Good afternoon. Thank you for joining Hallador Energy's Second Quarter 2024 Conference Call. My name is Cole, and I will be moderating today's call. I would now like to turn it over to Sean Mansouri, the Company's Investor Relations Advisor with Elevate IR.

Thank you, and good afternoon, everyone. We appreciate you joining us to discuss our second quarter 2024 results. With me today are President and CEO, Brent Bilsland, and CFO, Marjorie Hargrave. This afternoon, we released our second quarter 2024 financial and operating results in a press release that is now on the Hallador Investor Relations website. Today, we will discuss those results as well as our perspective on current market conditions and our outlook for 2024. Following prepared remarks, we will open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements, subject to a variety of risks, uncertainties and assumptions contained in our filings from time to time with the SEC and are also reflected in today's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, Hallador has no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law to do so. We plan on filing our Form 10-Q later this week. And with the preliminaries out of the way, I'll turn the call over to President and CEO, Brent Bilsland.

Thanks, Sean. At Hallador, we've been undergoing a strategic and deliberate transformation process to capture increased value from our products and services as the company advances up the value chain. To accomplish this, we have focused on expanding our offerings from fuel production to wholesale electricity sales to ultimately powering the industrial end user. The acquisition of our Merom Power plant, less than two years ago, was the first step in this journey, enabling us the ability to transform our fuel into higher-value wholesale electricity. We took another step forward earlier this year when we signed a memorandum of understanding with Hoosier Energy and WIN REMC, creating a pathway to further increase value and drive margin expansion by enabling sales of wholesale electricity to industrial users of power. We have recently carried out a data center targeted request for proposal that has received a strong response. Our active negotiations on that RFP further strengthen our conviction that power is in critical demand and that we possess a crucial component to the success of these data centers. While we are encouraged by our progress with our counterparties, we caution that these negotiations are ongoing and take time given the potential magnitude for both our partners and our company. Nearly all of these proposed transactions would involve sales of large amounts of our energy and capacity for well over a decade. The state of Indiana, where our power plant is located, continues to solidify its position as the developing hub for high-tech and high-growth sectors. The Indiana Economic Development Corporation reports that plans for nearly $15 billion of new investments in Indiana's technology infrastructure have been announced by Fortune 500 businesses thus far in 2024, underscoring the growth potential in our marketplace. Businesses need power to enable them to build in Indiana, and Hallador is one of the few companies that has. We believe we are entering a unique time of electricity scarcity. We have heard multiple reports from across the country where utilities have informed industrial customers they cannot timely provide them with the power needed to support their growth. We have seen numerous companies reference the lack of available power as restricting their company plans. Last week, the results of the PJM capacity auction, a neighboring market to the MISO system where we operate, had certain zones where capacity prices traded up to the legal limit as much as 9 times more than the previous year. This result supports our belief that the value of dispatchable generation like our Merom plant continues to increase. Energy scarcity is leading to higher long-term power prices as evidenced by significantly higher energy prices starting in 2026 as contracted by Hallador and forecasted by the forward energy curve. I would also like to point to a recent article in the Wall Street Journal, reporting that heavy industrial users of power, such as aluminum smelters, are struggling to compete for electricity with higher value users of energy, such as data centers. According to the article, in the year 2000, there were 23 aluminum smelters located in the United States. Today, there are only four. During the quarter, we added $45 million in forward energy sales, bringing our forward capacity and energy sales book to $664 million as of June 30. When combined with our forward fuel sales, our total forward sales book at June 30 totaled approximately $1.4 billion. Unfortunately, the recent environment for spot electricity sales has been challenging. This past winter, record-high U.S. natural gas production ran into the ninth warmest winter on record according to NOAA; the lack of winter heating demand contributed to gas inventory levels climbing as most of 38% above the 5-year average. As gas prices decreased, wholesale electricity prices also declined. In the first six months of 2024, approximately 90% of the off-peak energy hours at the Merom Hub and approximately 60% of the total energy hours at the Merom Hub were priced below our production cost at our Merom facility. Our goal is for Hallador Power to generate approximately 1.5 million megawatt hours on a quarterly basis, which equates to approximately 6 million megawatt hours annually. During the first half of 2024, Hallador Power generated approximately 1.6 million megawatt hours. We experienced sales prices of nearly $261 per megawatt hour for limited times balanced against most days, pricing below our variable cost to produce. These fluctuations led to an inconsistent dispatch schedule. We also performed 70 days of scheduled outages on half the plant during the first half of the year. We believe the environment will be better in the last half of this year to see higher dispatch rates as we have no scheduled outages planned for the plant for the balance of this year. Additionally, our plant already ran 437,000 megawatt hours for the month of July. Gas inventory levels have also improved from 38% above the 5-year average in March to 16% above the 5-year average at the end of July. For the first half of 2024, lower energy prices negatively affect both Hallador Power Company's generation model and the dispatch rates of Sunrise Coal's utility customers. In response to dispatching less, those customers slowed coal shipments from Sunrise during the first half of this year. To match Sunrise's production levels and cost structure to that of market demand, we restructured Sunrise's operations in the first quarter of 2024. As we have previously noted, the restructuring included a reduction in force of approximately 110 people in February. We have since allowed attrition to further reduce our workforce by approximately 130 additional people, a total workforce reduction of more than 25% as of June 30. We also restructured our operations to focus on our more profitable units into idle units with higher production costs. Transitioning our Oaktown mining facilities from 7 units of production to 4 units of production was a deliberate process, which took considerable time and effort and was completed in mid-July. We are encouraged by the early results of Sunrise's restructuring and have seen improvement in mining costs since we made the decision to adjust our operations. Our clean tons per foot of advancement, a key efficiency metric we utilize, improved from January to June by 27%. And our June cash cost at Oaktown was approximately $44 a ton while our cash costs for the quarter were approximately $50 million. We expect to continue driving improvements in cash costs in the second half of the year as we have already implemented further operational improvements in the month of July. It's worth noting that you will not find these cash cost numbers in our upcoming 10-Q filing as we have revised the presentation of our financials to conform with GAAP. Overall, we're enthusiastic about how it looks prospects for significant growth and value creation. The improving energy market landscape provides a solid foundation to return to growth as we exit 2024, and we believe the surge in demand for power from data centers and other industrial users provides a real opportunity to transform our financial profile over the long run. I will now hand the call over to Marjorie Hargrave before opening Q&A and returning for closing remarks.

