Q2 2020 NACCO Industries Inc Earnings Call

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Thank you for standing by and welcome to the medical Industries second quarter earnings Conference call.

At this time all participants are in a listen only mode.

After the speakers presentation, there will be a question and answer session.

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Alan knowledge I hand, the call over to your speaker today, Christina Kmetko Ma'am. Please go ahead.

Thank you.

Good morning, everyone and welcome to our 2022nd quarter earnings call I'm, Christina Kmetko and I'm responsible for Investor Relations at Nacco industries.

Thank you for joining us this morning, I Hope you and your families are continuing to remain healthy and thanks.

I'll be providing a brief overview of our quarterly results and business outlook and then I will open up the call for your question.

Joining me today, our JP Butler, President and Chief Executive Officer of both Nacco, and North American coal and Elizabeth Loveman Naccos, Vice President controller.

Yesterday, we published our <unk>, our second quarter 2020 result, and saw there. Thank you copies of our earnings release and thank you are available on our <unk>.

Anyone who is not able to listen to today's entire call. An archived version of the sub yeah, we'll be on our website later this afternoon and available for approximately 12 month.

Our remarks that follow including answers. Your question 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 forward looking statements made here today.

These risks include among other matters that we have described in our earnings release issued last night and in our 10-Q and other filings with the FCC.

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.

Let me start by saying that we sincerely. Thank those who continue to work the keepitsafe, particularly those in the healthcare community first responders.

Well I'd also like to recognize our employees who are ensuring they can continue to deliver coal in line down both critical infrastructure industry to our customer.

We truly appreciate everyone's commitment to supporting our customers. While also working diligently to keep one another state.

The majority of our employees had been reporting to work and got much began.

We've implemented safeguards in accordance with regulatory requirements guidance from health authorities forget those at work and limit their exposure to covert drinking.

Other employees, who are able to continue to work from home.

Now, let me discuss our 2022nd quarter will cover our consolidated results first and then provide highlights for each segment.

On a consolidated basis.

Second quarter consolidated net income decreased to $6.1 million or 86 cents per share from $8 million or $1.14 cents per share last year.

The largest driver the decrease was a significant reduction in the earnings of the minerals management segment as in prior year benefited from a large number of new gas wells put into commission during 2018 in early 2019.

This was expected because new wells have high initial production rates.

Oil and natural decline before settling into relatively stable long term production.

Our names in the second quarter 2020 were substantially lower than the second quarter 2019.

The reduced earnings in minerals mean isn't that were partly offset by improved earnings in both the north American mining and coal mining segments as well as lower unallocated employee related expenses.

Bill chance in taxes.

Despite a reduction in tons delivered north American mining operating profit improved significantly primarily due to new operations.

Left here and people changes in the mix of customer requirement.

The coal mining segment operating profit increased modestly over the prior year driven by improved earnings at Mississippi, Lignite mining company and lower operating expenses in the coal mining segment, partially offset by reduced earnings lung consolidated operations.

Effective July for the contract mining agreement between Camino real fuels and its customer does the public at the terminated as a result, and the unexpected termination of the coal supply contrast between an affiliate adults Republican and the customer.

With contract termination eliminated this republicanism need for coal from Camino real fuels Eagle pass mine.

The whole result in line close.

Can you know he outfields has no legal obligation to perform mine reclamation.

But it isn't negotiations with the dose Republican potentially performed mine reclamation activities under a new contractual arrangement.

The contract mining agreement between Camino real fuels dose Republican.

Previously expected determinate in 2021.

Now, let me just getting from Texas.

Similar to last quarter, we had a negative effective income tax rate, which resulted in a tax benefit on income in both the second quarter and first half of 2020 as a result or the care that enacted in response to the cobot 19 pin them.

Paired with tax expense in the comparable prior year period.

The care that include temporary changes regarding the utilization of tax basis net operating losses.

For the full year, we anticipate that the effective tax rate will be negative will result in a benefit within the range of 7%.

10%, excluding discrete items.

I live in significant factors affecting second quarter results.

Now I'll turn to your turned to our outlook.

On the coal mining segment, we expect the second half and full year 2020 coal deliveries on operating profit decreased from their respective prior year period.

Excluding a $2 million unfavorable adjustment to mine reclamation liability Centennial natural resources in the 2019 fourth quarter.

