Hello, everyone, and welcome to the NACCO Q2 2022 Earnings Conference Call. My name is Seth, and I'll be the operator for your call today. I will now hand the floor over to Christina Kmetko. Please go ahead.

Thank you. Good morning, everyone, and welcome to our 2022 second quarter earnings call. Thank you for joining us this morning. I'm Christina Kmetko, and I am responsible for Investor Relations at NACCO Industries. Joining me today are J.C. Butler, President and Chief Executive Officer; and Elizabeth Loveman, Vice President and Controller. Yesterday, we published the second quarter 2022 results and filed our 10-Q. This information is available on our website. Today's call is also being webcast. The webcast will be on our website later this afternoon and available for approximately 12 months. Our remarks that follow, including answers to your questions, could contain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. These risks include, among others, matters that we have described in our earnings release issued last night and in our 10-Q and other filings with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. In addition, we will be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in our earnings release and on our website. In a moment, I will discuss our results for the quarter. But first, let me turn the call over to J.C. Butler, our President and CEO, for some opening remarks. J.C.?

Thank you, Christy, and good morning, everyone. Second quarter 2022 was another very strong quarter for us. As I mentioned during our Q1 call, Rainbow Energy's purchase and the Coal Creek Station power plant in North Dakota from Great River Energy was finalized in early May. As a result, our second quarter Coal Mining segment earnings benefited from contract termination settlements received from our former customer, Great River Energy. We received $14 million in cash and recorded income of $16.9 million related to our receipt of an office building in Bismarck, North Dakota, and membership units in a private company that produces ethanol. We're excited to have this transaction completed and enthusiastic to have Rainbow Energy as our new customer. As independent privately-held energy marketers, I think they have a real understanding of the value of the power plant and its potential for the future. At our Coal Mining segment, we continue to work diligently to support our existing customers so that they can continue to produce affordable and reliable energy. Although, the coal mining industry faces ongoing political and regulatory challenges, we believe the use of coal as a fuel source for electricity in the United States will continue for the foreseeable future. We think there are more reasons to be optimistic about coal-fired power generation today than at any other time in the last several years. Turning back to the quarter. I'm pleased to report that our earnings improved significantly over the second quarter of 2021, even excluding the settlement with GRE, driven primarily by strong results in our Minerals Management segment. This improvement was partly offset by unfavorable changes in the fair value of certain exchange-traded equity securities we own and an increase in unallocated employee-related expenses. The strong earnings at Minerals Management were mainly due to significantly higher natural gas and oil prices in 2022. This quarter's results also benefited from a $2.4 million gain on sale of land related to legacy operations. We completed a small acquisition in the first quarter, and the Catapult Mineral Partners team continues to look for attractive acquisitions of mineral and royalty interests that will allow us to continue to grow and diversify this business while also promoting the development of our existing mineral interests. Our North American Mining segment had an increase in revenues but lower operating profit in the second quarter of 2022 as employee-related costs rose over the prior year. And as I said before, there's a lot of growth potential in this business, and North American Mining continues to review potential new projects. I'd also like to note that Lithium Americas continues to make progress on the Thacker Pass project. In July of 2022, Lithium Americas provided an update that noted all key state-level permits have been issued and feasibility study results are expected in the second half of this year. These steps bring them closer to the start-up of this project. We continue to work closely with them as they advance the Thacker Pass project. The mitigation resources of North America team continues to work on existing mitigation projects and the development of a number of interesting new projects. During the first half of 2022, Mitigation Resources purchased property to establish a new mitigation bank in Texas and finalized an agreement to provide mitigation services for the Lake Ralph Hall project, which is also in Texas. With these new projects, Mitigation Resources is involved in over 10 mitigation banks and permittee-responsible mitigation projects and is making strong progress towards its goal to be a top 10 U.S. provider of stream and wetland mitigation services. I'm very pleased with the way all of these businesses are advancing their strategies. With that, I will turn the call back over to Christy to cover our results for the quarter in more detail. Christy?

