Knife River Corp

Previous wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of 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, trends, 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 its "competitive EDGE" strategy implemented to improve margins and to execute on other strategic initiatives aimed at generating long-term profitable growth ("EDGE").

Current wording

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of 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, trends, 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 its Competitive EDGE strategy ("EDGE") implemented to improve margins and to execute on other strategic initiatives aimed at generating long-term profitable growth.

Previous wording

On May 31, 2023, Knife River became a stand-alone publicly traded company. Prior to the Separation, Knife River operated as a wholly owned subsidiary of Centennial Energy Holdings, Inc. ("Centennial") and an indirect, wholly owned subsidiary of MDU Resources Group, Inc. ("MDU Resources") and not as a stand-alone company. The accompanying historical consolidated financial statements and footnotes for the periods prior to the Separation were prepared on a “carve-out” basis using the legal entity approach in conformity with GAAP and were derived from the consolidated financial statements of MDU Resources as if Knife River operated on a stand-alone basis during these periods. For additional information related to the basis of presentation, see Note 2.

Current wording

On May 31, 2023, Knife River became a stand-alone publicly traded company. Prior to the Separation, Knife River operated as a wholly owned subsidiary of Centennial Energy Holdings, Inc. ("Centennial") and an indirect, wholly owned subsidiary of MDU Resources Group, Inc. ("MDU Resources") and not as a stand-alone company. The accompanying historical consolidated financial statements and footnotes for the periods prior to the Separation were prepared on a “carve-out” basis using the legal entity approach in conformity with accounting principles generally accepted in the United States of America ("GAAP") and were derived from the consolidated financial statements of MDU Resources as if Knife River operated on a stand-alone basis during these periods. For additional information related to the basis of presentation, see Note 2.

Previous wording

Our markets remain resilient and construction activity remains generally strong despite ongoing general and economic challenges in the United States, such as higher interest rates and inflation. Our contracting services revenue averages approximately 80 percent each year being from public-sector projects, allowing us to better balance the cyclical nature of our private-sector customers. While we continued to experience inflationary pressures in the past year, price increases for our products and services have generally outpaced these increased costs. For more information on factors that may negatively impact Knife River's business, see the section entitled "Item 1A. Risk Factors" in Part I of the Company's 2023 Annual Report.

Current wording

Our markets remain resilient and construction activity remains generally strong, despite ongoing general and economic challenges in the United States. While we experienced inflationary pressures in recent years, price increases for our products and services have generally outpaced these increased costs. Further, 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 Knife River's business, see the section entitled "Item 1A. Risk Factors" in Part I of the Company's 2023 Annual Report.

Previous wording

Expected margins on backlog at March 31, 2024, were greater than the expected margins on backlog at March 31, 2023. Of the $959.5 million of expected backlog at March 31, 2024, we expect to complete approximately $891.0 million in the 12 months following March 31, 2024. Approximately 85 percent of our backlog at March 31, 2024 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, as discussed in the following section on Public Funding, which is expected to provide bidding opportunities in our markets throughout 2024.

Current wording

Expected margins on backlog at June 30, 2024, were slightly higher than the expected margins on backlog at June 30, 2023. Of the $988.5 million of expected backlog at June 30, 2024, we expect to complete approximately $936.7 million in the 12 months following June 30, 2024. Approximately 87 percent of our backlog at June 30, 2024 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, as discussed in the following section on Public Funding, which is expected to continue to provide bidding opportunities in our markets.

Previous wording

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"). While we believe the current backlog of work remains firm, prolonged delays in the receipt of critical supplies and materials or continued increases to pricing, 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” in Part I of the Company's 2023 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.

Current wording

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"). 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” in Part I of the Company's 2023 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.

Previous wording

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 the federal programs such as the Infrastructure Investment and Jobs Act, the American Rescue Plan Act, and more. In addition to federal funding, 12 out of the 14 states in which we operate have recently implemented funding mechanisms for public projects, including projects related to highways, airports and other public infrastructure. Within our 14 states of operation, state transportation departments have increased their 2024 spending authorizations by more than $9 billion, a 16 percent increase from 2023. We continue to monitor the implementation and impact of these legislative items and budget increases.

