Q3 2022 NACCO Industries Inc Earnings Call

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Putting this type of program in place is never an easy decision all of our employees and our board and important part of our team and many of these were very long term employees. As a result of this program. We expect the North American mining segment to benefit from future cost savings beginning in 2023.

I would also like to note that lithium Americas continues to make progress on the <unk> project.

This operation as part of our North American mining segment.

In October of 2022, lithium Americas provided an update that noted all key state level permits have been issued in construction construction is expected to begin in 2023.

These steps bring them closer to the startup of this project. We continue to work closely with lithium Americas as they advanced the factor past project.

No assurance that the transaction will be finalized and the anticipated.

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As such the amount and timing of cash proceeds we will receive will be dependent on the terms of the transaction.

Because we adjust the value of this investment each quarter, we do not expect to sail to have a material impact on our 2022 results based on current estimates with that I'll turn the call back over to Christy to cover our results for the quarter in more detail Christie.

I'll start with the consolidated.

Third quarter of 2020 tail and then provide additional details segment level not already Catholic by J C. I will also provide for me to take on our expectations for the 2022 fourth quarter and full year as well as the high level overview of our current expectations for next year.

While we are providing this first look more color will be provided with a year and earnings release. Once we have Finalised R 2023 annual operating plan.

On a consolidated basis operating profit decreased to nine $8 million from 2007 $6 million in the third quarter of 2021 consolidated net income also declined to $10.6 million or one dollar and 45 cents per diluted share from $24.8 million or $3 47 per diluted share.

Last year as JC mentioned, there are several items that make it difficult to compare between periods. The largest driver of the decrease in earnings between periods as $10.3 million related to the best Ipo's contract termination payment recognized in the 2021 third quarter.

In addition to 2022 the third quarter include the charge of $3.9 million at the minerals management segment related to a write off of legacy coal reserves and the 800000 dollar charge as a result of the voluntary retirement program that JC discussed.

Consolidated adjusted EBITDA, which excludes the impairment charge and contract termination fee moderately decreased to $22.1 million from $23.3 million in the third quarter. The decrease was primarily driven by lower earnings and the coal mining segment and hire an allocated employee related expenses partly apps.

Set by improved earnings and the minerals management segment and income from our equity interest in Midwest egg energy.

Moving to a discussion of our segments, excluding the prior year contract termination settlement operating profit and segment adjusted EBITDA at our coal mining business decreased significantly due to a decline in earnings of US consolidated operations because of a reduction in the per ton management fee at the Falkirk mine and the termination of <unk> contract.

<unk> lower earnings that Mississippi, lignite mining company, resulting from the impact of inflation on costs and an increase in the coal mining segment's operating expenses also contributed to the decline.

JC already mentioned the primary drivers of the decrease in North American Linings results. So let me focus on their third quarter 2022 segment adjusted EBITDA the.

The decrease in segment adjusted EBITDA from last year with less than a decrease in operating profit because results at North American My Name's Act of mining operations improved when the impact of depreciation expense was excluded.

Finally third quarter of 2022 operating profit and segment adjusted EBITDA in the minerals management segment increased as a result of higher natural gas and oil prices increased production.

Looking forward, we expect fourth quarter operating profit at the coal mining segment to be comparable to the prior year quarter segment. Adjusted EBITDA is expected to increase modestly primarily due to improved EBITDA, Mississippi, Maine mining company, where increased depreciation expense associated with capital expenditures in recent years continues to negatively affect our.

Rating profit.

For the full year, we expect coal mining operating profit and segment adjusted EBITDA decreased significantly from 2021, both including and excluding the contract termination payments received.

They expected reductions are primarily the result of reduced earnings are both the consolidated Nonconsolidated coal mining operations as well as higher operating expenses recognized in the first nine months of 2022.

In 2023, we expect call delivery to decrease moderately from 2022 levels because of the expected cessation of Sabine deliveries in the 2023 first quarter and current expectations of customer requirements.

Coal mining operating profit and segment adjusted EBITDA for the 2023 full year are expected to decrease significantly compared with 2022, including and excluding the 40 million dollar GRE termination payment received this year.

Decline is primarily the result of unexpected significant reduction in earnings at Mississippi, <unk> mining company and an anticipated modest decrease in earnings consolidated operations driven by the reduction in the per 10 management fee at Falkirk for all 12 months and that in 2023 compared with seven months in 2022.

As well as the assumption that delivers it to being six in the first quarter of 2023 the.

Per ton management fee at Falkirk will return to prior levels in mid 2024 and increase annually. According to an index, which tracks broad measures of U S inflation.

And North American mining, we expect tons delivered operating profit and segment adjusted EBITDA to increase in the fourth quarter, primarily because of anticipated increased earnings under existing contracts, including the Sawtooth mining contract. Excluding the effect of the charge for the voluntary retirement program full year operating profit is expected to.

Increase over 2021.

We anticipate North American mining segment adjusted EBITDA for the 2022, four year to increase significantly compared with the prior year, including and excluding the third quarter voluntary retirement charge.

In 2023, North American Mining's full year operating profit and segment adjusted EBITDA anticipated increase significantly over this year due to increased results from active mining operations and unexpected reduction in operating expenses in part due to a reduction in employee related costs, resulting from the.

Terry retirement program.

Finally at our minerals management segment, we anticipate operating profit and segment adjusted EBITDA in both the 2022 fourth quarter and full year to continue to increase significantly over the respective prior year periods, primarily driven by current expectations for natural gas and oil prices and increases in production volumes <unk>.

Firstly in 2023 operating profit and segment adjusted EBITDA are expected decrease from this year, 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 lessees as.

JC mentioned increases in natural gas and oil prices above current expectations because could result in improvements to our 2000 twenty-three results.

To summarize on a consolidated basis, we expect a significant increase in consolidated operating profit net income and consolidated adjusted EBITDA in the fourth quarter of 2022 due to anticipated higher results at the minerals management and North American mining segments as well as income from our Midwest egg energy equity interest.

The 2022 full year, excluding the settlements associated with the GRE Rainbow NRG transaction recognize this year and the termination fee recognize last year, we expect consolidated operating profit net income and consolidated adjusted EBITDA to improved significantly over 2021.

Looking forward in 2023, we expect consolidated net income decreased significantly largely because of the $39 million pretax contract termination income recognized during 2022.

Excluding the settlement income net income is expected to decrease substantially from significantly reduced royalty income and the minerals management segment and lower earnings and the coal mining segment as well as an anticipated reduction in income from our Midwest egg energy interest. These reductions are expected to be partially offset by lower income tax expense.

And improved results in the North American mining segment.

Lastly from a liquidity standpoint, we ended the quarter with consolidated cache of $92 $8 million and database teen $3 million in.

<unk>, we have availability of $119 $3 million under a revolving credit facility for the 2022 four year, we anticipate cash flow before financing activities to be significantly lower than last year because of higher capital expenditures. In addition, because of 2023 forecasted capital expenditures and and.

Unexpected substantial decrease in net income we anticipate a significant use of cash in 2023, we will now turn to any questions you may have.

Thank you.

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So thank you for listening will close with a few final reminders a replay of our call will be available online. Later. This morning will also posted a transcript on the Investor Relations website. When it becomes available. If you have any questions. Please feel free to reach out to me you can reach me at the number on the press release I Hope you enjoy.

The rest of your day and now I'll turn it back to the operator to conclude the call.

Thank you.

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