Q1 2025 NACCO Industries Inc Earnings Call

I'm all lines are in listen only mode. Following the presentation, we will conduct a question and answer session.

If at any time during this call you require immediate assistance. Please press star zero for the operator.

This call is being recorded on Thursday may <unk> 2025.

Christina: I would now like to turn the conference over to Christina <unk> Investor Relations. Please go ahead.

Christina: Thank you good morning.

Christina: Everyone and welcome to our 2025 first quarter earnings call and webcast. Thank you for joining us this morning, and Christina <unk> and Im responsible for Investor Relations at Nacco. Joining me today are J C Butler, President and Chief Executive Officer, and Elizabeth Loveland, Senior Vice President and controller.

John Butler: And also, you know, encouraging people to look at developing coal resources, particularly when it can support the 24-7 energy needs in data and AI. I just, I'm not going to describe it as well as you can find on the internet.

Christina: Yesterday, we published our 2025 first quarter results and filed our 10-Q. This information is available on our website.

Christina: 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.

Douglas Weiss: I'd encourage you just to Google, you know, presidential executive orders on coal, and you can read through the four, but it's pretty good stuff. Okay, let's see.

Christina: 10-Q, and other SEC filings.

Christina: We may not update these forward looking statements until our next quarterly earnings conference call will 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 now I'll turn the call over to JC for some opening remarks.

John Butler: On North American mining, is docker going to be consolidated or unconsolidated? It's consolidated.

John Butler: And then, in terms of normal seasonality there, what... Is the first quarter typically a soft quarter anyway? I mean, what would be the cadence of earnings for that? And North American Mining. I mean, I don't think... There really is much seasonality to that, but largely because of where we operate. You know, the majority of our operations are in Florida, although, you know, we are expanding across the country, but it's most mostly in southern states. So you don't really get any seasonality unless. You know, from time to time you get a hurricane that goes across Florida and that can disrupt operations in varying degrees, depends on where the hurricane hits and, you know, what the damage is and things like that.

Jaycee: Jaycee. Thank you Christine and good morning, everyone. I am pleased to report another quarter of strong financial results consolidated operating profit increased over 60%.

Jaycee: While this improvement was partly offset by higher net interest expense and a reduction in other income we still delivered a 7% increase in net income and a 14% increase in EBITDA.

Speaker Change: Christie will provide more detail about these financial results in a minute, but first let me talk about our operations. The significant improvement in operating profit was driven by our coal mining segment, where segment adjusted EBITDA more than tripled over the prior year.

Jaycee: There were two primary reasons for this improvement.

John Butler: But that's really the only kind of seasonality that I think of in that business.

Jaycee: We had an increase in earnings at our unconsolidated operations led by higher pricing and fall Kirk at a moderate increase in customer demand to caito.

John Butler: Otherwise, it's sort of just, you know, marches along quarter by quarter. Mm-hmm and was was weather a factor again this in the first quarter? Well, not really. I think what we saw in the first quarter is, you know, there were, there were a few one off situations, although, you know, situation sort of implies something negative. It's just, you know, periodic outages on drag lines and, you know, customer pauses in their operations while they do things on their side of the fence. So we had some of that going on in the first quarter. And then we have had some customers that are just seeing, you know, a modest decline in demand.

Jaycee: Secondly, Mississippi lignite mining company operated more efficiently on improved customer demand compared to 2024, when the Red Hills power plant was operating with only one of its two boilers.

Jaycee: I'm thrilled to see these improvements at our coal mining segment. We are also encouraged by the current administration's actions, which are fostering a more favorable regulatory environment for the fossil fuel industry.

Jaycee: Mitigation resources also contributed positively to the improvement in consolidated operating profit and EBITDA.

Jaycee: This business reported its second consecutive quarter of profitability and anticipates generating profit for the full year.

Jaycee: With American mining is operating well, but its results were affected by reduced customer demand some of which is due to temporary one off situations. While some customers are experiencing a softer market.

John Butler: You know, nothing dramatic, but they're seeing some softening demand and that, you know, causes because we're feeding their operations, you know, we're fully integrated into their quarries. And, you know, we're operating at specific quarries for them. It's really, you know, what demand are they seeing at their quarries and what sort of production they need out of us? So it's a little bit of one-off stuff and it's a little bit of some just economic softness with some customers. Yeah, makes sense.

Jaycee: Operating profit decreased on a significant reduction in year over year tons sold as well as an increase in operating expenses. This decline was partly offset by an increase in parts sales.

Jaycee: While this quarter didn't provide a favorable year over year comparison at North American mining results improved compared with the fourth quarter of 2024.

Jaycee: We expect north American mining to generate increasing levels of operating profit and EBITDA over time as benefits from new and extended contracts add to the profitability of existing contracts.

Elizabeth Loveman: Um, I guess then on on free cash flow. It looked like there were a number of puts and takes on working capital. I guess the biggest is you had A large item for mining supplies inventory. which you have a non-current asset, so I assume that. more than a year. is, do you still expect working capital to be a source of cash this year? And I guess why that large step up in that mining supplies inventory? So it really wasn't a step up. If you look, we just reclassed a portion from current to long term. We really dug into our inventory and a lot of that is just critical spares.

Speaker Change: Let me shift to saw tooth mining, which is the exclusive contract miner for the <unk> lithium project in northern Nevada with.

Speaker Change: Americas continues to make progress on the <unk> project lithium Americas and General Motors recently announced their final investment decision for construction of phase one of the project we view this as a step.