Current wording

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 Infrastructure Investment and Jobs Act ("IIJA"), the American Rescue Plan Act and more. At the federal level, funding from IIJA is still being allocated. Approximately 56 percent of IIJA formula funding has yet to be obligated in our market areas. At the state level, eight of the 14 states in which we operate have introduced legislation to fund additional construction projects as of July 1, 2024. We continue to monitor the implementation and impact of these legislative items.

Previous wording

Profitability. Our management team continually monitors our margins and has been proactive in applying strategies to improve margins toward long-term profitability. 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. The process improvement team ("PIT crew") visited 10 of our largest locations in 2023, including quarries, asphalt plants and ready-mix plants. In 2024, the PIT crew has been expanded to extend its influence to more locations to standardize best practices. Our management team has also continued to evaluate growth opportunities, both through organic growth and acquisitions. During the first quarter of 2024, we advanced a number of our strategic investments, including upgraded plants to add capacity, a new ready-mix operation in our Central segment and the redeployment of plant assets into markets where they are expected to achieve higher returns. Also, on April 3, 2024, we acquired a small ready-mix operation in South Dakota. Our management team will continue to evaluate future growth opportunities that they believe will strategically align with our EDGE initiatives.

Current wording

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. 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. The process improvement team ("PIT crew") visited 10 of our largest locations in 2023, including quarries, asphalt plants and ready-mix plants. In 2024, the PIT crew has been expanded to extend its influence to more locations and standardize best practices. The PIT crew has visited 98 sites across 10 states through the second quarter of 2024 and we expect the PIT crew to reach 31 additional sites in the second half of 2024.

Previous wording

Knife River operates in geographically diverse and competitive markets, and strives to maximize efficiencies, including transportation costs and economies of scale, to maintain strong margins. Our margins can experience negative pressure from competition, as well as impacts from the volatility in the cost of raw materials, such as diesel fuel, gasoline, natural gas, liquid asphalt, cement and steel, with fuel and liquid asphalt costs often having the most significant impact on results. Many of these raw materials are subject to factors that are beyond our control, including global economic and political events and new and changing governmental regulations. The Energy Services segment is particularly susceptible to volatility in liquid asphalt costs, which can impact both cost of sales and revenues, for which we cannot reliably predict future pricing. Such volatility and inflationary pressures may have an impact on our margins, including fixed-price contracting services contracts that are particularly vulnerable to the variability of energy and material prices. We mitigate our exposure to these fluctuations by entering into various purchase commitments, as well as by generally including terms in our contracting services agreements that provide for price adjustments related to variations in raw materials costs.

Current wording

Knife River operates in geographically diverse and competitive markets, and strives to maximize efficiencies, including transportation costs and economies of scale, to maintain strong margins. Our margins can experience negative pressure from competition, as well as impacts from the volatility in the cost of raw materials, such as diesel fuel, gasoline, natural gas, liquid asphalt, cement and steel, with fuel and liquid asphalt costs often having the most significant impact on results. Many of these raw materials are subject to factors that are beyond our control, including global economic and political events and new and changing governmental regulations. The Energy Services segment is particularly susceptible to variability in liquid asphalt costs, which can impact both cost of sales and revenues, for which we cannot reliably predict future pricing. Such variability and inflationary pressures may have an impact on our margins, including fixed-price contracting services contracts that are impacted by the variability of energy and material prices. We mitigate our exposure to these fluctuations by entering into various purchase commitments, as well as by generally including terms in our contracting services agreements that provide for price adjustments related to variations in raw materials costs.

Previous wording

Our operations can also be significantly impacted by both favorable and unfavorable weather conditions. Unseasonably wet and/or cold weather in the states where we operate can delay the start or cause an early end to the construction season or cause temporary delays on specific projects, while unseasonably dry or warm weather in the states where we operate can allow for a lengthened construction season or allow for an earlier start on specific projects. Either of these conditions can impact both our construction materials sales and contracting services revenues. Other variables that can impact margins include the timing of project starts or completions, pre-construction season activities including equipment repair and maintenance costs or equipment mobilization, and declines or delays in new and existing projects due to the cyclical nature of the construction industry. Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

