Good morning, ladies and gentlemen, and welcome to the NACCO Industries Third Quarter 2024 Earnings Conference Call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question-and-answer session. This call is being recorded on Thursday, October 31, 2024. I would now like to turn the conference over to our Investor Relations, Mrs. Christina Kmetko. Please go ahead.

Thank you. Good morning, everyone, and welcome to our third quarter 2024 earnings call. Thank you for joining us this morning. I'm Christina Kmetko and I'm responsible for Investor Relations at NACCO. Joining me today are J.C. Butler, President and Chief Executive Officer; and Elizabeth Loveman, Senior Vice President and Controller. Yesterday, we published our 2024 third 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, contain forward-looking statements. These statements are subject to several 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've described in our earnings release, 10-Q and other SEC filings. We may not update these forward-looking statements until our next quarterly earnings conference call. We'll also 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. With the formalities out of the way, I'll turn the call over to J.C. for some opening remarks. J.C.?

Thank you, Christy, and good morning to those listening. Our 2024 third quarter was another strong quarter for us. It was very much helped along by the $13.6 million of business interruption insurance income we recorded at Mississippi Lignite Mining Company in relation to a boiler outage of the customers' power plant that reduced customer demand from mid-December 2023 until the end of July. However, even without the insurance recovery, I'm pleased to say our results were very strong, specifically in our Coal Mining and Minerals Management segments. Excluding the insurance, our consolidated operating profit increased over 197% from last year's third quarter loss. Christy will provide more detail about our third quarter income and an overview of our outlook after my remarks on the operations. I'll start with the positive operational news at our Coal Mining segment, which delivered the biggest year-over-year improvement for the third quarter. As you might have surmised from my previous insurance recovery comment, The Red Hills power plant completed the repairs to the damaged boiler during the quarter. That said, the resolution of this issue was only a small factor in the Coal Mining segment's improved results. Coal mining revenues declined primarily due to fewer deliveries at The Red Hills power plant as compared with 2023 when the plant was operational for an entire quarter. Despite this lower customer demand, Mississippi Lignite Mining Company's Red Hills mine operated more efficiently this quarter than one year ago. In 2023, we were still finalizing the move to a new mine area and contending with difficult mining conditions related both to the move and to weather. We're now established in this new mine area and mining conditions have improved. This contributed significantly to the improved results at this mine for the quarter. And I'd also like to note the improved earnings in our unconsolidated coal mining operations. I mentioned last quarter the temporary price concessions put in place at Falkirk to help facilitate Rainbow Energy's acquisition of Coal Creek Station ended in May. Our third quarter results reflect a full quarter of the higher pricing, which contributed to the increase in our Coal Mining segment results. At Minerals Management, I'm pleased to report that the investments we've been making in new mineral assets are delivering benefits. Third quarter 2024 operating profit for this segment increased over last year, largely due to higher production volumes from the assets acquired in late 2023. We are very pleased with the work done by the Catapult Mineral Partners team, which oversees this segment. And they've expanded our portfolio of mineral interests, and we are more diversified in terms of our oil and gas mix, a wider range of operations, a greater geographic footprint and various stages of mineral development ranging from producing wells to undeveloped mineral interest. Catapult team continues to review additional investment opportunities. Shifting to the North American Mining segment. First, let me say, we are thankful that all of our Florida employees are safe and the impact to our operations from the recent hurricanes was not substantial. The significant rain in Florida as well as planned customer outages did affect our third quarter deliveries. Despite this lower customer demand and excluding the effect of reimbursable costs, North American Mining's revenue still increased 24% year-over-year due to favorable pricing and delivery mix at the limestone quarries. Looking at North American Mining's operating results. Last quarter, I mentioned that we had begun mining phosphate for a new customer in Florida. This customer temporarily ceased operations in the third quarter as it works through business challenges. We are hopeful these challenges can be resolved. We established a $900,000 reserve against their receivable. Primarily as a result of this charge, North American Mining generated a modest operating loss in the 2024 third quarter compared with the prior year operating profit. I'd also like to note that Lithium Americas continues to make progress on the Thacker Pass project. Earlier this week, they announced the closing of a significant loan from the Department of Energy, which will help finance the construction of the Thacker Pass Lithium project in Northern Nevada. We are thrilled that our customer has reached this important milestone and what this latest development means for this project. We continue to support the project by assisting with certain construction services. And in addition, in the fourth quarter of 2024, we and Lithium Americas agreed to expand the scope of our work to include transportation of clay tailings once lithium production commences. Phase 1 lithium production is estimated to begin in 2027. Finally, moving to Mitigation Resources of North America. Results for this business continue to fluctuate based on the mix of outstanding projects. However, this team continues to execute existing mitigation and reclamation projects and build on the substantial foundation it has established over the past several years. Based on current expectations for new projects as well as timing of permit approvals and mitigation credit releases, this part of our business anticipates achieving a full year profit in 2025. As this business matures, we believe it can provide solid rates of return on capital employed. Overall, I continue to be very optimistic about our business. I have a lot of confidence in our trajectory and the team, and I'm pleased with the way all of these businesses continue to advance their strategies, including efforts to protect our coal mining business. With that, I'll turn the call back over to Christy to cover our quarterly results and outlook in more detail. Christy?