Speaker Change: They've step toward development of a U S produced lithium supply chain that will reduce American dependence on foreign suppliers for critical minerals.

Speaker Change: We continue to support the project by assisting with certain construction services as they ramp up work to build the lithium processing plant.

Speaker Change: <unk> production continues to be estimated to begin in late 2027.

Elizabeth Loveman: And we don't necessarily have a plan to use them in the next 12 months, so we reclassified a portion of that. But if you add up the total, it's $94.3 million for you, which compares to $94.6 million last year. So it was just a reclassification within the balance sheet to better differentiate what we expect to turn in 12 months versus not. Doug, if you think about this... Think about the fact that we operate, you know, on the North American mining side of the business. In particular, we operate through something like 35 drag lines, plus or minus.

Speaker Change: And minerals management segment, adjusted EBITDA increased 10% over the prior year as we mentioned in our year end earnings release during the fourth quarter of 2020 for minerals management increase their investment in a company that holds nonoperating.

Speaker Change: Non operated working interest in oil and natural gas assets in the Hugoton basin.

Speaker Change: This investment drove the improvement in segment EBITDA and is expected to continue to be accretive to future earnings.

Speaker Change: We are very pleased with the work done by the catapult mineral partners team, which manages this segment.

Speaker Change: While we continue to budget up to $20 million annually to expand our portfolio and provide long term stable cash flow generation, our business model allows us flexibility regarding the cadence and type of investments we make based on available opportunities that we believe will result in significant long term value and increasing property.

John Butler: You know, they're, they're single, it's a single machine that's an important part of the customer's factory, right? We've got a drag line on site that's producing the aggregates that our customer will cut, wash, crush, size, and sell to its customers. If we have an unexpected outage because of a component failure on a drag line, that can be a very serious issue because some of these components on these drag lines can take months to acquire, which is why we keep components, critical components, on hand in our inventory. And as Liz described, we took a deep dive into that and decided that those things may get used.

Speaker Change: Ability.

Speaker Change: We believe that this expansion and diversification program has us well positioned to generate increasing levels of operating profit and EBITDA well into the future.

Speaker Change: Current quarter's results support my belief that 2025 is a pivotal transition year for our company, which is described in more detail in our most recent annual report.

Christi: Overall I am pleased with the way all of our businesses continue to advance their strategies, but I continue to be very optimistic about the future with that I'll turn the call back over to Christie to cover our quarterly details and outlook in more detail Christi. Thank you Jason.

John Butler: You never know when you're going to have an unplanned outage, but we looked at a number of these parts and said we're holding these for the long term. Think of this as an insurance um holding the part is really like an insurance policy on the operation of that machine and so that's why we reclassified them from short-term to long-term.

Christie: At the consolidated level, we reported operating profit of $7 $7 million and net income of $4 9 million or <unk> 66 per share this compared to the 2024 first quarter operating profit of $4 8 million and net income of $4 $6 million or <unk> 61 per share.

John Butler: Okay, makes sense. So do you still think... The overall question about... Your overall question about working capital, though, you know, we're not really a working capital driven business. You know, when we have a drag line outage coming up, particularly in our North American mining part of the business, or it could be a Mississippi midnight mining company, we will increase our inventory because you want to have all the parts on hand when you take your drag line down in order to do the work. So from time to time, we'll increase our inventory, and then we'll get consumed while we're while we're doing an outage.

Christi: Adjusted EBITDA increased to $12 $8 million from $11 $2 million in 2024.

Christi: As Jason mentioned the significant improvement in operating profit was primarily driven by a substantial increase in the coal mining segment operating profit and improved results at mitigation resources. These.

Christi: Improvements were partly offset by lower North American mining segment results and an increase in unallocated operating expenses, principally employee related and outside service costs.

Christi: The improvement in operating profit was offset by a $3 3 million unfavorable change in other income expense moving from prior year other income to current year other expense.

John Butler: So you will see some of those fluctuations. As far as customer receivables or payables. There's you know, it's really just kind of a steady cadence that doesn't fluctuate that much over time.

Christi: Decrease was due to lower investment income and higher net interest expense and resulted in a moderate decrease in income before taxes.

Christi: Lower income tax expense and 25% compared with 2024 led to the moderate increase in our consolidated net income.

Christi: Moving to the individual segments, our coal mining segment reported operating profit of $3 8 million and generated segment adjusted EBITDA of $5 8 million in the 2025 first quarter in.

Christi: In 2020 for this segment had an operating loss of $400000.

Christi: Segment, adjusted EBITDA of $1 $8 million.

Christi: As JCR already discussed year over year improvements in both our consolidated and unconsolidated mines led to these favorable favorable results.

Operator: Elizabeth Loveman, John Butler, Douglas Weiss, Nachy Kanfer, NACCO Industries Inc Again, if you have any questions, please press star 1 on your touch-tone phone. It looks like we lost Doug somehow. Sorry. You raised your hand again. No, we're good.

Christi: <unk> already provided explanations of the North American mining and mineral minerals management segment results. So I will discuss the financials.

Christi: At North American mining operating profit decreased to $2 million from $2 $4 million in the prior year first quarter.

Christi: Segment, adjusted EBITDA of $4 7 million was comparable to the prior year.

Christi: Minerals management's first quarter 2025 operating profit of $7 9 million was comparable year over year, while segment adjusted EBITDA increased to $9 8 million from $8 9 million a year ago.