Current wording

Our operations can also be significantly impacted by both favorable and unfavorable weather conditions. Unseasonably dry or warm weather in the states where we operate can allow for a lengthened construction season or allow for an earlier start on specific projects, while unseasonably wet and/or cold weather in the states where we operate can delay the start or cause an early end to the construction season or cause temporary delays on specific projects. Either of these conditions can impact both our construction materials sales and contracting services revenues. Other variables that can impact margins include the timing of project starts or completions, pre-construction season activities including equipment repair and maintenance costs or equipment mobilization, and declines or delays in new and existing projects due to the cyclical nature of the construction industry. Accordingly, operating results in any particular period may not be indicative of the results that can be expected for any other period.

Previous wording

Workforce. As a people-first company, we continually take steps to address the challenge of recruitment and retention of our employees. We continue to deploy significant resources to attract, develop and retain qualified and diverse talent. As the United States continues to face shortages in the availability of individuals to fill construction careers, we have taken significant steps to showcase construction as a career of choice. We own and operate a state-of-the-art training facility, the Knife River Training Center, which is used corporate-wide to enhance the skills of both our new and existing employees through both classroom education and hands-on experience. One of the most popular courses at the Knife River Training Facility is the commercial driver's license training, which is helping to address some labor shortages and trends.

Current wording

Workforce. As a people-first company, we continually take steps to address the challenge of recruitment and retention of our employees. We continue to deploy significant resources to attract, develop and retain qualified and diverse talent. As the United States continues to face shortages in the availability of individuals to fill construction careers, we have taken significant steps to showcase construction as a career of choice. We own and operate a state-of-the-art training facility, the Knife River Training Center, which is used corporate-wide to enhance the skills of both our new and existing employees through both classroom education and hands-on experience. One of the most popular courses at the Knife River Training Facility is the commercial driver's license

Previous wording

Other income (expense) includes net periodic benefit costs for the Company’s benefit plan expenses, other than service costs; interest income; realized and unrealized gains and losses on investments for the Company’s nonqualified benefit plans; earnings or

Current wording

Other income includes net periodic benefit costs for the Company’s benefit plan expenses, other than service costs; interest income; realized and unrealized gains and losses on investments for the Company’s nonqualified benefit plans; earnings or losses on joint venture arrangements; and other miscellaneous income or expenses, including income and expenses related to the transition services agreement with MDU Resources.

Previous wording

Income tax (benefit) expense consists of corporate income taxes related to the net income of the Company. Income taxes are presented at the corporate services level and not at the individual segments. The effective tax rate can be affected by many factors, including changes in tax laws, regulations or rates, new interpretations of existing laws or regulations and changes to the Company's overall levels of income before income tax.

Current wording

Income tax expense consists of corporate income taxes related to the net income of the Company. Income taxes are presented at the corporate services level and not at the individual segments. The effective tax rate can be affected by many factors, including changes in tax laws, regulations or rates, new interpretations of existing laws or regulations and changes to the Company's overall levels of income before income tax.

Previous wording

(a)EBITDA, segment EBITDA, EBITDA margin and segment EBITDA margin are non-GAAP financial measures. For more information and a reconciliation to the nearest GAAP measure, see the section entitled "Non-GAAP Financial Measures."

Current wording

(b)EBITDA, segment EBITDA, EBITDA margin and segment EBITDA margin are non-GAAP financial measures. For more information and a reconciliation to the nearest GAAP measure, see the section entitled "Non-GAAP Financial Measures."

Previous wording

Income tax benefit increased $4.4 million corresponding with the higher net loss before income taxes.

Current wording

Income tax expense increased $6.1 million, corresponding with higher income before income taxes.

Previous wording

Selling, general and administrative expenses increased $11.5 million. As a result of the Separation, we experienced recurring costs as a publicly traded company of $9.5 million, including payroll-related costs of $5.6 million, largely due to additional staff and stock-based compensation expenses for the management team and board of directors: information technology costs of $1.4 million; professional services of $1.3 million; fees of $520,000 primarily related to fees on new debt issued in conjunction with the Separation; and insurance costs of $395,000. These recurring costs were partially offset by a reduction in general corporate expenses from MDU Resources of $4.6 million, as discussed in Note 2. Also, as part of the Separation, we incurred additional one-time costs of $1.5 million, primarily related to insurance costs and the transition services agreement with MDU Resources. Further contributing to the higher selling, general and administrative costs were increased payroll-related costs of $4.7 million throughout the segments and lower gains on asset sales in the Mountain segment, offset in part by higher gains on assets sales in the Northwest segment.