Operating profit in second half of 2000, it's funny is expected to decrease substantially from the prior year as a result in than anticipated decrease in earning at the unconsolidated mining operations due to reduced customer requirements and is expected increase in operating expenses.

And these was bought of higher professional fees.

Excluding the unfavorable 2019 mine reclamation adjustment.

Operating profit for the 2020 full year is expected to decrease from the prior year due to a reduction in earnings at the unconsolidated mining operations.

And the expected increase in operating expenses.

Operating expenses are expected to be moderately higher for the full year of 2020.

North American mining that expect one's done deliveries in the second half and for the full year 2022 increased modestly from the prior year period.

Operating profit in the second half of 2020 is expected to improve over the prior year.

Decreased significantly from the first half of 2020, mainly as a result of the timing of new limestone mining contracts and favorable changes in the mix of customer requirements.

As it was all of this significant increase in the first half of 2020 compared the first half of 2019 full year 2020 operating profit was expected to increase significantly over 2019.

As I noted previously last year's was included significant royalty income, particularly in the first half India generated by a large number of new gas wells put into seem to commission during 2018 and early in 2019.

Given expected lower natural gas prices fewer expected new wells in the natural production climate decline occurred early in the life of a while.

Full year 2020 royalty income is expected to decrease and be substantially lower in 2019 level.

While lift to income is expected to decline in the second half of 2020 compared with the second half of 2019.

We believe the rate of decrease will be substantially lower than the decrease in the first half of this year because prior year incomes.

Significantly decrease between first and second half to 2019.

The mineral management segment is actively engaged in reviewing opportunities to diversify its mineral interest to complement of legacy on gas interest in Ohio.

On a consolidated basis, we expect to significant decline in full year 2020, consolidated net income compared with 2019, primarily due to substantial decrease in operating profit and minerals management as well as a reduction in operating profit at the coal mining.

Okay, Let me quickly provide some cash flow information.

He ended the second quarter with consolidated cache of $95.5 million and that is $28.4 million.

Which is an improvement from consolidated cache of 93 $7 million.

That is $34.6 million at the end of the first quota <unk>.

In addition at the end of the 2022nd corridor, he has availability of $133 million.

150 million dollar revolving credit facility.

He believes that a conservative capital structure and liquidity are important given our strategic initiatives to grow and divorced goodbye.

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Extra cash flow before financing activities in 2020 to be a use of cats eat a significant capital expenditure and payments made in the first half a year related to deferred compensation another payroll liability.

That concludes my prepared room article on.

I will now open up the call for your questions.

N. As a reminder to ask a question are you won't neutral per stores in the number one on your telephone Cupid.

To withdraw your question for Saddam <unk>.

Pleuston Buddy as we can probably Q&A roster.

While we're waiting if anybody.

Does have any follow up question you more than welcome to reach out to me my name and my phone number or all on the morning's really.

Brian It appears we don't have any questions today.

That is correct, we don't have any questions at this time.

Okay.

Turn the Colorado to J C Butler for some final comment.

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Provide a response to warn you question that you shared with me that you received by email. It's a question we have four.

So I mean.

Respond to it as well a question.

Regardless of the differences between L are.

Coal mining segment that are North American mining segment.

And both of those businesses, we operate predominantly with management fee.

Business arrangement set contractual arrangements with our customers.

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Provide.

Of course.

Three operations and we received a fee.

For every unit delivery.

And the question was with regards to why when our call segment earn its Americans mining segment.

Seem to deliver similar volume's wise, the profitability show different or the profits earn between these two segments. So different that answer that question is because the scope of services that we provider just drastically different between the two at a typical typical coal mining operation.

We will have.

Yeah, we operate the entire mind everything from.

Requiring and permitting.

The raw land through permitting.

Pretty strip mining reclamation and all the activities.

That are involved in the operation.

And a large mine there'll be hundreds of employees.

Large coal mine and the north where it can mining segment, we really at this point of primarily focused on the operating Draglines a customer coreys.

So all we're doing is operating and maintaining the dragline, which only requires a very few employees. So it's the difference in the.

And the fees.

Per unit of deliveries I guess, you would you would look at it.

The difference is really just regard to the scope of services provided between those two segments. So hopefully that answers the question Christina back to Ya.

Okay, great well, thank you everyone for joining us today and again.

If you do have any additional question. Please feel free to give me a call have a great day.

This does concludes today's conference call you may know disconnect.

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