Elizabeth Loveman: We have Doug on the line again. Sorry, so I guess also on the balance sheet you have that assets held for sale line. What's in that? It consists of some drag lines and a building in North Dakota that we got as part of the termination settlement with Great River Energy. Mm-hmm, and you expect to sell those this year? They're all being actively marketed. Let's see. Okay.

Christi: Looking forward in 2025, we expect to generate a moderate year over year increase in consolidated operating profit.

Christi: The coal mining segment 2025 customer demand is expected to lead to a modest increase in deliveries compared with <unk> four and.

Christi: In addition, the coal mining segment expects to benefit from the absence of temporary price concessions at Falkirk.

Christi: Mississippi Lignite mining company continues to recover from inefficiencies experienced.

Douglas Weiss: And then I guess the last question would just be on the remediation. That, my sense is, is kind of lumpy as you get credits and realize proceeds on those. Is that right?

Christi: Customer spread hills power plant operated on one of two boilers for more than half of 2024.

Christi: With the power plant now anticipated operating at a level consistent with historical averages.

John Butler: Is that not a steady quarter-to-quarter business? And then you're talking about mitigation. Yeah. mitigation resources. Yeah, that's slumpy. It's sort of lumpy by design, right? You get a, you know, the life cycle of a mitigation bank is, you know, we identify an area where we want to be, we ultimately identify a watershed, and these are, you know, these are going to be in high growth areas, you know, high growth states, high growth areas in those states. We acquire a piece of property, we work with the Army Corps of Engineers to develop the plan for restoring the streams and wetlands to a healthy state, and they, you know, we and they, the Army Corps of Engineers, agree on something that's called a mitigation banking instrument.

Christi: Deliveries are expected to return to more normal levels, resulting in modestly improved cost efficiencies.

Christi: However, an anticipated reduction in the 2025 contractually determined per ton sales price compared with 2024 is expected to offset these improvements leading to lower results at Mississippi Lignite mining company.

Christi: This combined with an anticipated increase in operating expenses in the coal segment. Overall is expected to result in a modest year over year decrease in coal mining segment operating profit.

Christi: North American mining is expected to deliver improved results in 2025 with anticipated lower first half results offset by expected performance gains in the second half of the year.

Christi: While customer demand is projected to remain relatively stable year over year profitability improvement will be driven by operational efficiencies and an increased focus on parts sales.

John Butler: It specifies the work that we need to do, and then it provides the timeline with which credits will be made available for sale, and as those, and that can be over a 10-year timeline, and it might be that you get some credits available right away because you're putting a conservation easement on the property. You may then take two years, I'm making up the two years, but it might be two years to get the next lump of credits that are we've done some physical work on the streams or wetlands, and then, you know, as we demonstrate the health of the stream or we get, you know, grass and trees and natural you know, plants established, you might get more credits over time.

Christi: Minerals management's high quality diversified portfolio of oil and gas mineral interest provides a strong foundation of well positioned assets that are expected to continue to deliver solid financial results.

Christi: As Jason mentioned minerals management's 2020 for investment in a company operating in the Hugoton Basin is expected to continue to contribute to the anticipated improvement in 2025 operating profit over 2024.

Christi: First half earnings are expected to be comparable to prior year results with an anticipated significant improvement in the second half given anticipated trends in oil and natural gas prices and projected volumes.

Christi: We expect to complete the termination of our defined benefit pension plan. This year once complete obligations under the terminated plan will be transferred to a third party insurance provider eliminating future earnings volatility from changes in our pension obligation. Although the plant is currently under funded a significant noncash settlement charge as Ana.

John Butler: And so the life of the credit of the mitigation bank will have periodic credit releases that, you know, will turn into credit sales and will make money on those.

Christi: As paid upon termination that will result in a substantial decrease in net income compared to 2024.

John Butler: Now, you know, this is a this is business is still pretty young in its life. As we get more and more mitigation banks, just the you know, the law of averages and large numbers will start to smooth this out because you're not just dealing with a handful of mitigation banks that have credit. You've got lots of mitigation banks with credits. We're also supplementing that income with smaller, shorter term reclamation and restoration project projects that are largely done on behalf of state and local municipalities, state governments, local municipalities, including the abandoned mine land work. All those projects tend to be on average less than a year.

Christi: Excluding the anticipated settlement charge net income is expected to decrease moderately from 2024.

Christi: Alright, and discuss our liquidity and cash flow I wanted to point out that we have added total assets by segment to our segment disclosures in the 10-Q. We believe this information will help our investors better understand the value of each of our segments.

Christi: Looking at other balance sheet and cash flow information, we had consolidated cash of approximately $62 million and debt of $96 million at March 31 2025 the.

Christi: The availability under our revolver was $95 million.

Christi: During the first quarter, we paid $1 $7 million in dividends and repurchased approximately 22000 shares of our class a common stock at prevailing market prices for an aggregate purchase price of $700000.

John Butler: And, you know, they're sort of a steady, you know, source of recurring income. Same deal as we get more and more of that flowing through this business. It'll start to smooth out the overall results.

Christi: As of March 31, 2025, we had $7 $8 million remaining under our $20 million share repurchase program that expires at the end of this year.

John Butler: But certainly for a while, we're going to continue to see pretty lumpy earnings in that piece of the business. But it is I don't want you to think that that doesn't make it a great business. This is a great business. Really like the business model. Really like the opportunity for returns that it provides with us. And it's really just a story of scaling the business. And that's why we're excited.