Current wording

As a result of the Separation, Corporate Services experienced higher recurring costs as a publicly traded company of $16.3 million, including payroll-related costs of $9.5 million, largely due to additional staff and stock-based compensation expenses for the management team and board of directors; information technology costs of $2.8 million; professional services of $2.1 million; fees of $870,000 primarily related to fees on new debt issued in conjunction with the Separation; and insurance costs of $600,000. These recurring costs were partially offset by a reduction in general corporate expenses from MDU Resources of $9.6 million, as discussed in Note 2. Also, as part of the Separation, we incurred additional one-time costs of $860,000, primarily related to insurance costs and the transition services agreement with MDU Resources.

Previous wording

Other income improved $2.8 million due to increased interest income on higher cash balances over the prior period.

Current wording

Other income increased $1.8 million due to increased interest income on higher average cash balances.

Previous wording

During the first quarter of 2024, Corporate Services contributed negative EBITDA of $12.7 million, or $8.2 million less EBITDA compared to the prior year. The decrease was largely due to higher selling, general and administrative costs of $8.3 million primarily resulting from additional costs incurred as a publicly traded company, as well as costs related to the Separation from MDU Resources.

Current wording

During the second quarter of 2024, Corporate Services contributed negative EBITDA of $15.8 million, or $4.1 million less EBITDA compared to the prior year. The decrease was largely due to higher selling, general and administrative costs of $2.8 million primarily resulting from additional costs incurred as a publicly traded company, as well as costs related to the Separation from MDU Resources.

Previous wording

Further increasing selling, general and administrative expenses were higher health care costs in 2024 of $1.7 million as prior year claims for 2023 were paid from the MDU Resources health and welfare trust therefore reducing the Company's expense in 2023. Partially offsetting these increased costs were improved returns on the Company's nonqualified benefit plan investments of $320,000.

Current wording

Further increasing selling, general and administrative expenses were higher health care costs in 2024 of $1.0 million as prior year claims for 2023 were paid from the MDU Resources health and welfare trust therefore reducing the Company's expense in 2023.

Previous wording

As a result of the Separation, we experienced recurring costs of $9.5 million, including payroll-related costs of $5.6 million, largely due to additional staff and stock-based compensation expense for the management team and board of directors; information technology costs of $1.4 million; professional services of $1.3 million; fees of $520,000 primarily related to fees on new debt issued in conjunction with the Separation; and insurance costs of $395,000. These recurring costs were partially offset by a reduction in general corporate expenses from MDU Resources of $4.6 million, as further discussed in Note 2. Also, as part of the Separation, we incurred additional one-time costs of $1.5 million primarily related to insurance costs, information technology costs and the transition services agreement with MDU Resources.

Current wording

As a result of the Separation, we experienced higher recurring costs of $16.3 million, including payroll-related costs of $9.5 million, largely due to additional staff and stock-based compensation expense for the management team and board of directors; information technology costs of $2.8 million; professional services of $2.1 million; fees of $870,000, largely related to fees on the new debt issued in conjunction with the Separation; and insurance costs of $600,000. These recurring costs were partially offset by a reduction in general corporate expenses from MDU Resources of $9.6 million, as further discussed in Note 2. Also, as part of the Separation, we incurred additional one-time costs of $860,000 primarily related to insurance costs and the transition services agreement with MDU Resources.

Previous wording

At March 31, 2024, Knife River had cash and cash equivalents of $128.4 million, working capital of $520.5 million and borrowing capacity of $329.0 million on our revolving credit agreement. Working capital is calculated as current assets less current liabilities. As of March 31, 2024, we believe Knife River has sufficient liquid assets, cash flows from operations and borrowing capacity to meet its financial commitments, debt obligations and anticipated capital expenditures for at least the next 12 months.