Thank you, J.C. I'll start with some high-level comments about our consolidated third quarter financial results, then I'll discuss the results of our individual segments. At the consolidated level, we reported operating profit of $19.7 million and net income of $15.6 million, which equated to $2.14 per share. For last year's third quarter, we reported an operating loss of $6.3 million and a net loss of $3.8 million or a loss of $0.51 per share. EBITDA increased to $25.7 million from $400,000 in 2023. As J.C. mentioned, these financial results include insurance recovery income of $13.6 million recorded in our Coal Mining segment results. Looking at our Coal Mining segment, that segment reported operating profit of $19.9 million and generated segment adjusted EBITDA of $22.1 million. This compares to an operating loss of $4.7 million and close to breakeven segment adjusted EBITDA in 2023. J.C. generally discussed the reasons for the higher Coal Mining segment results. I would note that in addition to the favorable MLMC results and higher Falkirk pricing, improved results at Coteau, another one of our unconsolidated mines, also contributed to the profit improvement. Since J.C. already provided the primary drivers of the Minerals Management and North American Mining results, I will just mention the financial numbers. Minerals Management's third quarter revenues of 2024 revenues of $8.8 million increased 54% from $5.7 million a year ago. Operating profit improved to $6.2 million, up 71% compared to $3.6 million in the 2023 third quarter. North American Mining reported an operating loss of approximately $0.5 million versus profit of $900,000 in 2023. Segment adjusted EBITDA was $2.2 million and down approximately $700,000 from last year. Looking forward, we expect our Coal Mining segment operating profit to increase in both the 2024 fourth quarter and full year compared with both of the prior year periods. This improvement occurs with or without the $60.8 million impairment charge that was taken in fourth quarter 2023. Higher segment adjusted EBITDA, which excludes the impairment charge, is also projected for both periods. These anticipated increases are primarily due to higher earnings at the unconsolidated coal mining operations and an expected improvement in results at Mississippi Lignite Mining Company due to an increase in the index-based sales price, partly offset by a reduction in customer demand. The projected increase in fourth quarter 2024 earnings at the unconsolidated coal mining operations is driven primarily by an expectation for increased customer requirements as well as the higher per ton management fee at Falkirk. Turning to North American Mining. We expect both the 2024 fourth quarter and full year operating profit and segment adjusted EBITDA to increase year-over-year. Fourth quarter results are also anticipated to improve over this past quarter. These improvements are mainly due to mutually advantageous limestone contract amendments and the scope of work expansion with another customer that took effect earlier this year. Finally, at Minerals Management, we expect operating profit and segment adjusted EBITDA to decrease in the 2024 fourth quarter and full year compared with the prior year periods, excluding the fourth quarter 2023 impairment charge of $5.1 million as well as the $4.5 million gain on sale recognized in the 2024 second quarter, which affects the full year comparison. These declines are primarily driven by current market expectations for natural gas and oil prices as well as development and production assumptions on currently owned reserves. As we've mentioned, our fourth quarter 2023 results included a pre-tax impairment charge totaling $65.9 million. My upcoming results comments about our anticipated consolidated results exclude the effect of this charge. Overall, we expect fourth quarter and full year 2024 consolidated operating profit and adjusted EBITDA to increase significantly year-over-year. These improvements are primarily due to the anticipated increases in profitability at Coal Mining from improved results at Mississippi Lignite Mining Company, Falkirk and Coteau. Also, North American Mining's growth and profit improvement initiatives are expected to contribute to the improved earnings. Full year 2024 net income is expected to increase significantly over 2023. Looking toward 2025, the company's businesses provide critical inputs for electricity generation, construction and development, and the production of industrial minerals and chemicals. Increasing demand for electricity, onshoring, and current Federal policies are creating favorable macroeconomic trends within these industries. We anticipate solid customer demand at our coal mining operations in 2025 and will benefit from the absence of temporary price concessions at Falkirk. However, cost inflation is anticipated to affect Mississippi Lignite Mining Company's 2025 results. North American Mining expects to build on its current 2024 momentum to deliver further improved results in 2025. Benefits from new and amended contracts and new business expansion opportunities are expected to generate improved 2025 results on expectations for comparable year-over-year customer demand. Mineral Management's current high-quality diversified portfolio provides a strong foundation of well-positioned assets that are expected to continue to deliver solid financial results. However, given current trends in oil and natural gas prices and projected volumes, we anticipate a moderate production decline in 2025. In addition, we are taking actions to terminate our defined benefit pension plan, which will eliminate future volatility from changes in the pension obligation. Once complete, obligations under the terminated plan will be transferred to a third-party insurance provider. Although the plan is currently overfunded, NACCO is anticipating a noncash settlement charge in 2025 upon termination. Before I turn the call over to questions, let me close with some information about our balance sheet and cash flow. We ended the quarter with consolidated cash of approximately $63 million and debt of $70 million. During the third quarter, we also purchased approximately 68,000 shares for $2 million under an existing share repurchase program. We amended our revolving credit facility during Q3 to increase the revolving credit commitments to $200 million and extend the maturity to September 2028. Availability under the revolver was approximately $131 million at September 30, 2024. We expect cash flow before financing activities to be a use of cash for the full year 2024. We will now turn to any questions you may have.