Christi: Based on our current business plan, we project a steady increase in annual cash flow generation beginning in 2025.

Christi: I will now turn to any questions you may have.

Christi: Thank you ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the one on your Touchtone phone.

John Butler: In the last two quarters, we've reported profitability and we expect them to be profitable for the year.

John Butler: Is there a way to track Douglas W. Kmetko, Elizabeth Loveman, John Butler, Douglas Weiss, Nachy Kanfer, NACCO Industries Inc Liz and I are looking at each other trying to figure out what the metric would be. I mean, it's, you know, it's number of mitigation banks, it's and even then the credits within each bank. Yeah, yeah, and the pricing differs. Is it a stream credit, a wetland credit, you know, so that there's Yeah, we don't we don't have a good answer for that right now other than I can assure you that the business is growing pretty rapidly and we're pretty excited about the trajectory that we're on.

Christi: From that Johan has been reached.

Christi: Did you wish to decline from the polling process. Please press star followed by the two.

Christi: You are using a speaker phone please lift the handset before pressing any keys.

Christi: Our first question comes from the line of.

Doug Weiss: Doug Weiss.

Speaker Change: With DSW investment.

Doug Weiss: Hey, good morning.

Doug Weiss: Good morning.

Doug Weiss:

Doug Weiss: I guess, just starting with the coal segment.

Doug Weiss: <unk>.

Doug Weiss: So.

Doug Weiss: Focusing on.

Doug Weiss: Mississippi lignite.

Doug Weiss: So that continues to show gross profit losses, although I think there was a $3 million inventory charge in the quarter.

John Butler: But we haven't figured out a good metric to describe that. And, you know, look, it'd be easy to say number of mitigation banks, but some of these mitigation banks are very small and some of them are very large. So right. You know, and it could be acreage, but that varies tremendously. If you're, if you're that big, if you've got, let's just say you've got 100 acres in a place that, you know, has competitive banks. and it's an area of moderate growth that can be very different than a mitigation bank with not a lot of competition in an area with extremely rapid growth.

Doug Weiss:

Doug Weiss: So could you just explain a little bit what what leads to those recurring inventory charges.

Doug Weiss: Hello.

Doug Weiss: And you just want to make sure youre asking about.

Speaker Change: The inventory impairment is that correct yes.

Doug Weiss: Yes.

Doug Weiss: So.

Doug Weiss: Yes.

Doug Weiss: It's basically what is the cost of the call on the pile.

Doug Weiss: As determined by regular sort of inventory accounting compared to the sales price.

Doug Weiss: There's a couple of things going on with respect to that one is.

Doug Weiss: Last year was a pretty inefficient year because.

Doug Weiss: Part of the year, we operated really.

Doug Weiss: With.

John Butler: We run these banks over a number of years and we try to get in when land has not yet become astronomically expensive. And so what we tend to see is, you know, in the early days, we can buy the land, we can do the work, and then you just see the area explode. Think about the highest growth areas in the country. You know, the value of those credits can go up pretty substantially, even if it's a small bank, it can suddenly turn into a really valuable asset.

Doug Weiss: Reduced cost, which can't really cut it in half even though the power plant for the first part of the year was only taking half.

Doug Weiss: Because one of the boilers was out.

Doug Weiss: So that ended up.

This was a situation, where we were putting pretty high cost coal into the inventory.

Doug Weiss: We continue to work our way out of that.

Doug Weiss: The other side of it is on the price side.

Doug Weiss: We've got a.

Doug Weiss: A lower adjustment in the price right now which I.

Doug Weiss: I know we've talked about this before is determined by a swarm ULA. It's in the contract to same formula that's been there since the contract was signed in the.

John Butler: So do you actually own the land on those areas? In some instances, we own the land. In other instances, we will partner with the landowner. And, you know, we've got a contractual relationship that we will enter into with them, you know, whereby they provide the land and we do the work. You know, we manage the conservation easement, and then there's a compensation mechanism that rewards the landowner for the landowner's participation in the mitigation bank. And there's several models. for how we might reward them.

Doug Weiss: Mid late 19 nineties.

Doug Weiss: That formula price looks at.

Doug Weiss: Basket of indices.

Doug Weiss: He can pull off.

Doug Weiss: Government data sites.

Doug Weiss: And they are partly based on a one year change in those industries and partly based in a five year change in those indices.

Doug Weiss: One here.

Doug Weiss: <unk>.

Doug Weiss: Normal there is nothing odd happening there.

Doug Weiss: If you think about five years ago right now.

Doug Weiss: We were may one of 2020, and if you think about indices for various <unk>.

Douglas Weiss: Interesting, okay.

John Butler: And I guess last question would just be on the, you mentioned in the release, it sounds like you're making some progress on the solar initiative. Any more color you might have on that? So the, you know, that's our region resources business, we're looking at solar, we're looking at solar, you know, solar needs backup, as they just learned in Spain. You know, so we're looking at solar on its own, we're looking at solar with, you know, various types of backup for solar. You know, that continues to develop. There's a little bit of uncertainty in that business because, you know, there's some uncertainty about how tax credits are going to really play out in the future.

Doug Weiss: Commodities and.

Doug Weiss: And <unk>.

Doug Weiss: Factors in the U S economy.

Doug Weiss: They were all over the place so for the next.

