Knife River Corp (KNF) Q4 2023 Earnings Call Transcript

Good afternoon, ladies and gentlemen, and welcome to the Knife River Corporation Fourth Quarter and Full Year 2023 Results Conference Call. This call is being recorded on Thursday, February 15, 2024. I would now like to turn the conference over to Nathan Ring, Chief Financial Officer of Knife River. Please go ahead.

Thank you, operator, and welcome to everyone joining us for the Knife River Corporation fourth quarter and full year 2023 results conference call. My name is Nathan Ring, Chief Financial Officer of Knife River, and I'm joined by President and CEO Brian Gray. Today's discussion will contain forward-looking statements about future business 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 Securities and Exchange Commission's website. Except as required by law, we undertake no obligation to update our forward-looking statements. During this presentation, we will make reference to certain non-GAAP information. These non-GAAP measures are defined and reconciled to the most directly GAAP measures in the appendix to today's presentation, as well as our filings with the SEC. These materials are also available on our website at www.kniferiver.com under the Investors tab. Brian Gray will begin today's call with a high-level overview of our fourth quarter and full year 2023 results, followed by an update on our strategic priorities as outlined within our competitive EDGE plan. Following his prepared remarks, I will provide a product line summary, a balance sheet update, and a review of 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. I'm excited to talk about our record year, our strategic priorities for continued profitable growth, and what we see ahead in 2024. We reached all-time annual records in 2023 for revenue, net income, EBITDA, and adjusted EBITDA. I'm incredibly proud of our team for safely delivering these impressive results, including revenue of $2.8 billion and adjusted EBITDA of $432 million. Each of our reporting segments saw improved year-over-year revenue and EBITDA as we benefited from strong markets, operational execution, and strategic efforts to optimize prices and improve margins. Combined, these efforts drove our adjusted EBITDA margins to 15.3% for 2023, an improvement of 280 basis points. We are very pleased to have surpassed our initial goal of 15% margins, a full two years ahead of schedule. Doing so is a testament to the strength of our team, the strength of our business, and the strength of our markets. While we certainly enjoy the moment and the milestone, we are now focused on our longer-term goal of 20% plus EBITDA margins. On our past two quarterly calls, I highlighted the early successes from our new competitive EDGE strategy, and I'll discuss drivers from that strategy again today. We believe our EDGE plan will continue to improve our adjusted EBITDA margins and deliver long-term value for our shareholders. Turning to Slide 4, we launched our EDGE strategy at our 2023 Investor Day, and we have already enjoyed meaningful success. As we move forward, we will continue to focus on commercial and operational excellence as well as disciplined capital allocation, which will drive margin expansion. As a recap, the letters in EDGE stand for EBITDA margin improvement, discipline, growth, and excellence. Let me provide some updates on key developments in each of these areas starting with margins. In 2023, we made good progress towards our long-term target. We are on a solid path to achieving our long-term adjusted EBITDA margin goal of 20% plus. We are focused on increasing aggregates as a percentage of our gross profit. We are continuing to build on the strategic positions we have in our mid-sized high-growth markets, and we are driving productivity gains across the organization. We've seen early success with dynamic pricing and targeted bidding strategies, and we continue to refine each as we seek to optimize the value of our core products. We brought our sales managers and regional executives to the Knife River Training Center last fall for extensive training sessions on dynamic pricing and commercial excellence. We have also had promising early returns from our process improvement team, or what we call the PIT Crew. They have identified capital improvement opportunities, operating efficiencies, and cost controls that can be implemented throughout the company. The team visited 10 of our largest locations in 2023, including quarries, asphalt plants, and ready-mix plants. In 2024, we've expanded the team so we can extend its influence to more locations as we standardize best practices. Our entire team at Knife River is fully engaged in our continuous efforts to improve margins. With respect to discipline, we are committed to a strong balance to achieve a disciplined allocation of capital to drive long-term investor returns. We take a highly disciplined approach to managing our business, one that guides where and how we compete, how we manage our costs, and how we allocate capital. Over the last year, we continued to drive capital efficiency across