Hello, and welcome to the NACCO Industries Q4 2022 Earnings Conference Call. My name is Lauren, and I will be coordinating your call today. I will now hand you over to your host, Christina Kmetko to begin. Christina, please go ahead.

Thank you. Good morning, everyone, and welcome to our 2022 fourth quarter and full year earnings call. Thank you for joining us this morning. I am 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 our 2022 fourth quarter and full year results and filed our 10-K. 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-K 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 our President and CEO, J.C. Butler, for some opening remarks. J.C.?

Thank you, Christy, and good morning, everyone. I'm very pleased to report that our company once again delivered strong results, generating much higher operating profit, net income, and adjusted EBITDA in the 2022 fourth quarter and full year than in the 2021 fourth quarter and full year. Christy will go into more detail about our fourth quarter earnings and provide an overview of our outlook in a minute. But first, let me provide some highlights for the year. Our strong full year operating results were led by our Minerals Management segment, which more than doubled its operating profit and adjusted EBITDA from 2021. These improvements were driven by substantially higher natural gas and oil prices as well as production volume from more recently acquired mineral interests and increased production from legacy mineral interests. Our team at Catapult Mineral Partners continues to look for opportunities to expand our portfolio of mineral and royalty interests through acquisitions, while also promoting the development of our existing interests. The team acquired approximately $12 million of additional mineral and royalty interest in 2022 and is targeting additional investments of up to $20 million in 2023. Our 2023 forecast for the Minerals Management segment assumes oil and gas market prices moderate to levels in line with 2021 averages. However, as we witnessed in 2022, commodity prices are inherently volatile and changes in natural gas and oil prices could result in adjustments to our current forecast. On the upside, the development of additional wells on existing reserves beyond our forecast or future acquisitions could be accretive to our future results. At our Coal Mining segment, a big highlight of 2022 was Rainbow Energy's purchase of Coal Creek Station from Great River Energy. We are very enthusiastic about our new relationship with Rainbow. With this transaction, our Falkirk Mine gained a new customer, and we recognized $30.9 million of pretax contract termination settlement income. This settlement included a cash payment of $14 million, the transfer of ownership of an office building, and the conveyance of membership units in Midwest AgEnergy Group. Midwest AgEnergy was acquired by a third party in December, and we received a cash payment of $18.6 million for our ownership position. While the transfer of Coal Creek Station was very positive for our Coal Mining segment, a decision made by another customer is not so encouraging. The owner of the power plant served by our Sabine Mine in East Texas plans to retire the plant. If that happens, we will stop delivering coal as of April 1, just a few short weeks away and final mine reclamation will commence. Sabine will receive compensation for providing final mine reclamation services, but that annual income will be less than our income during active mining. Despite the planned closure of Sabine's power plant and the ongoing political and regulatory challenges the coal mining industry faces, we continue to believe the use of coal as a fuel source for reliable electricity in the United States will continue for the foreseeable future. Shifting to our North American Mining segment, our full year operating profit did not meet our expectations. We're working on initiatives designed to support the return to profitability. During 2022, we conducted a thorough review of each North American mining quarry operation to identify areas that are not meeting expectations. We are implementing changes that should drive future improvements in financial results. Until profit improves, North American Mining has narrowed its business development efforts. On a positive note, Lithium Americas continues to make progress on the Thacker Pass project. Our Sawtooth Mining subsidiary is the exclusive contract miner for this major U.S. lithium project and Sawtooth is part of our North American Mining segment. In January, General Motors announced that they will invest $650 million in the Thacker Pass project. It's our understanding that this agreement with GM is a major milestone in moving Thacker Pass towards production. In fact, on March 2, Lithium Americas announced that construction has started. Phase 1 production is projected to begin in the second half of 2026. We plan to begin acquiring equipment for this project in 2023. While this project isn't expected to result in significant income generation until production commences, this is an important step forward in what is expected to be a key project for domestic lithium production. The Mitigation Resources of North America team continues to advance work on existing mitigation projects and build on a substantial foundation established over the past several years. Mitigation Resources established two new stream mitigation banks near Dallas and Nashville in 2022 and was recently named a designated provider of abandoned mine land restoration in the state of Texas. Mitigation Resources are making strong progress towards its goal of becoming a top 10 provider of stream and wetland mitigation services in the Southeastern United States. Overall, I'm very pleased with the way all of these businesses are advancing their strategies, including efforts to protect our coal mining business. Before I turn the call back to Christy, I'd like to recognize that our strong '22 results remain possible due to our great team of employees. Their hard work and tremendous passion for our business continues to propel us forward, but I'm very grateful to be working with such a fantastic team. With that, I'll turn the call back over to Christy to cover our results for the quarter in more detail. Christy?