Doug Weiss: Say year or so we're going to go through a period, where the price is going to get.

Doug Weiss: It's going to be influenced by this five year change in prices. It's looking at what it was five years ago versus now.

Doug Weiss: So we've got some noise in all of this on the pricing side related to the fact that we just had very odd movements in the indices from five years ago.

Doug Weiss: So it's really a combination of.

Doug Weiss: Higher priced call on the pile because of inefficiencies last year, and some strange things going through what should otherwise be pretty normal movement.

Index.

John Butler: But the projects that we're working on, we still feel pretty good about you know, as they move forward. And, you know, the other piece of this is, you know, you can read in the Wall Street Journal almost every day is there's a lot of folks doing data, whether it's regular data or AI or, you know, other supporting functions, and they're looking for behind the meter solutions. And so, you know, that's another opportunity where you can develop You know, a package of generation could be solar, probably solar with backup, put it behind the meter. You don't have to deal with interconnect into the transmission grid and things like that.

Doug Weiss: Adjusted price I think when we get through this.

Doug Weiss: Period, when the price is.

Doug Weiss: Is behaving in strange ways.

Doug Weiss: And we get more normal operating costs flowing through the inventory.

Doug Weiss: This is all going to return to a more normal pace.

Doug Weiss: Mhm.

Doug Weiss: Okay.

Doug Weiss: Is that probably next year.

Doug Weiss: Well.

Doug Weiss: I would say yes.

Doug Weiss: Barring any other thing happening in the future it's.

Doug Weiss: Comparison from current indices to past indices, whether that's one year in the past five years in the past.

So I can't tell you what I expect to happen with those indices over the next year or two.

John Butler: So, you know, there's a lot of opportunity here. We're in this business because we've got a lot of land close to generation assets and transmission, if that's the route we choose to go. We're also in it because, you know, we've operated adjacent to the energy space for a long time and we feel like we can leverage, really capitalize on that knowledge and skills in order to, you know, add another piece of our business. Mm-hmm.

Doug Weiss: But my understanding is they would be.

Based on.

Doug Weiss: Price increases right. So so if we got into.

Doug Weiss: I guess, you Havent I don't think <unk> given too much detail on what the individual components are I think you might've mentioned labor was one of them but.

Doug Weiss: <unk>.

Doug Weiss: One of them one of the larger.

Doug Weiss: Indices and all of this is diesel.

Doug Weiss: Diesel okay interesting.

John Butler: Which part of your land are you likely to do that work on? Well, you said which part of the land? Yeah, I mean, is it the Pennsylvania region or? So it's, I mean, it's largely on reclaimed mine land. So think about where we have reclaimed, where we have mines, right? And as we mine, you know, we're always reclaiming behind our mining. And so we've got reclaimed mine land that actually is, in many instances, a pretty darn good place to put projects like this. We noted in our release that the entire... Sorry, say again? who noted in the release of Mississippia, Texas.

Doug Weiss: So I'll go back to work.

Doug Weiss: Five years.

Doug Weiss: Yes.

Doug Weiss: Absolutely, yes so.

Doug Weiss: It's really the oil prices.

Doug Weiss: The.

Doug Weiss: Influence on us.

Doug Weiss: Yes.

Doug Weiss: Okay.

Doug Weiss:

Doug Weiss: But I guess, it just kind of conceptually.

Doug Weiss:

Doug Weiss: That's the price that's the revenue component, but on the cost side.

Doug Weiss: That would.

Doug Weiss: Sort of flow through that.

Doug Weiss: Scott.

Doug Weiss: Good normalize.

Douglas Weiss: Okay. Got it. All right.

Doug Weiss: Over the next year is that the right way to think about that.

Douglas Weiss: Well, as always, appreciate the time and talk to you next quarter. Yeah, thank you, Doug. We appreciate the call. Thanks, Dad. I don't know. If there are no further questions, please continue.

Speaker Change: Yes, I mean, assuming that the plant operates as we think it will.

Doug Weiss: The cost side should normalize.

Doug Weiss: Yeah, Okay, okay, including the cost of inventory that are on the stockpile.

Operator: Okay, with that, we'll conclude our Q&A session.

Doug Weiss: Right Okay.

Operator: Before we conclude, 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 the Investor Relations website when it becomes available. If you have any questions, please reach out to me. My phone number is in the release. Other than that, I hope you all enjoy the rest of your day, and I'll turn it back to Vincent to conclude the call.

Doug Weiss: Yes.

Doug Weiss: Your line is now.

Coal miners.

Doug Weiss: The operation that has a lot of fixed costs.

Doug Weiss: So.

Doug Weiss: You get your best efficiencies like getting kind of factory.

Doug Weiss: It's operating.

Doug Weiss: And it's designed to level.

Doug Weiss: When you have periods when you're operating at a lower level. It just increases your unit cost, it's really no different than a factory.

Doug Weiss: Right right Okay.

Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation.

Doug Weiss: In terms of regulatory or more.

Doug Weiss: <unk>.

Doug Weiss: A more favorable regulatory environment.

Doug Weiss: What are the practical implications there I know you had some pending EPA issue. So I assume that those are.

Doug Weiss: Russ the concern but.

Doug Weiss: Are there other products.

Doug Weiss: Implications.

Doug Weiss: Well I mean with the EPA.

Doug Weiss: I mean, it's not just the EPA it's too.

Doug Weiss: Department of energy is department of interior.