Thank you, J.C. I'll begin by summarizing the consolidated quarter results and then provide further details at the segment level not already mentioned by J.C. On a consolidated level, our second quarter operating profit increased significantly to $29.7 million, up from $8.7 million in 2021. Our consolidated net income rose to $37.2 million or $5.07 per share, compared to $6.5 million or $0.91 per share last year. As J.C. pointed out, these increases were largely due to the contract termination settlements received from GRE. Our second quarter consolidated adjusted EBITDA, which excludes the contract termination settlements, grew to $21 million, a 37% increase from $15.3 million last year. This rise was mainly attributed to better results in our Minerals Management segment and the addition of higher depreciation, depletion, and amortization expenses. Looking at our segments, excluding the contract termination settlement, operating profit in our Coal Mining segment fell slightly due to higher employee-related costs and reduced earnings at Mississippi Lignite Mining Company, mainly due to inflation affecting the cost per ton delivered. An increase in earnings from our unconsolidated mining operations, particularly from contractual price escalations and increasing customer demands at Coteau, helped to mitigate these declines. J.C. already highlighted the key reasons for the decrease in North American Mining operating profit, so I will concentrate on our second quarter segment adjusted EBITDA. Adjusted EBITDA was similar to the previous year's quarter since the lower operating profit was fully offset by the addition of higher depreciation expenses from acquiring more equipment for new contracts. Lastly, the operating profit and segment adjusted EBITDA for the Minerals Management segment in the second quarter of 2022 more than doubled compared to the previous year. As J.C. noted, this significant improvement was driven by rising natural gas and oil prices as well as the gain from the sale of land. Those are the key factors influencing our results, now let me discuss our outlook. We anticipate the Coal Mining segment's operating profit in both the second half and full year of 2022 will decline substantially from 2021, both including and excluding the contract termination payments received from Bisti last year and GRE this year. We expect our consolidated mining operations to see a significant decrease in the second half of this year compared to the same period last year and the first half of 2022, primarily because of much lower earnings at the Mississippi Lignite Mining Company, driven by an expected drop in customer demand from the unusually high levels in the second half of 2021. Cost inflation is also likely to contribute to an increase in the cost per ton sold for the remainder of this year. Due to the expected rise in costs per ton, we forecast that the full year results for 2022 will be considerably lower than last year. Anticipated lower earnings at the unconsolidated Coal Mining operations are expected to result from the agreed reduction in the per ton management fee at Falkirk following the May 1, 2022 transfer of Coal Creek Station, which lasts until May 31, 2024, and the termination of the Bisti Fuels contract as of September 30, 2021. However, these declines will be partly offset by improved earnings at Coteau. We also expect an increase in operating expenses mainly due to anticipated higher employee-related costs, professional fees, and outside services. Segment adjusted EBITDA, which excludes the contract termination settlement payments, is expected to decline significantly in 2022 compared to last year primarily due to the projected reduction in operating profit, though this will be partially offset by a higher addition of depreciation, depletion, and amortization expense. We project North American Mining's operating profit to increase in both the second half of 2022 and for the full year when compared to the same periods last year. The anticipated growth in the second half is mainly due to expected improvements in fourth-quarter results, primarily from a shift towards higher-margin contract deliveries, though this may be slightly countered by expected increases in operating expenses. In 2022, North American Mining segment adjusted EBITDA is expected to rise significantly compared to the prior year owing to better operating profits from higher reclamation income at Caddo Creek in the first half of this year and the addition of higher depreciation expenses. Moving to Minerals Management, excluding the $3.3 million settlement income recognized in last year's third quarter, we expect the operating profit and segment adjusted EBITDA in the second half of this year to be similar to the second half of last year, but they will significantly decrease compared with the first half of 2022, primarily due to our current expectations for natural gas and oil prices and a predicted drop in production volumes. However, because of strong earnings in the first half of this year, we anticipate a notable increase in Minerals Management's full-year 2022 operating profit compared to 2021. To summarize, on a consolidated basis for the full year of 2022, excluding the contract termination settlements from GRE this year and Bisti last year, we expect consolidated operating profit and net income to decrease moderately from 2021. The anticipated decline in operating profit within the Coal Mining segment is expected to be partially balanced by significant earnings growth in the Minerals Management segment. Moreover, income earned in 2021 from owned exchange-traded equity securities is not expected to recur due to a downturn in public equity markets during 2022. Lastly, we expect our consolidated adjusted EBITDA for this year to be on par with 2021. Global events have led to volatility in the natural gas and oil markets, resulting in rising prices for these commodities. While we cannot predict future changes in these markets, it is important to note that persistently high natural gas and oil prices could further benefit our 2022 results in both the Minerals Management and Coal segments, especially if elevated natural gas prices lead to increased coal usage at customer power plants. Moving beyond our expected results, I would like to share some cash flow information. We ended the quarter with consolidated cash of $97.1 million and debt of $18.4 million. Additionally, we had $119.9 million available under our revolving credit facility. For the full year, we anticipate that cash flow before financing activities will be significantly lower than in 2021 due to projected high capital expenditures.