Current wording

At June 30, 2024, we had cash and cash equivalents of $15.5 million, working capital of $571.4 million and borrowing capacity of $329.1 million on our revolving credit agreement, net of our outstanding letters of credit. Working capital is calculated as current assets less current liabilities. As of June 30, 2024, we have sufficient liquid assets, cash flows from operations and borrowing capacity to meet our financial commitments, debt obligations and anticipated capital expenditures for at least the next 12 months.

Previous wording

We currently estimate total 2024 capital expenditures to be between $170 million to $180 million for both maintenance and growth projects and excludes acquisitions. As of March 31, 2024, $43.7 million has been spent on routine replacement and maintenance of vehicles and equipment, building improvements, a liquid asphalt expansion project and redistribution of plant assets. These expenditures were funded by internally generated cash.

Current wording

We currently estimate total 2024 capital expenditures to be between $170 million to $180 million for both maintenance and growth projects and excludes acquisitions. As of June 30, 2024, $103.6 million has been spent on routine replacement of vehicles and equipment, plant and building improvements, organic growth projects, a liquid asphalt expansion project and replacement aggregate reserves. These expenditures were funded by internally generated cash.

Previous wording

Our management team remains focused on organic and acquisition growth opportunities that they believe align with our EDGE strategies, which includes the acquisition of a small ready-mix operation in South Dakota on April 3, 2024. While the 2024 budgeted capital expenditures includes some organic growth projects, future acquisitions and other growth opportunities that support our EDGE strategy would be incremental to the outlined capital program; however, these opportunities are dependent upon economic and other competitive conditions. It is anticipated that capital expenditures for 2024 will be funded by various sources, including internally generated cash and debt.

Current wording

While the 2024 budgeted capital expenditures includes organic growth projects, future acquisitions and other growth opportunities that support our EDGE strategy would be incremental to the outlined capital program; however, these opportunities are dependent upon economic and other competitive conditions. It is anticipated that capital expenditures for 2024 will be funded by various sources, including internally generated cash and debt.

Previous wording

Cash used in operating activities at March 31, 2024, decreased $36.1 million, largely related to lower working capital needs. Cash used by working capital components totaled $39.8 million for the three months ended March 31, 2024, compared to $64.7 million for the three months ended March 31, 2023. This reduction in cash usage in 2024 was primarily the result of collections on higher receivables balances in the last quarter of 2023 and the first quarter of 2024, offset in part by higher liquid asphalt inventory balances. In addition, the timing of insurance costs associated with the captive insurer had a positive impact on cash.

Current wording

Cash used in operating activities at June 30, 2024, increased $19.3 million, largely related to higher working capital needs. Cash used by working capital components totaled $195.9 million for the six months ended June 30, 2024, compared to $171.4 million for the six months ended June 30, 2023. This increase in cash usage in 2024 was primarily the result of higher payroll-related costs due in part to additional employees associated with the Separation. Also impacting working capital were higher liquid asphalt inventory balances largely related to filling a large tank that was out service in the previous year; timing of prepaid insurance due to the Separation; the removal of all related-party balances due to the Separation; and fluctuations in the timing of payment on accounts payable. Partially offsetting these decreases were stronger collections on receivables balances during 2024 and higher net income.

Previous wording

The increase in cash used in investing activities for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, was primarily due to lower gains on asset sales, higher contributions to the Company's nonqualified benefit plan investments due to additional participants in the plan and higher capital expenditures which includes a liquid asphalt expansion project.

Current wording

The increase in cash used in investing activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was primarily due to higher capital expenditures, including a liquid asphalt expansion project and routine replacement of vehicles and equipment. In addition, two acquisitions were completed in the first half of 2024.

Previous wording

The decrease in cash flows provided by financing activities for the three months ended March 31, 2024, compared to the three months ended March 31, 2023, was largely related to the changes in the Company's debt structure as a result of the Separation.

Current wording

The decrease in cash flows provided by financing activities for the six months ended June 30, 2024, compared to the six months ended June 30, 2023, was largely related to changes in the Company's debt structure as a result of the Separation, which included the issuance of senior notes, term loans and a revolving credit facility, and a transfer of the majority of the proceeds to Centennial.