Doug Weiss: Got it.

Doug Weiss: But the administration that is very focused on developing.

Doug Weiss: United States resources, which include incredibly abundant.

Doug Weiss: Coal oil and natural gas fossil fuels.

Doug Weiss: Two weeks ago was it two weeks ago three weeks ago the.

Speaker Change: The President's.

Doug Weiss: Sort of I refer to it internally as KOL day.

Speaker Change: The president signed for executive orders.

Doug Weiss: We're focused on.

Doug Weiss: Really focused on coal.

Doug Weiss: But it included things that dealt with.

Making sure that people are looking at the stability of the grid for any coal fired power plants are retired.

Doug Weiss: Maybe.

Doug Weiss: One of them made coal a critical mineral.

Doug Weiss: And the government context.

Doug Weiss: Ask agencies to look at any sort of regulatory.

Doug Weiss: Biases against fossil fuels, including coal and get those out of the.

Doug Weiss: Get those out of the process.

Doug Weiss: And also.

Doug Weiss: Encouraging people to look at.

Doug Weiss: Developing coal resources, particularly what it can support.

Doug Weiss: $24 seven.

Speaker Change: Energy needs in data and AI.

Just I'm not going to describe it as well as you can find on the internet.

Speaker Change: Just to Google.

Speaker Change: Presidential executive orders on coal and you can read through the forward, but it's.

Speaker Change: It's pretty good stuff.

Speaker Change: Mhm.

Speaker Change: Sure.

Speaker Change: Let's see.

Speaker Change: On the North American mining.

Speaker Change: It's going.

Speaker Change: Going to be consolidated or unconsolidated.

Speaker Change: That's consolidated.

Speaker Change: Okay.

Speaker Change:

Speaker Change: And then.

Speaker Change: In terms of normal seasonality there.

Speaker Change: This is the first quarter typically a soft quarter anyway.

Speaker Change: Would be the cadence of earnings for that.

Speaker Change: That settlement at North American mining <unk> Singh.

Speaker Change: They're really as much seasonality to that.

Speaker Change: Okay.

Speaker Change: Largely because of where we operate.

Speaker Change: The majority of our operations are in Florida.

Speaker Change: Although we are expanding across the country, but it's most mostly in southern states. So you don't really get any seasonality and less.

Speaker Change: From time to time, you get a hurricane that goes across Florida and that can disrupt operations at varying degrees depends on.

Speaker Change: Where the hurricane hits, and what the damages and things like that.

Speaker Change: But thats really the only kind of seasonality that I think of us in that business otherwise, it's sort of just marches along.

Speaker Change: Quarter by quarter.

Speaker Change: Mhm.

Speaker Change: Was weather a factor again in the first quarter.

Speaker Change: No not really.

Speaker Change: What we saw in the first quarter is.

Speaker Change: There were a few one offs.

Speaker Change: Situations, although situation sort of implies something negative it's just.

Speaker Change: Periodically outages on Draglines and customer.

Speaker Change: Pauses in their operations, while they do things on their side of the fence.

Speaker Change: <unk>.

Speaker Change: So we had some of that going on in the first quarter and then we have had some customers that are just.

Speaker Change: Seeing.

A modest decline in demand.

Speaker Change: Nothing dramatic, but they are seeing some softening demand in that.

Speaker Change: Cause because were feeding their operations were fully integrated into their quarries.

Speaker Change: And we're operating at specific quarries for them.

Speaker Change: Really what demand are they seeing at their quarries and what sort of production they need out of us.

Speaker Change: So it's a little bit of a one off one off stuff and it's a little bit of some just economic softness.

Speaker Change: Some customers.

Speaker Change: Mhm.

Speaker Change: That makes sense.

Speaker Change: I guess then on free cash flow.

Speaker Change: It looked like there were a number of puts and takes on working capital I guess the biggest.

Speaker Change: As you heard.

Speaker Change: A large item for mining supplies inventory.

Speaker Change:

Speaker Change: Which you have a non current asset so I assume thats.

Speaker Change: More than a year.

Speaker Change: Is.

Speaker Change: Do you still expect working capital to be a source of cash this year and I guess why why that large step up in that mining supplies inventory.

Speaker Change: So it really wasn't a step up if you look we just re class a portion.

Speaker Change: Current to long term, we really dug into our.

Speaker Change: Inventory and a lot of that is just critical spares and we don't necessarily have a plan to use that in the next.

Speaker Change: 12 months, so we reclassified a portion of that but if you add up the total it's $94 $3 million of inventory, which compares to $94 $6 million last year or so.

Speaker Change: The reclassification within the balance sheet to better.

Speaker Change: <unk>, what we expect to turn in 12 months versus not.

Doug Weiss: Doug if you think about it.

Speaker Change: Think about the fact that we operate.

Speaker Change: On the North American mining side of the business in particular, we operate 30, something like 35, draglines plus or minus.

Speaker Change: <unk>.

Speaker Change: They're they're singles, it's a single machine Thats, an important part of the customer's factory right. We've got a dragline on site producing the aggregates that our customer will.

Speaker Change: Wash crush size.

Speaker Change: And some of its customers.

Speaker Change: We have a unexpected outage.

Speaker Change: Because of the component failure on a dragline.

Speaker Change: That can be a very serious issue because some of these components on these draglines can take months.

Speaker Change: To acquire which is why we keep components critical components on hand.