Thank you very much, Brent, and good afternoon, everyone. Turning to our second quarter financials. Electric sales for the quarter were $56.8 million compared to $71 million in the prior year period. The decline was primarily due to an abundant natural gas supply, leading to low energy prices. This, coupled with the mild winter and scheduled maintenance, resulted in our dispatch rates being decreased. Coal sales were $32.8 million for the quarter compared to $88.6 million in the prior year period. This decline was driven by our decision to reduce our coal production as previously discussed in our restructuring of our Sunrise Coal division. Additionally, a slowdown in customer deliveries coincided with the decrease in coal plant output throughout the quarter. These two segments drove revenue of $90.9 million for the quarter compared to $161.2 million in the prior year period. Net loss for the quarter was $10.2 million compared to positive net income of $16.9 million in the prior year period. This was largely driven by a loss in coal operations of $13.33 per ton due to a reduction in contract average sales price and reduced demand given the oversupply of lower-priced natural gas and reduced dispatch rates at our customers' coal-fired power plants. We improved operating cash flow to $23.5 million for the quarter compared to $18.1 million in the prior year period. Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today, was negative $5.6 million for Q2 compared to $35.3 million in the prior year period. We invested $13.1 million in capital expenditures during the second quarter, bringing total year-to-date CapEx to $28 million. This puts us well on target for our planned capital outlay of $43 million for calendar year 2024. In response to the current environment, we focused on strengthening our balance sheet. During the second quarter, we decreased our bank debt by $31.5 million. This decrease in bank debt contributed to our 41% decrease in total debt from $141 million as of December 31, 2023, to $83 million as of June 30, 2024. We also repaid $5 million of unsecured one-year notes from related parties affiliated with our Board of Directors that were issued during the first quarter of 2024. Utilizing our ATM offering, we raised $27.9 million by issuing 3.9 million shares of our common stock during the quarter. We also successfully converted our remaining $11 million of senior unsecured convertible notes, including accrued interest with 2.1 million shares of our company's common stock. Taken together, as of June 30, 2024, our bank debt was $45.5 million. Total liquidity improved to $60.7 million, and our leverage ratio was 2.12 times. These improvements were supported by a $43 million prepayment for an 11-month forward energy sale, representing approximately 22% of our annual $6 million megawatt hour goal during the term of the contract. Through these strategic actions to bolster our balance sheet, we have established a solid foundation to carry us through the challenges of the near-term environment and position Hallador for significant growth and margin expansion in the years ahead. That concludes our prepared remarks. We will now open up the call for any questions.