Thank you. Our first question comes from the line of Doug Weiss from DSW Investment. Please go ahead.

Hi, good morning.

Good morning, Doug.

Good morning, Doug.

So I guess starting with the phosphate customer, what happens when a customer is facing financial difficulties? Do you stop doing work? And then what happens to the equipment and so on?

Well, I mean, it completely depends on the situation, right? We're going to handle any of these specifically to the circumstances. If it's a place where we can pull people away so that we're not incurring costs, if it's a contract where we're actually paying the cost, then we'll pull our employees away, we'll reduce costs, do what we need to do, secure equipment, if it's our equipment, button things up. In other situations, it might be that a customer is paying all the costs, and we'll make an assessment about the situation there as well. So it really is very situation-specific and contract-specific.

Are you able to say how many tons that contract is?

No. I will also tell you that one of the things that I've been thinking about anyway is, as we start to diversify into more and more different kinds of minerals within the North American Mining segment, it is tons really a useful statistic? While it's when it's predominantly limestone makes sense. As you start mixing in other things like potash and lithium and other things that we'd like to mine in the future, it becomes a less meaningful number.

Okay. And by the way, I think I misspoke. I think I described it as potash, but it's phosphate, right?

Yes. Sorry, I'm sorry, phosphate. You got me doing it, too.

I planted that idea in your mind. So, do you want to say whether this is a contract where the customer is covering the cost?

We took a charge that we felt was necessary. If there are any concerns, it's important to take that charge. Our position is that we are hopeful this will be resolved in the next couple of quarters and that progress will be made. We are closely monitoring the situation, and the other party is being very transparent with us. Overall, we feel positive about how things are unfolding. However, we are not in control, and as a service provider, we'll need to wait and see how this develops.

Okay. And then the 10-Q mentioned that the decline in tonnage for the quarter still on North American Mining was largely due to rain and customer maintenance. Would you expect that tonnage to kind of bounce back to the levels in the second quarter as in the fourth quarter and going forward?

Yes. So normally, I think we would. The big wildcard is a substantial amount of our operations, although not all, are in Florida. And in particular, we've got a number of quarries where we operate in Central Florida. The one-two punch of the two hurricanes coming through there, both Helene and Milton, have really slowed down operations in that part of Florida. And it's for a number of reasons. In some instances, there are quarries that are just flooded out and it's impossible for them to get to work until the water recedes. In other instances, what typically happens in Florida after a hurricane is we've all seen the pictures in the newspaper and videos, online or on television, there's just piles of debris and mattresses and sofas and trees and all sorts of stuff everywhere. A lot of the aggregates that we mine and deliver to our customers are then hauled away from the customer side by independent truckers. After a hurricane, a lot of truckers go to work for FEMA and the state and other organizations that are hard at work trying to get things cleaned up. And in addition, a lot of the construction projects where some of these aggregates were going, those things slowed down as well. So for a while, there's a diversion of kind of the people that put aggregates to work while they're cleaning up from the hurricane. And that varies based on the hurricane and the location and all that. Typically, I'm not saying that is exactly what's going to happen here. But typically then, after a period of time when things start to return to normal, normal demand picks up for the construction projects or other activities that are underway using aggregates, but there tends to be a little bit of an additional bump because municipalities in the state are fixing roads and bridges and beaches and other things that require aggregates. So it's hard to say exactly how that's going to play out quarter-to-quarter. But I wanted to give you a flavor for how the dynamics work in Florida typically after hurricanes.

Yes, that's helpful. And that brings me to another question, which is when, in a normal period, on a typical aggregate mine, are you mining to your capacity? Or are you mining to the customers' targeted volume?

Yes, it's all customer-targeted volume. I would say the only time it goes the other way is if we're at capacity with the equipment that's there, which, in some cases, we own and in some cases they own. But yes, it's based on their demand. We sometimes describe that as customer requirements.