the organization. We maximized free cash flow generation, we delivered improved operating leverage, and we significantly reduced our outstanding debt. Moving to growth, M&A is part of our corporate DNA. Since 1992, we've completed 84 acquisitions, including 9 in the past 5 years. While our primary focus in 2023 was establishing ourselves as an independent company and then implementing our EDGE strategy, we expect to become more active on the acquisition front in 2024. We have an active pipeline of potential bolt-on and platform targets, and we intend to emphasize aggregates-led materials-based transactions. We have reinforced our corporate development team to help pursue M&A opportunities, and we remain committed to reinvesting in organic growth at our operations as we aim to build our market positions and support profitability. Finally, the second E, Excellence. We are driven to be the best at all aspects of our business. Being a best-in-class operator starts with our people. We are committed to the health and safety of our team. We believe that excellence in these areas is integral to our long-term success. Our state-of-the-art Knife River Training center hosted over 1,100 students last year, including interactive sessions on safety, sales, and operational performance. Core curriculum at the center also includes CDL training, equipment operator training, and leadership development. Investing in our team and advancing the skills through ongoing training is an investment in our future as a pillar of our sustainability strategy. Putting people first and maintaining our unique culture brings us together, supports retention, and builds the teams that will help us achieve our business goals. While we take advantage of our self-help from our competitive EDGE strategy, the underlying fundamentals of our business are strong. Our vertical integration, ability to serve public and private customers, and our strategic positions in mid-sized high-growth markets provide competitive advantages for Knife River. While we became a standalone publicly traded company just eight months ago, we have been in the construction materials and contracting services business for over 30 years. Knife River is well established. In addition to being a top 10 aggregates producer in the United States with 1.1 billion tons of reserves, we provide value-added contracting services. Our vertically integrated model allows us to self-supply the majority of the aggregates used in the production of our downstream products, which are then supplied to contracting jobs. We have built a business that seeks to capture value and margin at every step of the value chain. Over 75% of the value of our contracting services contracts is in public projects, and we believe in significant growth in infrastructure funding from the federal, state, and local levels. Within the 14 states we operate, state transportation departments have increased their 2024 spending authorizations by more than $9 billion, which is up 16% from 2023. We will maintain a disciplined approach to project bidding, one that emphasizes backlog quality over quantity consistent with our strategic focus on expanding EBITDA margins. Now, I will transition to providing some color on our reporting segments, starting with a structural update. Since our initial Investor Day in May, we have committed to being available, to listening, and to being transparent with our investors. As we aim to add clarity into our operating results, we have created a standalone product line segment for our liquid asphalt operations called Energy Services. This business has operations in Iowa, Nebraska, South Dakota, Texas, and Wyoming, and the segment now also includes the liquid asphalt operations in California that previously were part of our Pacific segment. While Energy Services is a new segment, liquid asphalt has been part of our vertically integrated value chain for nearly 20 years. It is a value-added construction material, and to give investors more clarity into this product line, we will begin providing EBITDA guidance specific to Energy Services. The other change is reporting our South region with our North Central region, now called the Central segment. Going forward, we will reference the Pacific, Northwest, Mountain, and Central segments collectively as our geographic segments. With these updates, all other has been eliminated and replaced simply with corporate services and eliminations. Moving on to our results, I will start with the Pacific segment. We saw increased market activity in California and Hawaii in the fourth quarter, including more work for our contracting services business in Northern California, which helped grow revenues. For the full year, revenues increased 11% to a record $462 million, EBITDA increased 28% to $56 million. Entering 2024, we are optimistic about continued growth in Hawaii, which is seeing an increase in tourism spending and stands to benefit from multiyear military projects. In Northern California, we continue to see people moving out of the Bay Area into midsize markets where we have a strong presence. And in