Q3 2024 Hallador Energy Co Earnings Call

Okay.

Good afternoon.

Thank you for attending Hellebore Energy's third quarter 2024 earnings conference call. At this time, all participants are in a listen only mode.

Later, we will conduct a question answer session and instructions will follow at that time.

As a reminder, this call maybe recorded.

Now I'd like to turn the conference over to Shawn Macquarie The company's Investor Relations adviser with elevate IR. Please go ahead Sean.

Thank you and good afternoon, everyone. We appreciate you joining us to discuss our third quarter 2024 results with me today are president and CEO Brent build one.

And CFO Marjorie hard grade.

This afternoon, we released our third quarter 2024 financial and operating results in a press release that is now on the Hollander, where investor Relations website.

Speaker Change: Today, we will discuss those results as well as our perspective on current market conditions and our outlook.

Following prepared remarks, we will open the call to answer your questions.

Speaker Change: Before we begin a reminder, that some of our remarks today may include forward looking statements.

Object to a variety of risks uncertainties and assumptions contained in our filings from time to time with the SEC and are also reflected in todays press release.

While these forward looking statements are based on information currently available to us.

If one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect actual results may vary materially from those we projected or expected.

In providing these remarks hollander, where has no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise.

Unless required by law to do so.

We plan on filing our Form 10-Q shortly.

And with the preliminaries out of the way I'll turn the call over to President and CEO Brent Oakland.

Brent Oakland: Thanks, Sean and thank you everyone for joining us this afternoon.

I'm happy to announce that during the third quarter, we reached an all important milestone in our transformation as an independent power producer.

Assigning a nonbinding term sheet with a leading global data center developer.

Our team is working diligently to finalize definitive agreements with this partner and the relevant utilities that will support the delivery of our energy and capacity to a large load end user.

As we've previously discussed.

These types of deals are complex multi party arrangement.

Multiple stakeholders.

If we're successful in reaching these agreements.

We will secure long term contracts for a substantial portion of our plants energy and capacity and improved margins.

Pending for over a decade.

As a reminder, our proposed in front of the meter transaction.

Involves selling our power and capacity through utility or cooperative.

Brent Oakland: Which would be in contrast.

So the behind the meter structures that have created recent regulatory challenges that you may have seen associated with other deals of this type.

Brent Oakland: We are optimistic that we will be successful in finalizing a long term data center transaction, given indiana's business friendly climate and favorable tax policy.

Brent Oakland: We believe we hold a considerable portion of the remaining unsold of credit capacity in MISO zone six.

Covering Indiana in parts of Western Kentucky, where demand continues to grow.

Brent Oakland: While we have not yet reached binding agreements we are encouraged by the progress with this partner.

The strong interest we continue to see from other potential counterparties and our energy and capacity offerings.

Brent Oakland: We believe we have selected a highly strategic and experienced global partner and are pleased with the progress that we've made today.

Further the supply response from the accredited capacity market continues to be restricted.

MISO has reduced the capacity accreditation awarded to intermittent resources like wind and solar.

This constraint makes it challenging for the market to meet our credit capacity needs through resources other than coal gas and nuclear.

Additionally, the response from our credit capacity suppliers has been muted.

In part due to the regulatory and environmental challenges facing all types of dispatch will generation, including gas.

Brent Oakland: There's limited supply response is further constrained by an influx of solar and wind projects that provide minimal accredited capacity.

Brent Oakland: Overwhelming the Q and delaying access for essential responsible <unk>.

Brent Oakland: Generation projects.

Each of these factors contributes to our beliefs that our credit capacity, we have is likely to remain valuable into the foreseeable future.

Brent Oakland: Now MISO has recently sought to change the way in which our credit capacity is calculated and awarded.

And we continue to evaluate how that may impact our future capacity awards.

Brent Oakland: However, this does not change our sentiment with respect to the value.

Of what we have or what we expect to be awarded in the coming years.

Turning to the results for the quarter, our wholly owned subsidiary how to Repower generated $1 1 million megawatt hours in Q3.

Up from 800000 megawatt hours in the second quarter.

While the energy environment remains challenging during the quarter, we saw incremental improvements based on stronger pricing and higher dispatch rates.

Even though our pricing remains weak we're encouraged the gas inventory levels are returning towards our historic norms.

Additionally, our power plant ran more frequently this quarter, thus our cost improved significantly.