Thank you. Our first question comes from Andrew Kuhn from Focused Compounding. Please go ahead.

Good morning, everyone. Great quarter.

Good morning, Andrew.

So should we think of the office building and the ethanol company membership units you received as being assets you're likely to hold for the long term? Or are these assets you would consider monetizing in some way if conditions were right?

It's a good question. The office building in Bismarck is a very nice modern structure with several tenants. Now that we own it, we are considering the option of using a part of that space ourselves. Currently, we rent an office in North Dakota, which isn't ideal for our needs, though it's acceptable. We are looking into the possibility of relocating our office to this new building, although it would only be a small portion of the space, as the rest is rented. Additionally, we'll continue to assess it as an asset, determining whether it makes more sense to own it or sell it. Real estate ownership like this isn't part of our core business, so we'll evaluate it over time to see what is most beneficial, whether we become the landlord of the space we occupy or continue renting from others. Regarding the membership interest in the ethanol plant, we've held an ownership stake for several years because these plants are situated next to power plants where we supply coal. It made sense to invest in this business while it was developing, as it helped increase our coal production on the margin. The future of that investment is uncertain. We have been pleased to acquire additional membership interests, but we remain minority owners and will continue to monitor the situation.

Got it. Thanks. And then does the shift of planned equipment acquisition costs for Thacker Pass from 2022 to 2023 reflect a meaningful change in your expectations for the pace at which that project will proceed, or do you expect Thacker Pass to move ahead at about the schedule you originally expected?

The project is not progressing as quickly as initially anticipated, but this delay is mainly due to our customer conducting careful analyses on how to develop the project and how we can collaborate with them. I believe this approach will result in a larger project that will significantly benefit both their business and ours in the long run. The change in timing doesn't raise any concerns for me; the project remains very appealing. In recent years, the demand for lithium, especially domestic lithium, has increased, so I am optimistic about the project's future.

Right. And then do you expect that any future value changes in the office building, the private membership units, the publicly-traded equity security, and the Bellaire trust assets will all be recorded in the Corporate segment or are some of these items going to be grouped within an actual operating segment?

Liz, that sounds like a question for you.

So those are all below operating profit, so they're below our segment results that we report. They're a component of other income.

So I guess the answer to that is no.

Correct. Yes, it's below segment. We report segment operating profit, and anything below that is reported on a consolidated basis.

Got it. All right. That's all I have for today, and keep up the great work, and I'll hop back in the queue.

Great. We appreciate your interest.

That appears to conclude our Q&A session. Let me ask J.C. if you have any closing remarks?

I do not. Thanks, Christy.

Thanks, J.C. We'll just close with a few final reminders. A replay of our call will be available online later this morning. We'll also post a transcript on the Investor Relations website when it becomes available. If you do have any questions, please reach out to me. You can call me at the phone number that is available on the release. I hope you enjoy the rest of your day, and now I'll turn back to Seth to conclude the call.

Thank you. This concludes today's conference call. As Christina said, a replay will be available, and the replay details are as follows. If you're calling from the U.S., please call 1 (929) 458-6194. If you're calling from Canada, please call 1 (226) 828-7578 and then to the access code 279176. Once again, if you're calling from the U.S., please call 1 (929) 458-6194. If you're calling from Canada, please use 1 (226) 828-7578 and then to the access code 279176. Thank you. You may now disconnect your lines.