Alaska, there are several projects associated with the Anchorage airport that are in the permitting stage where we are in a good position to be one of the primary material suppliers. Next to the Northwest segment, where we have another record year. While fourth quarter EBITDA was down year-over-year, largely related to a one-time item in the form of a non-cash aggregate impairment and lower gains on asset sales, the segment results reflect record revenue and EBITDA for the year. Revenue improved 11% to $666 million, EBITDA improved 17% to $121 million, and the segment improved its EBITDA margins to 18.2%. Entering 2024, our market conditions remain healthy, including a strong pipeline of work at our pre-stressed division where we opened a new production facility late last year. We are extremely pleased with the higher capacity and efficiencies of this new plant, which is featured as the cover story in this month's Concrete Products Magazine. We look forward to strong contributions from our pre-stress business in 2024 and the years to come. We're also seeing solid DOT spending in Southern Oregon with a near-record amount of work on the books and more to come. We also see opportunities with microchip plants and data centers that look to begin construction later this year, which we expect will benefit our aggregates, ready-mix, and pre-stress operations. In our Mountain segment, we continue to enjoy strong demands. In the fourth quarter, we experienced volume growth across all product lines and contracting services led by strong residential, commercial, and public activity. For the year, revenue improved 17% to a record $634 million, and EBITDA improved 42% to a record $103 million. The Mountain region continues to be one of the fastest-growing areas in the United States. We have a strong position, and we look to take advantage of future growth in our footprint. Our key operations include Boise, Billings, Missoula, and Bozeman, all of which are benefiting from population growth. The State of Idaho has $500 million remaining to be spent in its transportation expansion and congestion mitigation fund, which includes roads and bridge work. We have two airport projects in Western Montana in 2024, and we have opportunities with the continued expansion of wind farm projects in Wyoming. The Central segment, which includes North Dakota, South Dakota, Minnesota, Iowa, and now Texas, continues to benefit from a combination of EDGE-related business initiatives. We had strong pricing growth across the segment as well as more profitable contracting work. Full-year 2023 revenues improved 6% to a record $825 million, and EBITDA improved 35% to a record $117 million. Both Texas and Minnesota passed additional transportation funding packages in 2023 that will provide more bidding opportunities and infrastructure improvements. Texas was the fastest-growing state last year, and projections show the population continuing to grow. In the Texas triangle, that area between Dallas, Houston, and San Antonio, the current population is 21 million and is expected to grow to 30 million over the next six years. Our midsize market locations in Texas are positioned within that triangle and stand to benefit from the strong growth. Finally, under our new segment, Energy Services, our liquid asphalt business has been a solid profitable contributor for us since we purchased it 19 years ago. EBITDA margins at Energy Services have been accretive to Knife River's overall consolidated margins in 18 out of those 19 years. We had exceptionally strong financial results at Energy Services in 2023, benefiting from historic price-cost dynamics across our markets and a longer-than-expected paving season. We had record revenue of $292 million for the year and record EBITDA of $78 million. In 2024, we anticipate another strong year from our Energy Services, well above its historical average, but not at the all-time records we saw in 2023. The state DOTs in the markets where we provide liquid asphalt are continuing to invest in their roads. For context, about 94% of the nation's paved roads are paved with asphalt. Energy Services has been and will continue to be an integral part of Knife River's vertical integration strategy. In summary, the fundamentals of our businesses are strong. Federal, state, and local funding back office at unprecedented levels. In 2024, we anticipate price growth across all of our product lines as the demand continues to build. At the same time, we expect volumes will be flat or slightly down as we maintain our disciplined approach to bidding and as we continue to implement dynamic pricing to improve margins. We had a remarkable year in 2023. We became an independent company. We achieved record financial results, and we've implemented a strategy to continue delivering long-term profitable growth. At Knife River, we win as a team, and I would like to thank our entire team for what we accomplished together in 2023. I'm also excited about what we have ahead of us. Thank you for your continued interest in Knife River. I'll now turn the call over to Nathan for his remarks.