Previous wording

There were no material changes in the Company's contractual obligations related to estimated interest payments, purchase commitments, asset retirement obligations, uncertain tax positions and minimum funding requirements for its defined benefit plans for 2024 from those reported in the 2023 Annual Report. For more information on the Company's contractual obligations on long-term debt, operating leases and purchase commitments, see Part II, Item 7 in the 2023 Annual Report.

Current wording

There were no material changes in the contractual obligations related to estimated interest payments, purchase commitments, asset retirement obligations, uncertain tax positions and minimum funding requirements for its defined benefit plans for 2024 from those reported in the 2023 Annual Report. For more information on our contractual obligations on long-term debt, operating leases and purchase commitments, see Part II, Item 7 in the 2023 Annual Report.

Previous wording

Our material short-term and long-term cash requirements include repayment of third-party long-term debt and related interest payments, related-party notes payable and related interest payments, payments on operating lease agreements, payments of obligations on purchase commitments and asset retirement obligations.

Current wording

Our material short-term and long-term cash requirements include repayment of third-party long-term debt and related interest payments, payments on operating lease agreements, payments of obligations on purchase commitments and asset retirement obligations.

Previous wording

EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are most directly comparable to the corresponding GAAP measures of net income and net income margin. We believe these non-GAAP financial measures, in addition to corresponding GAAP measures, are useful to investors by providing meaningful information about operational efficiency compared to our peers by excluding the impacts of differences in tax jurisdictions and structures, debt levels and capital investment. We believe Adjusted EBITDA and Adjusted EBITDA margin are useful performance measures because they allow for an effective evaluation of our operating performance by excluding stock-based compensation and unrealized gains and losses on benefit plan investments as they are considered non-cash and not part of our core operations. We also exclude the one-time, non-recurring costs associated with the Separation as those are not expected to continue. We believe EBITDA and Adjusted EBITDA assist rating agencies and investors in comparing operating performance across operating periods on a consistent basis by excluding items management does not believe are indicative of the Company's operating performance. Additionally, EBITDA and Adjusted EBITDA are important financial metrics for debt investors who utilize debt to EBITDA and debt to Adjusted EBITDA ratios. We believe EBITDA and EBITDA margin, including those measures by segment, are useful performance measures because they provide clarity as to the operational results of the Company. Our management uses these non-GAAP financial measures in conjunction with GAAP results when evaluating our operating results internally and calculating employee incentive compensation.

Current wording

EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are most directly comparable to the corresponding GAAP measures of net income and net income margin. We believe these non-GAAP financial measures, in addition to corresponding GAAP measures, are useful to investors by providing meaningful information about operational efficiency compared to our peers by excluding the impacts of differences in tax jurisdictions and structures, debt levels and capital investment. We believe Adjusted EBITDA and Adjusted EBITDA margin are useful performance measures because they allow for an effective evaluation of our operating performance by excluding stock-based compensation and unrealized gains and losses on benefit plan investments as they are considered non-cash and not part of our core operations. We also exclude the one-time, non-recurring costs associated with the Separation as those are not expected to continue. We believe EBITDA and Adjusted EBITDA assist rating agencies and investors in comparing operating performance across operating periods on a consistent basis by excluding items management does not believe are indicative of the Company's operating performance. Additionally, EBITDA and Adjusted EBITDA are important financial metrics for debt investors who utilize debt to EBITDA and debt to Adjusted EBITDA ratios. We believe these non-GAAP financial measures, including those measures by segment, are useful performance measures because they provide clarity as to the operational results of the Company. Our management uses these non-GAAP financial measures in conjunction with GAAP results when evaluating our operating results internally and calculating employee incentive compensation.

Previous wording

The following information reconciles segment and consolidated net income (loss) to EBITDA and Adjusted EBITDA and provides the calculation of EBITDA margin and Adjusted EBITDA margin. Interest expense, net, is net of interest income that is included in other income (expense) on the Consolidated Statements of Operations.

Current wording

The following information reconciles segment and consolidated net income (loss) to EBITDA and Adjusted EBITDA and provides the calculation of EBITDA margin and Adjusted EBITDA margin. Interest expense, net, is net of interest income that is included in other income on the Consolidated Statements of Operations.