable across economic cycles, which helps offset the cyclical nature of the private markets.

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We provide various products and services and operate a variety of facility types, including aggregate quarries and mines, ready-mix concrete plants, asphalt plants and distribution facilities in the following states:

•West: Alaska, California, Hawaii, Oregon and Washington

•Mountain: Idaho, Montana and Wyoming

•Central: Iowa, Minnesota, North Dakota, South Dakota and Texas

•Energy Services: California, Iowa, Nebraska, Oregon, South Dakota, Texas, Washington and Wyoming

The following table presents a summary of products and services provided, as well as modes of transporting those products:

Basis of Presentation

On May 31, 2023, we became a stand-alone publicly traded company. Prior to the Separation, we operated as a wholly owned subsidiary of Centennial and an indirect, wholly owned subsidiary of MDU Resources and not as a stand-alone company. The financial statements for all periods are presented on a consolidated basis in conformity with GAAP. All intercompany balances and transactions between the businesses comprising Knife River have been eliminated in the accompanying audited consolidated financial statements. For additional information related to the basis of presentation, see Item 8 - Note 1.

In January 2025, we made a change to our organizational structure to better align with our business strategy. We reorganized our business segments to reflect changes in the way our chief operating decision maker evaluates performance, makes operating decisions and allocates resources. Our former Pacific and Northwest operating segments were combined to form the new West operating segment. Our former North Central and South operating segments were combined to form the new Central operating segment. The reorganization resulted in four operating segments: West, Mountain, Central and Energy Services, each of which is also a reportable segment. Each segment’s performance is evaluated based on segment results without allocating corporate expenses, which include corporate costs associated with accounting, legal, treasury, business development, information technology, human resources, and other corporate expenses that support the operating segments. Prior periods have been recast to conform to the current reportable segment presentation.

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Market Conditions and Outlook

Our markets remain resilient, and construction activity remains generally strong. Approximately 80 percent of our contracting services revenue each year comes from public-sector projects, enhancing stability through market cycles. For more information on factors that may negatively impact our business, see the section entitled "Item 1A. Risk Factors."

Backlog. Contracting services backlog was as follows as of December 31:

Backlog as of December 31, 2025, was 38 percent percent higher than the prior period with lower expected margins. Of the $1.0 billion of backlog at December 31, 2025, we expect to complete an estimated $768.8 million, or 75 percent, during 2026. Approximately 89 percent of our backlog as of December 31, 2025, relates to publicly funded projects, including street and highway construction projects, which are driven primarily by public works projects for state departments of transportation. Further, there continues to be infrastructure development across our segments, which is expected to provide bidding opportunities in our markets throughout 2026.

Period-over-period increases or decreases in backlog may not be indicative of future revenues, margins, net income or EBITDA. For a discussion of EBITDA and EBITDA margin, see “Non-GAAP Financial Measures” later in this section. While we believe the current backlog of work remains firm, prolonged delays in the receipt of critical supplies and materials, among other things, could result in customers seeking to delay or terminate existing or pending agreements and could reduce expected margins. See the section entitled “Item 1A. Risk Factors” for a list of factors that can cause revenues or margins to be realized in periods and at levels that are different from originally projected.

Public Funding. Funding for public projects is dependent on federal and state funding, such as appropriations to the Federal Highway Administration. States have moved forward with allocating funds from federal programs, such as the IIJA, which is authorized to provide $1.2 trillion in funding from 2022 through 2026. As of November 2025, approximately 46 percent of IIJA formula funding had yet to be distributed in our 14-state operating market.

Additionally, DOT budgets in most of the states where we operate remain strong, with ten of our 14 states having record DOT budgets going into the 2026 fiscal year. The North Dakota DOT’s estimated bid lettings for their 2026 construction program is between $745 million and $810 million, which is a significant increase over their 2025 bid lettings of $345 million. We have already seen our contracting services backlog increase in North Dakota, year-over-year, and expect more work yet to bid. Oregon is the one Knife River state that has not finalized its budget for the current biennium, however, their budget has been legislatively approved and is expected to be approximately $6 billion, just short of the record funding from the previous biennium. The Oregon DOT expects its 2026 asphalt paving volumes will be comparable to 2025. We continue to monitor legislative activity in all of our states as they address their infrastructure needs.

In early 2025, the American Society of Civil Engineers published its 2025 Report Card for America's Infrastructure, assigning the United States roads a "D+" grade and estimating that between 2024 and 2033, the country will require more funding than what is currently authorized. It is estimated that a total of $2.2 trillion in funding will be needed for our roadway systems to reach a state of good repair during that time period.

Profitability. Our management team continually monitors our margins and has been proactive in applying strategies to increase margins to support our long-term profitability goals and to create shareholder value. In 2023, we began implementing EDGE initiatives and established teams to deliver training, assist with targeting higher-margin bidding opportunities across the regions and pursue growth opportunities, as well as identifying ways to

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increase efficiencies and reduce costs. The Materials Process Improvement Team (Materials PIT Crew) has rolled out new technologies and training programs to boost productivity and control costs across the product lines and provide more real-time visibility into daily operations.

Under the current tariff environment, we did not experience a material direct impact in 2025. We have clauses in most of our quotes that allows for us to pass-through increased costs associated with tariffs to our customers, and to date, we have been substantially successful with passing those costs on. We continue to closely monitor the effects and changes to these announcements.

Growth. Our management team continues to evaluate growth opportunities, both through organic growth and acquisitions they believe will generate shareholder value. Our business development team is focused on our growth with materials-led businesses in mid-size, higher-growth markets, and has several targets at various stages of completion in our acquisition pipeline. In 2025, we successfully completed the acquisition and integration of five companies expanding our footprint within existing markets, which was an investment of $611.7 million. As a result of these acquisitions, we added approximately 30 years of aggregate reserves, 29 ready-mix plants, 5 asphalt plants and a fleet of equipment and vehicles, as well as skilled construction, materials production and delivery professionals. We expect the additions made to our company in 2025 will provi

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