Thank you, Brian, and good afternoon, everyone. I'll begin my remarks with a review of our product line performance, followed by an update on our balance sheet and capital allocation priorities, and conclude with our 2024 financial guidance. As Brian mentioned, our fourth quarter results were a strong finish to a record year. We achieved record revenue for the quarter of $647 million, up 20% from 2022. Quarterly revenue also increased across all product lines compared to the prior year, benefiting from strong market demand, a longer construction season, and the first stages of our competitive edge initiatives. On a full-year basis, we reported record revenue of $2.8 billion, an increase of 12% from the prior year. Underpinning this revenue improvement was our continued pricing momentum in our product lines. Average selling prices increased across all product lines for the year, including 11.5% for aggregates, 12.3% for ready-mix, and 13.6% for asphalt. Although volumes have declined for the year in these product lines, our strategic focus on quality over quantity was exemplified with prices more than offsetting volume declines. Given these price and volume conditions as well as productivity gains, the material product line saw considerable improvement in gross margin for the year. Aggregates were up 600 basis points to 20% gross margin. Ready-mix was up 140 basis points and asphalt was up 380 basis points. Within contracting services, margins improved 300 basis points during the year. Our disciplined pricing and bidding strategy helps ensure that we capture the value of the materials and services we provide. This strategy, combined with solid execution, was successful, culminating in consolidated gross margin improvement of 480 basis points for the year. We believe this strategy will continue to positively impact future results. For the quarter, our contracting services backlog of $662 million was down from the prior year. As expected, while DOT funding and lettings activity remains strong across our footprint, we've adopted a more disciplined bidding strategy to prioritize our gross margin over the volume of projects. As a result of this bidding strategy, the margin profile of our existing backlog is higher than it was at the end of 2022. Furthermore, about 90% of our backlog is a diverse base of lower-risk, short-duration work valued at less than $5 million per project. Our Competitive EDGE initiatives, while in the early stages, have set the groundwork for Knife River to maximize the value of our products and services while optimizing the utilization of our resources, generating profitable and sustainable growth for our shareholders. As Brian referenced, one of the core pillars of our EDGE strategy involves operational and financial discipline. That includes maintaining a strong balance sheet as well as a returns-focused approach to capital allocation. In 2023, we generated $336 million of cash from operations, a $128 million improvement year-over-year. Total free cash flow, which we calculate as operating cash flow less total capital expenditures, plus proceeds from asset sales, was more than $220 million in 2023, an increase of more than $167 million from 2022, representing free cash conversion as a percent of net income of 120%. Furthermore, we ended 2023 with $219 million of available cash and $329 million of available capacity under our revolving credit facility. We believe our strong free cash generation, together with our nearly $550 million of cash and liquidity, position us to reinvest within our existing operations as well as pursue strategic acquisitions. While our business development pipeline remains active, we intend to stay disciplined in our approach to capital allocation, ensuring that we pursue high-quality assets to support our growth strategy. In 2023, our capital expenditures totaled $124 million, the bulk of which was allocated to upgrade our quarries, fleet, and facilities. We reduced our ratio of net debt to adjusted EBITDA to 1.1x at year-end 2023. We remain committed to a long-term annualized goal of approximately 2.5x net leverage, providing Knife River the balance sheet flexibility to support our organic and inorganic growth objectives. Our capital allocation strategy will remain returns-focused. 2023 was a record year, one in which we exceeded our financial guidance. As we look to 2024, we see continued pathways towards adjusted EBITDA growth and margin expansion. Today, we are introducing financial guidance for the full year 2024. Our guidance includes the following assumptions. In 2024, we anticipate average selling prices for our product lines to improve mid- to high single digits, while volumes are expected to be flat to down low single digits when compared to 2023. Furthermore, we expect our process improvement team initiatives to continue to identify operational efficiencies and improvements across the organization, as outlined within our strategy. In addition to the consolidated financial guidance we are providing, we have begun to report EBITDA guidance specific to the Energy Services segment, as Brian mentioned. Given the visibility we have into this product line statement, we wanted to provide additional clarity and transparency to our investors. To that end, for the full year 2024, we are providing the following financial guidance: total revenue of between $2.75 billion and $2.95 billion, consolidated adjusted EBITDA of between $425 million and $475 million, adjusted EBITDA for our geographic segments, including corporate services of between $375 million and $415 million, and Energy Services, adjusted EBITDA of $50 million to $60 million. Lastly, we expect total capital expenditures of between 5% and 7% of revenue, excluding any potential future acquisitions. As you can see by the midpoints of our guidance, we expect to see continued margin expansion and EBITDA growth. At our geographic segments, the 2024 midpoint for adjusted EBITDA is $395 million, which is 11.5% above 2023. In summary, we are pleased with our record results from 2023. Our markets and business fundamentals are strong, and we will continue to focus on commercial excellence, operational execution, and disciplined capital allocation as we build momentum into 2024. We are excited about the year ahead. With that, I'd like to open the call for questions.