Thank you, J.C. As J.C. mentioned, we had a strong fourth quarter. I'll start with some high-level comments on our consolidated fourth quarter financial results and then add detail on our individual segments. On a consolidated basis, our 2022 fourth quarter operating profit increased to $15.5 million, up almost 44% versus 2021. Consolidated net income increased to $13.8 million or $1.84 per diluted share, up from $7.8 million or $1.07 per diluted share last year. Consolidated adjusted EBITDA increased 33% to $23.6 million. These improvements were driven by Minerals Management, which more than doubled its operating profit and adjusted EBITDA over the prior year quarter due to both increased production and substantially higher natural gas and oil prices. Significantly lower earnings in the Coal Mining segment partly offset the impact of the higher Minerals Management earnings. Coal Mining fourth quarter revenues increased 30% over 2021 due to a significant increase in customer demand from higher power plant dispatch and a higher per ton sales price at Mississippi Lignite Mining Company. Conversely, operating profit and adjusted EBITDA in the Coal Mining segment decreased significantly. This decrease was due to a substantial increase in the cost per ton of coal delivered at Mississippi Lignite Mining Company and lower earnings at the unconsolidated operations. The decrease in earnings upon consolidated operations was mainly due to a temporary reduction in the per ton management fee at the Falkirk Mine from May 2022 through May 2024. This was partly offset by an increase in earnings at Coteau as a result of contractual price escalation. North American Mining's fourth quarter results improved from the prior year. The year-over-year improvement was primarily due to lower employee-related costs that stem from a voluntary retirement program the company implemented in the third quarter of 2022. The increase in segment adjusted EBITDA outpaced the improvement in the operating loss because of an increase in depreciation expense. Looking forward, in 2023, the Coal Mining segment's operating profit and segment adjusted EBITDA are expected to decrease significantly year-over-year, including and excluding the $14 million GRE termination payment received in 2022. The decline is primarily the result of expected significant reduction in earnings at Mississippi Lignite Mining Company driven by a reduction in the profit per ton of coal delivered. We expect a moderate decrease in earnings of unconsolidated operations to also contribute to the decrease in operating profit. The expected lower earnings are due to the reduction in the per ton management fee at Falkirk for a full 12 months in 2023 compared with eight months in 2022 and the cessation of deliveries at Sabine as of April 1. In 2023, we expect North American Mining's full year operating profit to decrease significantly versus the prior year because final mine reclamation activities at Coteau Creek were substantially completed in 2022. Conversely, we expect segment adjusted EBITDA to increase from 2022 because improvements at the underlying operations are being masked by a significant increase in depreciation expense in '23 versus 2022. Finally, at our Minerals Management segment, we expect '23 operating profit and segment adjusted EBITDA to decrease significantly from 2022. This anticipated decrease is primarily driven by current market expectations for natural gas and oil prices and anticipated reduction in volumes as existing wells follow their natural production decline and limited forecasted development of additional new wells by third-party exploration and production companies. As J.C. mentioned, changes in natural gas and oil prices from current expectations could affect 2023 results. To summarize, on a consolidated basis, we expect full year '23 consolidated net income to increase significantly, largely due to the $30.9 million of pretax contract termination income recognized during '22. Excluding this settlement income, net income is expected to decrease substantially from significantly reduced royalty income in the Minerals Management segment and lower earnings in the Coal Mining segment. These reductions are expected to be partially offset by lower income tax expense. Looking beyond 2023, we continue to remain optimistic about our long-term outlook. The Coal Mining segment expects increased profitability due in part to improvements at Falkirk and Mississippi Lignite Mining Company, and we continue to pursue activities which can strengthen the resiliency of our coal mining operations. As J.C. previously mentioned, opportunities for growth remain strong in the Minerals Management and Mitigation Resources businesses. In addition, we remain committed to North American Mining and are encouraged by recent developments at Thacker Pass. Lastly, from a liquidity standpoint, we ended the quarter with consolidated cash of $110.7 million and debt of $19.7 million. In addition, we had availability of $116.3 million under our revolving credit facility. For the 2023 full year, we expect cash flow before financing activities to remain positive, but be significantly lower than '22 because of the anticipated high capital expenditures primarily for Sawtooth. We will now turn to any questions you may have.