This and other factors led to a material increase in gross margin for our power segment to $16 36 per megawatt hours sold compared.

Brent Oakland: Compared to $8 11 in Q2.

Brent Oakland: Subsequent to quarter end, we executed a $60 million prepaid power purchase agreement or PPA.

Brent Oakland: With an existing customer and the global asset management industry, which is on the heels of a $45 million PPA.

Brent Oakland: We signed in the second quarter.

These types of deals support our near term operations.

Brent Oakland: Positioning the company to continue advancing negotiations of a long term agreement we described earlier.

And our Sunrise coal Division, we continued to make progress with our restructuring of our mining operations.

An initiative, we launched in Q1.

During the third quarter, we completed a project for.

For four of our most productive units, bringing all operating units to split our system.

Which helps to improve efficiency and reduce operational costs at the mine.

While it is still early we believe the optimization projects, we have implemented in connection.

With the restructuring will help increase the tonnes of coal mined per man hour.

While decreasing the cost per ton of the coal that we will mine.

Overall, we are enthusiastic about the direction of the energy markets and our strategic positioning.

We believe the surge in demand from data centers and other industrial users.

Or is this a meaningful opportunity to transform our financial profile over the long term.

With a strengthened balance sheet and an improving environment for both coal and power sales.

We are well equipped to capitalize on the multi year growth opportunity ahead of us.

I will now hand, the call over to margin hardware before opening Q&A and returning for closing remarks.

Thank you very much Brian and good afternoon, everyone reviewing our third quarter financials in more detail on.

Speaker Change: On a segment basis electric sales for the quarter were $71 seven 7 million compared to $59 4 million in Q2, and $67 4 million in the period prior year period, while coal sales were $48 3 million for the quarter compared to 45.

$5 7 million in Q2, and $134 4 million in the prior year period.

As expected year over year decline was driven by our decision to reduce our coal production.

As part of the restructuring of our Sunrise coal Division as announced earlier this year on a consolidated basis, we generated one.

Speaker Change: <unk> hundred $5 million for the quarter compared to $93 5 million in Q2 and a half.

<unk> hundred $65 8 million in the prior year period.

Net income for the quarter was $1 6 million compared to a net loss of $10 2 million in Q2, and net income of $16 1 million in the prior year period.

Operating cash used for the quarter, let's $12 9 million compared to operating cash flow of $23 5 million in Q2, and $35 3 million in the prior year period with the decline driven by less deferred revenue from Q2, and a more favorable environment.

Speaker Change: For coal in the year ago period.

Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today with nine 6 million for Q3 compared to a negative $5 8 million in Q2, and $35 9 million in the prior year period.

Invested $11 6 million in capital expenditures during the third quarter, bringing total year to date capex to $39 6 million.

As of September 32024, our forward energy and capacity sales position with 616.

$9 million compared to $664 1 million at the end of Q2 and $516 million as of September 32023.

When combined with our forward fuel sales, which were up more than 50% to 323 million.

<unk> to the end of Q2, our total forward sales book as of September 32024, with 142 billion compared to one $3 7 billion at the end of Q2 and $942 1 million as of September 30th 2023.

These results do not include the $60 million PPA, we signed in October.

In response to the more challenging environment for spot prices. This year, we focused on strengthening our balance sheet. During the third quarter, we modified our credit facility to provide short term covenant relief, which allowed us to pursue additional liquidity.

Subsequent to the quarter end, we utilized $20 million of the proceeds from our $60 million prepaid PPA to further pay down bank term debt.

And 34 million to pay down our revolver, which reduced our total bank debt.

A $23 $5 million balance at the end of October compared to $91 $5 million balance.

Speaker Change: Standing at the end of last year.

Speaker Change: Importantly, we did not use our ATM.

In the third quarter or in the several weeks since the end of the quarter.

Total liquidity at September 32024 was $34 9 million following the $60 million PPA, we signed last month at the end of October our total liquidity was $53 8 million.

These strategic actions to strengthen our balance sheet, we are creating a solid foundation to position <unk> for substantial growth and margin expansion in the years ahead.

That concludes our prepared remarks, we will now open the call for questions.

Yeah.

Thank you to ask a question. Please press star one wanting to telephone away for your name to be announced to withdraw your question. Please press star one again.

Speaker Change: Please stand by while we compile the <unk> roster.