Our first question is from Lucas Pipes with B. Riley. Your line is now open.

Thank you very much, operator, and good afternoon, everyone. Brent, my first question is on the bilateral power agreements with data centers that you mentioned. I wonder if you could maybe speak a little bit to the type of organizations that have shown interest, how mature are they? What's the size? And also, what do you screen for from those potential customers? Are you looking for the best price? Are you looking for a specific credit profile? I would appreciate your thoughts on that. Thank you.

Yes, great question. We are engaging with various partners and potential customers, including investor-owned utilities, cooperatives, and co-hosting data center developers. These are the types of organizations we are considering. As mentioned earlier, all these parties are trying to build data centers as quickly as possible, which involves significant capital investment and a long-term need for power. They want to ensure that they have reliable power available for more than just the first year or two. We anticipate selling most of our energy and capacity for a period exceeding ten years. If we are successful, this could represent a major, transformative transaction for the company. However, these deals are not finalized easily; they require lengthy negotiations due to the substantial financial implications and the construction projects typically involved. What we are looking for are partners with strong creditworthiness. We want assurance that they will fulfill their commitments throughout the duration of the contract, not just at the start. Therefore, we are considering the feasibility of transacting with the counterparty and whether their financial standing can endure over time. These are the primary factors we are taking into account.

And you mentioned that these things can take a while. Any color in terms of how long it could take from here? I know you just mentioned there's a lot of wood to chop. But any perspective you could add that would be appreciated.

That's a great question, too. And we only control one side of the negotiation. And oftentimes, in the negotiation, you have three parties, right? You have ourselves, the wholesaler of power capacity. You have someone that like a Hoosier that has the right to sell industrial power that we have, an MOU to potentially sell through, and then you have the end user. And so, because there are three different groups typically to the transaction, our crystal ball on how long this all takes is a little more opaque. So, what does it feel like? It feels like I don't know, somewhere near the end of the year or Q1 of next year. That's what it feels like. But we'll just have to stay tuned.

Brent, I appreciate your input. Thank you for your efforts. I understand there are uncertainties among different parties. I have another question regarding the second half of 2024 in relation to the performance in the first half. Clearly, power pricing has been lower. I recall you mentioned 1.6 million megawatt hours sold in the first half. Looking ahead to the second half, what do you anticipate that number will be? You indicated that utilization rates in July might be somewhat higher, but gas prices are very low. If you could provide a specific range for generation, I would value your insights on that. Thank you.

The market has improved since March when gas inventory levels were 38% above the five-year average, indicating a significant amount of gas in storage. We believe that the lower gas prices are intended to encourage its usage. Currently, higher efficiency plants are operating ahead of coal plants due to the very low gas prices. While many look at Henry Hub and IMEX pricing, Chicago Citygate may be a better indicator for us, and it is even discounted compared to those markets. There has been a lot of gas priced under $2 in the first half of the year. Inventory levels have decreased, and by the end of July, they were down by 22% to 16%, still 16% above the five-year average. Although there is still plenty of gas, we are in a much better position than at the start of the year. It’s summer now, and we experienced strong heating demand in July, which should continue in December. It's difficult to predict the rest of the year, but we expect cooling demand around Thanksgiving. We have no scheduled outages for the second half of the year, after experiencing outages in the first half that limited half of our plant's availability for 70 days. If market conditions call for it, our plant will operate without disruptions. We generated approximately 1.6 million megawatt hours in the first half, and we've already surpassed 25% of that total just in July. The market outlook is positive, and we expect to run more. Gas prices in December are projected to be above $3, which means we should see increased production and better gross margins. More output equates to higher margins, which leads us to believe we will finish the year strong and return to more profitable times compared to the first half of the year.

Thank you very much, Brent. I really appreciate it all. I'll turn it over for now. Continued best of luck.

Thank you.

There are no additional questions at this time. So, I'll pass the call back to the management team for any closing remarks.

I want to thank everyone for taking the time today to tune into our earnings call. I want to thank our management team. And thank you, everyone, for their interest in Hallador. Thank you.

That concludes today's call. Thank you all for your participation. You may now disconnect your lines.