And your first question comes from the line of Sherif El-Sabbahy from Bank of America.

Congratulations on a great quarter. I was just wondering if you could give us a sense of seasonality over the course of 2024. It seems like Q4 came in with maybe a bit of an extended period due to better weather. How should we think about Q1 sequentially and then just the cadence through 2024 more broadly?

Yes. We did have a lengthened construction season in the fourth quarter. We had very favorable weather last year. We are a seasonal company. We have a northern footprint. And so we do slow down, obviously, in the first quarter. The first quarter typically represents somewhere around 10% of our revenue. The second and third quarters make up about two-thirds of our business, and then the fourth quarter typically accounts for about 20% to 25% of our revenue. That's kind of the seasonality of our footprint.

And you mentioned your expectation for pricing. What kind of cost inflation are you seeing?

Yes. We introduced that mid-single to high-single-digit for prices on those core products. Last year, we had cost of goods on our material side of the business around 5%. We're kind of projecting that same mid-single-digit price or cost for this upcoming year.

And your next question comes from the line of Garik Shmois from Loop Capital.

You talked about refocusing on the acquisition pipeline in 2024. I was wondering if you could speak to some of the opportunities that are in front of you in that regard. And also, with respect to your balance sheet, given that the net leverage is at 1.1x, it's well below your target range? Any updated thoughts on potentially tapping into the balance sheet to help drive further acquisitions?

Garik, I'll talk about the pipeline and kind of our strategy for M&A and then I'll turn it over to Nathan to answer the balance sheet. We have a lot of opportunities in the pipeline, and we're going to continue to stay disciplined in our approach. We definitely look for aggregates-based companies in those midsized high-growth markets. We built this company at Knife River on over 80 acquisitions. A majority of those, a lot of those are those bolt-on operations in that $10 million to $30 million range. We will absolutely look for platform operations. We've got some that we're looking at now, so we're not afraid to go out and do a larger acquisition. But we certainly are focused in those markets that we're already in and looking for those aggregates-based materials-driven operations that support our vertical integration model. Those opportunities are out there. We drive that kind of acquisition process really from our regional level with some corporate programming that we can monitor at the corporate level, we help build the models and assist the regions with their due diligence and integration, but really it is a regional-driven M&A acquisition strategy. With that, I will turn it over to Nathan to maybe touch on the balance sheet.

Yes. You talked a bit about tapping into the balance sheet and our capital that's available. I think, first, it will be helpful just to look back at the cash that we have available and the revolver capacity. Those are two important points that we'll look at to fund our acquisitions. Firstly, from just a cash flow standpoint, as we looked at the performance we had this year, which was outstanding. Our adjusted EBITDA grew $119 million. A lot of that translated to our improvement in cash flows from operations, right from the cash flow statement of $128 million. We've been diligent about our balance sheet. In fact, our working capital as a percent of revenue decreased year-over-year and our cash flow conversion improved to 120%. That said, the balance sheet has about $220 million of available cash and our revolver capacity is about $330 million. So we have $550 million on the balance sheet to tap to pursue these bolt-on and larger acquisitions as well as organic growth. That's something that we've been successful with in the past. We've done a number of aggregate sites that we've grown as well as maintaining our fleet. So I think we have a strong balance sheet to support that, and we'll continue to be disciplined, as Brian said on how we pursue these acquisitions, but we are well ready to get the job done.