Speaker Change: Yeah.

Speaker Change: Okay.

Speaker Change: Our first question from the line of Lucas pipes.

Your line is now.

Hello.

Thank you very much operator.

Good afternoon Lucas.

Speaker Change: Hey, Brent congratulations on the progress with signing a non binding term sheet.

Speaker Change: Great to see I, just wanted to follow up on a few points there.

The first this is a possible to maybe.

Quantify.

Okay.

The magnitude.

<unk>.

Of this agreement.

You mentioned, it's the majority.

Should we be thinking about 50%, 60%, 70% of the plant's output at any any way to quantify that.

Would be very much appreciate it and then on the pricing side you mentioned, it's above the curve I would assume this is kind of separate from.

Kind of the capacity payments that would kind of be part of the package, but if theres a way to quantify.

Speaker Change: How far above the curve and what is what is included there.

Thank you.

Yes, so as far as volume is the output of the plant.

It would be.

The majority the majority of the output of the plan.

Yes.

Significant.

As far as pricing goes we get a lot of questions around pricing.

It gets very complex right because people say well, it's going to be price like this deal or some other deal that was announced.

And the first question I always have is okay. When they came to that number.

Is that the price is that the wholesale price for energy does that include capacity does that include.

Fees paid to <unk>.

Our utility as a case or cooperative in the case that it's in front of the meter like like like we're proposing so it's a little hard to kind of compare apples to apples I think we've said repeatedly that.

Speaker Change: It's going to be price above the curve or what we feel.

Sure.

The curve, we've seen where the other deals are priced and we feel that we're within market.

Brian could you remind us of course.

Yes.

I'm sorry, there is a.

Speaker Change: A lot of echo on my side, but but Brent could you.

Could you remind us where the curve is as a benchmark.

Speaker Change: That would be helpful. Thank you.

Sure.

Speaker Change: Yes.

Okay.

Yes, when we first said that we felt the curve was in the mid <unk>.

It's fallen a little silly, but.

Hey.

We still feel it.

It's above where we are.

This will be priced above where we were we originally said the curve was.

That's helpful. Thank you.

Okay.

Speaker Change: On the PPA that you signed.

Can you remind us what is the.

The magnitude of that agreement what years does it cover and when I look at your hedge position on.

On the power side in the release would this include the PPA or would that be.

Speaker Change: Separate and on top of that thank you very much.

Okay.

Yes.

We did a $60 million prepayment.

Speaker Change: Subsequent to the third quarter is typically in the fourth quarter.

And so youll see it in our Q subsequent events.

And that that is for power sold in years 2025.

<unk> 2026, so there was some power sold and 25 in some powers.

Our electricity sold in 2006.

That's helpful. Thank you and then turning to the coal side.

Sorry, if I missed it but can you remind me what the co production costs per ton were during the quarter and how this kind of stacks up.

The efficiency and restructuring plan that you've outlined earlier this year.

What else.

Speaker Change: Do you look forward to on the on the coal side.

From a cost or productivity standpoint, thank you very much.

Speaker Change: Yes so.

We're still.

We're seeing seeing those costs be elevated we did we did do a lot of.

Work, particularly in July.

Around where we had the mine shutdown for a week and we were.

Go into a splitter system.

Speaker Change: So I really don't feel like our costs were reflective in the quarter.

Because of the noise going on with splitting there.

What we're excited about is are encouraged by <unk>.

We're seeing.

Our.

Our average book per shift.

Is increasing.

So sorry tons per man hour is improving and so we think it's getting our cost structure.

Speaker Change: Back into the Ford is where were at historically was.

And.

But again, how it or.

Speaker Change: We've cut our volume significantly right I mean, we were doing $6 5 million tons annually, a year ago, now or two or three and a half.

Speaker Change: And so.

I think what we tell people is how it or power side of the business is really where it's going to be at.

At Sunrise really is almost more of a support role at this time.

To support the Powerplay now, we certainly do sell cole to third parties.

We feel that we get a premium for that typically because of our coal qualities works, so well in certain plants and help help make other cold out there in the market work better.

So thats.

That's kind of where we see the business.

Brent.

Again.

Great great job.

Team continued best of luck.

Thank you thank you Lucas.

Thank you and I'm currently showing no further questions. At this time. This does concludes today's conference call. Thank you for participating and you may now disconnect.

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