Right. I assume there’s a significant amount of fixed cost leverage involved. You need the staff and equipment in place, so I believe your costs remain fairly stable. If demand increases, that would lead to much greater incremental margin. Is that the correct way to view the situation?

Well, it's very contract specific. There are some instances where the customer owns the dragline, pays all of our costs and we receive a service fee. And there are some contracts where we own the dragline and pay all of our costs and provide the work at a fee that covers our costs and capital. We have another contract structure that's a bit in the middle of that, where we own the equipment, but the customer gives us a fixed monthly payment related to the capital that we have invested, and we get a fixed payment related to the fixed costs that we incur and then the service part of it operates on the margin. So there's a range of contract structures that exist in this business.

I see. And does what you're describing have anything to do with how you categorize the businesses as consolidated and unconsolidated in that division? Or is that totally a separate issue?

That is a great question for Liz Loveman.

It really relies on control. We evaluate each contract individually and determine whether it is consolidated or unconsolidated based on the merits of that contract.

I understand. In cases where you don’t own the equipment and act primarily as a service provider, it is more probable that the situation would be classified as unconsolidated. Is that correct?

Correct.

Okay. Great. If you try to expand that business outside of Florida, are there other people who do the same thing you do? I'm curious if there would ever be M&A opportunities to sort of accelerate your diversification?

We are expanding rapidly outside of Florida and now have operations in Texas, Nebraska, Arkansas, and Virginia, along with a lithium mine in Northern Nevada. Our business footprint is growing aggressively. We have established relationships with many of the top 10 aggregate producers in the country and operate under a model that recognizes their expertise in the aggregates business. They can effectively assess and serve their customer base, while we bring our mining expertise to the table, which is not their primary focus. By leveraging our complementary skills and existing relationships with both current and prospective customers, we aim to expand out of state as much as possible. This diversification reduces our exposure to hurricanes and is beneficial for the business overall.

Right. So you see an opportunity to leverage the relationships you have, like with Martin Marietta, where they have a national presence that allows you to start collaborating with them in other states?

Yes, absolutely.

Yes.

We have accomplished this with a number of customers.

Okay. Makes sense. I guess moving to the Mineral Management. I think there's a certain amount of optimism around gas prices next year. If that plays out, would that change your forecast or your expectation in terms of production volume? Is that very much a price-dependent item?

Higher prices will always impact output. However, we believe the most significant influence for us will stem from the price effect. We are aware that this is beneficial for our Minerals Management business due to our extensive natural gas reserves. Additionally, it also favors our coal business by making coal generating assets more competitive compared to natural gas power generation.

Right. Have you considered the possibility of selling forward gas? I understand you’re not physically taking possession of it, but could it serve as a financial hedge?

We have considered various hedging strategies; however, one does not meet the accounting requirements we prefer, and the other incurs costs. While there can be benefits to hedging, it is important to recognize that it also comes at a price. Since we operate our business by owning minerals and purchasing them with cash, we do not carry debt. Unlike some mineral companies funded by private equity or operating as YieldCos, we avoid the costs associated with hedging and can adapt to price fluctuations. Our belief is that this approach will yield greater long-term profitability. If we were faced with short-term pressures, hedging might be a sensible option to guarantee timing on income streams; however, in our current circumstances, we prefer to minimize hedging costs and expect to reap the benefits in the long run.

Okay. And then moving on to the coal. My impression from the 10-K is that those are all multi-decade, particularly just focusing more on the unconsolidated assets, that those are multi-decade reserves. But I guess, is that right? And would you want to kind of put a general number on what the reserve life is of those unconsolidated assets?

There's a lot of reserves there. Liz, I don't know what's disclosed in the technical parts of any of our documents, but there's lots of coal reserves in the unconsolidated coal mines.

Yes. Okay. All right...

If we look in the 10-K, we have some detail included that we update each year in the front section of the 10-K.

Okay. I'll look at it.

Yes, Doug, I can tell you that the unconsolidated mines are in North Dakota. The coal reserves in North Dakota are extensive. There are plenty of coal reserves that likely exceed what is mentioned in our disclosures, as that's probably linked to the permit area. As the permit area expands, more reserves will become available.

Okay. All right. Well, thanks. That’s all I have for today and appreciate the time as always and talk to you next quarter.

Doug, we appreciate your questions. It's great to see somebody digging into the business that's got an interest in what we're doing, and we're happy to take your questions on the call.

There are no questions at this time. Please continue.

Okay. And with that, we'll conclude our Q&A session. I'd like to provide a few reminders. A replay of our call will be available later this morning. We'll also post a transcript on our website when it becomes available. If you do 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 I'll turn it back to our operator to conclude the call.

Thank you. This concludes today's conference call. You can listen to the replay by dialing +1 (888)-660-6345 and enter the passcode 49480. Thank you, everyone. You may now disconnect.