In our inventory and as Liz described we took a deep dive into that and decided that some of those things may get used.

Speaker Change: I mean, it book you never know when Youre going to have an unplanned.

Speaker Change: Outage.

Speaker Change: We looked at a number of these parts and said we're holding these for the long term, it's really think of this as an insurance.

Speaker Change: Uh huh.

Speaker Change: Holding the part is really like an insurance policy on the operation of that machine.

Speaker Change: And so thats why we reclassified them from short term long term.

Speaker Change: Okay. It makes sense. So do you still think overall question about <unk>.

Speaker Change: The overall question about working capital though.

Speaker Change: We're not really a working capital driven business.

Speaker Change: When we have a dragline outage coming up.

Speaker Change: Particularly in our North American mining part of the business or it could be at Mississippi Lignite mining company, we will increase our inventory because you want to have all the parts on hand, when you take your dragline down in order to do the work. So from time to time, we'll increase our inventory and then we will get consumed wallboard.

Speaker Change: We're doing an outage.

Speaker Change: So you will see some of those fluctuations as far as customer.

Speaker Change: Receivables or payables.

Speaker Change: There is.

Speaker Change: It's really just kind of a steady cadence.

Speaker Change: That doesn't fluctuate that much over time.

Speaker Change: Mhm Okay.

Speaker Change: I wanted to.

Speaker Change: We do have.

Speaker Change: Do you have a deposit we have outlined on our balance sheet. The positive with vendors you can see that at $14 5 million at the end of March and we expect that to turn this year. So that will be a pickup this year, but we've been increasing that went up $5 million in the quarter. So that kind of offset some of the improvements and we also talked about we had a change in the timing of our <unk>.

Speaker Change: Alright.

Speaker Change: Renewal and so we prepay that and then expenses throughout the year, we move we move that out of Q1. So that's part of what was driving some of the changes in working capital.

Speaker Change: Again, if you have any question. Please press star one on your Touchtone phone.

Speaker Change: Thank you.

Speaker Change: The equity loss looks like we lost Doug somehow.

Speaker Change: Sorry.

Speaker Change: And again.

Speaker Change: Sure.

Speaker Change: We have Doug on the line.

Speaker Change: Sorry.

Speaker Change: I guess on the also on the balance sheet, you have that assets held for sale line.

Speaker Change: Uh huh.

Speaker Change: It consists of some draglines and building.

Speaker Change: In North Dakota that we got as part of that.

Speaker Change: Termination settlement with <unk> energy.

Speaker Change: Mhm.

Speaker Change: Book to Bill those this year.

Speaker Change: They are all being actively marketed.

Speaker Change: I see okay.

Speaker Change: <unk>.

Speaker Change: And then I guess last question would just be.

Speaker Change: On the tumor.

Speaker Change: On the remediation.

Speaker Change: That my sense is kind of lumpy as you get credits and realize.

Speaker Change: Proceeds on those is that right is that not a.

Speaker Change: Quarter to quarter business.

Speaker Change: And then Youre talking about litigation.

Speaker Change: Yes.

Speaker Change: Mitigation resources.

Speaker Change: Lumpy.

Speaker Change: It's sort of lumpy right.

Speaker Change: Alright.

Speaker Change: Yeah again.

Speaker Change: The lifecycle of a mitigation bank is we identify an area, where we want to be.

Speaker Change: Ultimately identify a watershed.

Speaker Change: And these are this is going to be in high growth areas.

Speaker Change: Gross state high growth areas in those states, we acquire the <unk>.

Speaker Change: Piece of property, we work with the Army Corps of engineers to develop the plan for restoring the streams and wetlands to a healthy state.

Speaker Change: And they.

Speaker Change: And they got record of engineers agree on something Thats called a mitigation banking instrument.

Speaker Change: Specifies the work that we need to do and then it provides the timeline with which credits will be made available for sale.

Speaker Change: And as those come in.

Can be over a 10 year timeline and it might be that you get some credits available right away because you're putting a conservation easement on the property.

Speaker Change: You May then take two years.

Speaker Change: Making up to two years, but it might be two years to get the next lump of credits that are available. Once we have done some physical work on the streams or wetlands and then as we.

Speaker Change: We demonstrate the health of the stream or we get.

Speaker Change: Grass and trees and natural.

Speaker Change:

Speaker Change: Plants established you might get more credits overtime and so the life of the credit of the mitigation bank.

Speaker Change: We will have periodic credit releases that will turn into credit sales will make money on those.

Speaker Change: Now this is a this is business is still pretty young in its life.

Speaker Change: As we get more and more mitigation banks just.

Speaker Change: The law of averages in large numbers will start to smooth this out.

Speaker Change: Because you're not just dealing with a handful of mitigation banks that have credit you've got lots of mitigation banks with credits. We're also supplementing that income with.

Speaker Change: Smaller shorter term reclamation and restoration projects projects that are largely done on behalf of state and local municipalities state governments local municipalities, including the abandoned mine land more all of those projects tend to be on average less than a year.

Speaker Change: And there is sort of a steady.

Speaker Change: Source of recurring income same deal as we get more and more of that flowing through this business. It will start to smooth out.

Speaker Change: The overall results, but certainly for a while we're going to continue to see pretty lumpy earnings in that piece of the business, but it is I don't want you to think that that doesn't make it a great business. This is a great business.

Really like the business model really like the opportunity for returns that it provides with us.

Speaker Change: And it's really just a story of.