And then just looking at the EBITDA margin expansion that you expect this year, you talked to the volume and pricing outlook, you talked a little bit around cost inflation. I'm just curious just around the edge initiatives, PIT Crews, things of that nature that are relatively newly implemented. Any sense as to how much of the margin expansion could be chalked up to some of the new company-specific cost initiatives?

Yes. I think there's definitely that self-help opportunities, Garik, with our EDGE. I can tell you that the regions are leaning in hard on that. Hence, one of the reasons we hit our 15% EBITDA margins two years earlier. We had set that goal at our May Investor Day to hit 15% by 2025, we rolled out the edge initiatives early in the year. We started talking about dynamic pricing, but we really have not implemented dynamic pricing until the beginning of this year. That's a process that will take several years to fully implement throughout the regions. We deployed our PIT Crews, the process improvement teams, and that's really a group of internal experts by product line and then external experts. They go out and spend a week at an individual facility and really just dissect every aspect of that operation. We've seen some real big wins. In fact, such is the demand that we've had to double the size of that team so we can deploy it in even more locations in the upcoming years. So yes, we have lots of self-help when it comes to the EDGE strategy, and that's built into our projections for our guidance on EBITDA. So we're excited that we can grow. When we look at our growth rate in those geographic locations, the Northwest, Pacific, Mountain, and Central regions, that's an 11.5% growth over last year. We have the mid- to high-digit price increases controlling those costs flat to slightly down volumes. Definitely, some of that self-help is going to help us achieve that 11.5% year-over-year growth.

And your next question comes from the line of Brent Thielman from D.A. Davidson.

I guess, Brian or Nathan, when do you anticipate seeing sort of more of the positive impacts of the dynamic pricing strategy sort of hit the P&L? I know these things sort of take time and they're calculated. But I guess the question is kind of when might we on the outside sort of be able to better recognize the impact of it?

Yes, Brent. We've been doing dynamic pricing in the Northwest region for seven, eight years. We're not fully implemented even in the Northwest region. But I would say that we're in the seventh, eighth inning when it comes to dynamic pricing. We brought over 100 of our sales managers and executives from around all of the different regions to the training center back in November and had a three-day seminar class summit on dynamic pricing and commercial excellence. We are in the process of doing that right now. We did not send out nor the number of annual increase letters. The increased letters have different language in them that were the ones that went out there to really give us the opportunity to bid work in real time. Dynamic pricing is the opportunity for our customers to call us for aggregates, ready-mix, and asphalt on their individual projects. This allows us to look at our proximity of our locations to their job sites, to look at our backlog, to look at our current cost inputs and really maximize, optimize that price that goes out on that job. We're in the process of rolling that out in all the regions right now. But we're really in the first or second innings of that rollout of the dynamic pricing. You'll see that's baked into some of our increases for this year. So you'll begin to see some of those benefits this year.

And then, Brian, how should we interpret the decline in backlog? I mean I know you're being much more selective on what you're pursuing, and the 14.5% gross margin in contracting services is pretty notable here in the fourth quarter. Is that the type of margin you're starting to see come through on the work you're booking? Was that an anomaly this quarter? Just curious around all those things around backlog?

Yes. I think you should look at that over a full year, Brent, to get a good feel. We closed out jobs in the fourth quarter. I would say that how you look at our lower backlog is intentional. We have been very disciplined and taken a different strategic approach to how we take on work and really taken on higher quality work rather than quantity. We had seven consecutive quarters of record backlog, and that was at some lower margins that did not fit our EDGE strategy. So one way you can look at our lower backlog is it's very intentional and calculated. We are targeting projects and customers that fit us to pull through higher-margin upstream materials. Additionally, we had $50 million of additional revenue in the fourth quarter from contracting stemming from that favorable weather, and that definitely had an impact on our year-end backlog. What I'd tell you is that it's opened up more capacity for us to go out and pursue some of those higher-margin projects. The good news for us is the states we operate in have experienced 16% larger DOT budgets so the tailwinds in infrastructure funding at the state, local, and federal levels really allow us to be more selective on the type of work that we pursue.