Our first question comes from Andrew Kuhn from Focused Compounding.

So for North American Mining, the results didn't meet your expectations this year. Can you talk about what type of factors have driven the difference between your return on capital expectations when you first started growing this business and the results we've had so far? Like are these issues of expense management? Is it capital intensity? Is it the contract economics? Any way that you can expand on that would be great.

Thank you for the question. I want to highlight the initiatives we're pursuing to improve our business. In our release, we noted that we've reviewed operations at each of the quarries. Generally, most quarries are performing well and generating the expected profits. However, there are a few quarries that are underperforming, which affects overall results. We're focused on enhancing productivity and efficiency. Additionally, we are working on better coordination with our customers since we don't operate the entire quarry ourselves. It's essential for both our efforts and our customers' to be aligned for greater efficiency. We're also examining administrative areas for potential efficiency gains. Overall, we believe we can make significant strides in bringing this business closer to our targets.

Got it. And then I think this is the first 10-K where you mentioned one day possibly developing utility scale solar power reclaim mining ahead. Is that an idea you've been exploring internally for a while? Or is there some other reason that is included in this year's 10-K?

It's an idea we've been exploring for a while. I think it's not a unique idea. You're seeing a number of companies doing this, and we've been working on it as well. We think that it's got enough potential that we decided that we should start talking about it in our public disclosures.

And then in your 10-K, you used a standard disclosure that cash and cash equivalents consist of cash in bank and highly liquid investments with original maturities of three months or less. Given that it would be a large and uninsured depositor at any bank you do business with, I'm just curious if there's been any discussion about being more in three months and under investment and less natural bank deposit?

I'm sure many people have checked where all of our investments are placed. We don't have much exposure related to regular deposits. A lot of it is in three-month paper and similar investments. Does that answer your question?

Yes. No, that's fine.

Our next question comes from Nachy Kanfer from Donovan Energy.

I appreciate all the insights this morning. Just a couple of questions. Actually, follow-ups from conversations we've had in previous earnings calls. First, about Mississippi Lignite. A while back, maybe about a year ago, I had asked if the management team has any concern about the creditworthiness of your customer out there, and your answer was no. I'm wondering if that's still the case.

Ultimately, the customer is TVA, which is a government entity. Looking at TVA's interest in this plant from a resiliency and reliability perspective, along with their public descriptions, it's safe to say they plan to take electricity from this plant for the foreseeable future. If you follow the value chain back, it gives us confidence in how everything is structured. We do recognize that Southern Company and the bondholders are negotiating some issues between themselves, but that's not our concern. Ultimately, TVA is the end customer here.

Got it. That's helpful. So from NACCO's perspective, a default at Kafka generation does not pose a significant risk to coal sales revenue from that customer?

I think it’s important to mention TVA. There’s a sequence of contracts starting with us supplying coal and ending with TVA receiving energy. The only way anyone can recover their investment is by running the plant, and they can't do that without coal from our mine. So, it's in everyone's best interest to keep operating.

I wanted to ask about the EPA's proposed action regarding Coal Creek's Part B application under the Coal Combustion Residuals rule. My understanding is that the EPA is suggesting to deny the application, which would lead to substantial capital costs for upgrading ash handling and other related areas. I am not sure what these costs might be, and I would like to know if you have any insights on that. Additionally, can you provide an idea of how this might impact our earnings per share or any other financial metrics? How are we approaching this situation?

Good question. I'm going to give you, unfortunately, two answers that aren't going to be very helpful to you. But one is that Coal Creek's negotiations or discussions with the EPA are between them. I don't think it's right for me to comment on those. We have never disclosed our individual profits that we make at any of these mines for obvious competitive reasons.

Understood. Can you describe if there is a risk that Coal Creek declares force majeure on your newly renegotiated contract? How are you considering that risk? Well, maybe not force majeure. I mean, I'm not an attorney, but...

Yes, well, that's what threw me. I'm like, well, how is this force majeure coming to this.

Is there a risk that there's a termination, an early termination of some sort to that coal sales agreement?

Not that we see. I mean, look, is there a remote possibility that anything can happen. I mean, it could get hit by an asteroid, right? So things can happen, but we don't view that as a significant risk.

We have no further questions. I'll now hand you back over to Christina Kmetko for closing remarks.

Thank you. We'll close with just 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 have any questions, please reach out to me. You can reach me at the phone number on the press release. I hope you enjoy the rest of your day, and now back to our operator to conclude the call.

This concludes today's call. Thank you for joining us. You may now disconnect your lines.