Speaker Change: Scaling the business and that's why we're excited in the last two quarters, we've reported profitability and we expect them to be profitable for the year.

Speaker Change: Is there a way to.

Speaker Change: Correct.

Speaker Change: Your expansion in that business in terms of the number the acreage or some other metric.

Speaker Change: Yeah.

Speaker Change: Lewis and I are looking at each other trying to figure out what the metrics would be I mean, it's.

Speaker Change: It's number of mitigation banks.

Speaker Change: On the <unk>.

Speaker Change: Credits within each bank.

Speaker Change: Yes, I'll defer.

Speaker Change: Pricing differs is that a stream correct.

One credit.

Speaker Change: Yes.

Speaker Change: But we haven't figured out a good metric to describe that.

Speaker Change: Look it's easy to say number of mitigation banks with some of these mitigation banks are very small and some of them are very large so right.

Speaker Change: And it could be acreage.

Speaker Change: But.

Speaker Change: That varies tremendously if you're if you're if you've got let's just say <unk> got 100 acres.

Speaker Change: In a place that.

Speaker Change: Has competitive banks.

Speaker Change: That can be and its moderate as an area of moderate growth that can be very different than a mitigation bank with not a lot of competition in an area with extremely rapid growth.

Speaker Change: And we run these banks over a number of years and we try to get in when.

Speaker Change: Land has not yet become astronomically expensive.

Speaker Change: And so what we tend to see is in the early days, we can buy the land and we can do the work and then you just see the area explode thinks about the highest growth areas in the country.

Speaker Change: Hum.

Speaker Change: The value of those credits can go up pretty substantially even if it's a small bank can suddenly turned into a really valuable.

Speaker Change: Okay.

Speaker Change: Did you actually own the land on those.

Speaker Change: Okay.

Speaker Change: In some instances we own the land in other instances, we will partner with a landowner.

Speaker Change: And we've got the.

Speaker Change: The contractual relationship that we will enter into with them.

Speaker Change: Whereby they provide the land and we do the work.

Speaker Change: We manage the conservation easement.

Speaker Change: Then there is a.

Speaker Change: Compensation mechanism that rewards the landowner for.

Speaker Change: Toward the landowners participation in the mitigation bank and there is several models.

Speaker Change: For how we might reward them.

Speaker Change: Uh-huh interesting okay.

Speaker Change: Any more color you might have on that.

Speaker Change: So the.

Speaker Change: That's our region resources business, we're looking at solar we're looking at solar.

Speaker Change: Solar needs backdrop.

Speaker Change: As they just learned in Spain.

Speaker Change: The.

Speaker Change: So we're looking at solar on its own and we're looking at solar with various types of backup for solar.

Speaker Change: That continues to develop there is a little bit of uncertainty in that business.

Speaker Change: Because there is some uncertainty about how tax credits are going to really play out in the future.

Speaker Change: But the projects that we're working on we still feel pretty good about.

Speaker Change: As they move forward and the other piece of this.

Speaker Change: <unk>.

Speaker Change: You can read in the Wall Street Journal almost every day.

Speaker Change: Is there is a lot of folks doing data, whether it's regular data or AI or other supporting.

Speaker Change: Supporting functions and Theyre looking for behind the meter solutions and so that's one that's another opportunity where you can develop.

Speaker Change:

Speaker Change: Yes.

Speaker Change: A package of generation could be solar probably solar with backup put it behind the meter you don't have to deal with interconnect into the transmission grid in and things like that so there's a lot of opportunity here, where in this business because we've got a lot of land close to generation.

Speaker Change: <unk> and transmission if that's the route we choose.

Speaker Change: <unk> to go.

Speaker Change: We're also in it because.

Speaker Change: We've operated adjacent to the energy space for a long time and we.

Feel like we can leverage.

Speaker Change: It really capitalize on that knowledge and skills.

Speaker Change: Order too.

Speaker Change: Another piece of our business.

Speaker Change: Mhm.

Speaker Change: Which part of your land or you like.

Speaker Change: Likely to do that work on.

Speaker Change: Well, it's what you said, which part of the land.

Speaker Change: Yes.

Speaker Change: It.

Speaker Change: The Pennsylvania.

Speaker Change: Sure.

Speaker Change: So I mean, it's largely on reclaimed mine lands, so think about where we have reclaimed where we have mines.

Speaker Change: And as we mine, we were always reclaiming behind our mining and so we've got reclaim mine will add to that actually.

Speaker Change: And <unk> is pretty darn good place to put.

Speaker Change: Projects like this.

Speaker Change: Okay, We noted in our release, Mississippi and Texas.

Speaker Change: So again.

Speaker Change: We noted in the release, Mississippi and Texas.

Speaker Change: Okay, Okay got it.

Speaker Change: Alright.

Speaker Change: As always I appreciate the time and talk to you next quarter.

Speaker Change: Yes. Thank you Doug I appreciate the call. Thanks, Dan.

Speaker Change: No no.

Speaker Change: Further questions. Please continue.

Speaker Change: Okay with that we'll conclude our Q&A session before we conclude I would like to provide a few reminders a replay of our call will be available later this morning.

So post the transcript on the Investor Relations website when it becomes available if you have any questions. Please reach out to me my phone number is in the release other than that I Hope you all enjoy the rest of your day and I'll turn it back to Vincent to conclude the call.

Ladies and gentlemen visit today's conference call. Thank you for your participation you may now disconnect.