And your next question comes from the line of Ian Zaffino from Oppenheimer.

So following up on some discussion on competition and discipline. Maybe you could share like maybe on a regional basis, given the exposure you have towards public markets and also the competition that might be occurring because of all the activity on the construction side, which areas seem to be more contributory towards the growth outlook you're looking at, and which ones be tagged a little bit slower in that front? Is the market, you're talking about discipline on bidding on your contracting, but also on the side, is the volume of work opportunities increasing at a much greater rate than you’d be witnessed in the last 6 to 12 months? Is there a lot more opportunities to bid, and gives you a better chance to be selective?

Yes, I will take that. I'll start with the volume question: yes, there is more work to bid. It's been a little bit slow to let this year. The extended season for us in the fourth quarter was also extended seasons for the DOTs. I would say that they were out inspecting work being built rather than designing and getting it let. Part of it, again, our lower backlog is a timing issue, but what we see in the horizon and the pipeline and our bid schedules is strong. The volume of work is not just dollars because of inflation; there is more work to go out and bid. Again, that allows us to look at how we can maximize and optimize the upstream materials. When we bid work, we don't just bid it as a prime contractor; we're going to try to get many bites at that apple as we possibly can to get work. We may bid one of those DOT jobs as a prime contractor, and we certainly would bid as a subcontractor, and we'll always be it as a material supplier. We'll try to get as many bites of that apple as we can. As far as the markets, I would say that it's early in the season, and I would say it's not that different than it has been in the past. To bid federal and state highway work, there are some nuances that go into that; you've got to know what you're doing. You just don't jump from the private market to the public markets. We see the same type of bidders; each region, each state, and each bid will range in the number of bidders on that. Early in the year, we obviously see more bidders, and we are in the early parts of the bidding season right now. Typically, you're going to see some lower-margin work that goes out at this point, and we are going to be patient, disciplined, and we will get the amount of work needed to be successful in 2024.

And my follow-up would be back to the acquisition discussion. As you're targeting, let’s call it, the bolt-on ones as opposed to platform enhancing; is there a focus on leveraging your contracting business with materials, or if the bolt-ons are potent if the returns are there in the markets there for just selling the material as opposed to not having a downstream? Which do you lean towards? Or is there a difference in which ones would you rather focus on as you execute this plan over the next couple of years?

Yes. We're going to absolutely focus on aggregates-led companies. And we may, because it's a bolt-on, look for a local pit to where we can go out and source one of those downstream products or contracting services if we were able to sell more of our rocks somewhere else. We would go out and do a pure-play downstream acquisition if we had a quarry that could supply that. The synergies we get from bolting on those operations cover all back-office functions, giving us immediate synergies. We can move jobs and customers around, and we may be delivering to a project that was a 20-, 30-minute disadvantage from the pit that we just purchased. The cost of delivering these materials—whether that's asphalt, ready-mix, or aggregates—represent a large part of being competitive and getting work. We have multiple strategic opportunities for our bolt-on operations. That's one of the reasons we target those operations. Again, we're not afraid of platform operations; we've done them in the past and will certainly do them again.

And there are no further questions at this time. I would like to turn it back to Brian Gray, President and CEO, for closing remarks.

Thank you. Well, thank you for joining us today. 2023 was a historic year for Knife River from bringing the bell on the New York Stock Exchange on our first day of trading to delivering record results. I am very proud of the team that got us here and that will help us continue to grow. Our business is fundamentally strong, and we are focused on delivering long-term profitable growth for our investors. We appreciate the interest and support. Now, I'll turn the call back over to the operator. Thank you.

Thank you, presenters. And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.