Q1 2025 Hallador Energy Co Earnings Call
Good afternoon. Thank you for attending olive door Energy's first quarter 'twenty 25 earnings conference call.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
Shine, Missouri: As a reminder, this call maybe recorded I would now like to turn the conference over to Shine, Missouri.
Sean: 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 first quarter 2025 results.
Sean: With me today are president and CEO, Brent <unk> and CFO <unk> <unk>.
Sean: This afternoon, we released our first quarter 2025 financial and operating results in our press release that is now on the <unk> Investor Relations website.
Sean: Today, we will discuss those results as well as our perspective on current market conditions and our outlook.
Sean: Following prepared remarks, we will open the call to answer your questions.
Sean: Before we begin a reminder, that some of our remarks today include forward looking statements.
Sean: Subject 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.
Sean: While these forward looking statements are based on information currently available to us.
Sean: 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.
Sean: In providing these remarks <unk> 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.
Brent: And with the preliminaries out of the way I'll turn the call over to President and CEO Brent <unk>.
Brent: Thanks, Sean and thank you everyone for joining us this afternoon.
Brent: We are pleased with our first quarter performance as we return to top line growth.
Brent: All material improvements.
Brent: And our bottom line and cash flow generation.
Brent: Scoring the strength of our strategic shift to a vertically integrated independent power producer.
Brent: January and February offered a strong backdrop.
Brent: The combination of colder weather and higher energy pricing enabled us to benefit from increased dispatch volumes.
Brent: We also saw improvement in our coal production through the first three months of the year.
Brent: As our 2020 for restructuring efforts continue to take hold.
Brent: During the quarter, we leveraged our strong counterparty relationships to strategically deploy targeted firm energy sales.
Brent: Helping to offset price volatility and weather related demand fluctuation.
Brent: This enable us to maximize the value of our <unk> power plant in a way that balances challenging periods.
Brent: Well also gives us flexibility to capture upside opportunities.
Brent: Periods of elevated pricing like what we saw in January and February.
Brent: Before diving into our first quarter operational highlights.
Brent: To provide an update on our ongoing negotiations with a leading global data center developer.
Brent: We're making meaningful progress in our negotiations for the long term supply of capacity and energy from our facility.
Brent: We understand that our partner has demonstrated their commitment to the opportunity there is significant investment around land transmission capacity and equipment as.
Brent: As well as the previously announced exclusivity agreement with us.
Brent: That runs through early June of 2025.
Brent: Given the inherent complexity of these multiparty agreement.
Brent: At this time it is uncertain, whether we will execute definitive agreements before the current exclusivity period expires.
Brent: We are actively evaluating whether to agree to our counterparties request for an additional exclusivity period.
Brent: In the event the current exclusivity period expires without definitive agreement.
Brent: Or an additional exclusivity period, we would continue negotiations on a non <unk>.
Brent: Exclusive basis, while evaluating proposals from interested third parties.
Brent: During the last several months, we have received multiple unsolicited third party inquiries with respect to the availability of our future energy and capacity.
Brent: Ultimately, we remain well positioned to execute our strategic transaction.
Brent: That delivers long term value to our shareholders.
Brent: Stepping back to the broader market, we continue to believe that the prevailing industry trends of retiring dispatch will generators such as coal.
Brent: In favor of non dispatch will resources like wind and solar.
Brent: Will lead to an unbalanced energy equation.
Brent: And extended volatility in the energy markets.
Brent: We believe this volatility makes our subsidiary <unk> power.
Brent: Much more valuable due to the enhanced reliability we provide.
Brent: Versus non as basketball generators.
Brent: To further capitalize on these dynamics, we are actively exploring opportunities to acquire additional just basketball assets.
Brent: That will enhance our scale and diversify our revenue streams, while reinforcing our position in the evolving energy market.
Brent: How long is uniquely positioned to transform underperforming or retiring assets.
Brent: To serve high growth end users such as data centers.
Brent: In onshore manufacturing with limited impact to retail customers.
Brent: This model for growth is enabling us to continue our shift away from the discounted pricing related to our 2022 plant acquisition.
Brent: To higher wholesale market pricing next year.
Brent: And ultimately to premium pricing associated with supporting data centers and other large load end users.
Brent: Notably the positive momentum that we're seeing from the current administration on both the federal and state levels.
Brent: Should make transactions of this or more feasible than they would have been under prior administration.
Brent: We're also currently evaluating the addition of natural gas co firing at Maryland.
Brent: While we are still in the evaluation process.
Brent: By adding the capability to co fire with gas <unk> coal.
We believe it will provide fuel flexibility to our counterparty, while also providing how at all with the ability to capitalize on the best fuel cost scenario and better control our operating expenses.
Brent: Additionally, we believe that the ability to co fire with natural gas.
Brent: <unk> will also provide increased resiliency in times, where gas availability is limited.
Brent: As we have seen in various winter storms across the last several years.
Brent: Moreover, leveraging coal supply from our own operations that sunrise could help and input cost by providing what is essentially.
Brent: And at costs fuel supply.
Brent: Providing a lease Val if third party fuel pricing gets out of control, while also supporting our local workforce.
Brent: From a pricing standpoint forward indicators continue to trend positively.
Brent: The forward power curves indicate that the margins earned on energy produced at marrow.
Brent: And the value of accredited capacity sales assigned to the plant continued to increase.
Brent: As we saw in the most recent MISO auction, where accredited capacity sold at prices in excess of $600 per megawatt day in the highest demand summer season.
Brent: We are seeing strong indications for both energy and capacity prices in 2025 and beyond.
Brent: And we're encouraged by our negotiations related to supporting the data Center development.
Brent: Within the state of Indiana for many years to come.
Brent: Subsequent to quarter end, we completed scheduled maintenance on one of our units at the plant.
Brent: Our second unit is currently undergoing scheduled maintenance and is expected to return online July 2nd.
Brent: We typically schedule these outages during shoulder seasons, when pricing tends to be lower.
Brent: And we generally limit our firm electricity sales during these period to guard against any unforeseen forced outages.
Brent: Despite these outages we've already contracted approximately 3 million megawatt hours for the balance of 2025 at an average price of $37 20.
Brent: And $3 4 million megawatt hours for 2026.
Brent: At an average price of $44 43.
Brent: Refracting strong market demand and pricing momentum.
Brent: Following 2026, we are optimistic that we can sell energy at higher prices in support of data center development and towards the traditional wholesale customers.
Brent: Shifting to our coal operations, we continue to see improvements from the restructuring of our Sunrise coal Division.
Brent: We announced in early 2024.
Brent: We spent the majority of last year optimizing production head count and strategy.
Brent: To best support our electric operations at our existing third party contracts.
Brent: Looking ahead this restructuring should provide us with greater flexibility to quickly scale if.
Brent: If we see coal prices increase to a point that justifies restarting production.
Brent: At a more expensive units.
Brent: With renewed support at both the federal and state levels for coal mining and coal fired power generation.
Brent: As well as improving market dynamics, we believe that we are well positioned to pursue growth <unk> expansion opportunities, including the potential to increase our coal production.
Brent: In the back half of 2025 or 2026.
Brent: If the market supports doing so.
Brent: In the meantime, we expect to produce approximately three 8 million tons of coal this year.
Brent: Having delivered $1 1 million tonnes in.
Brent: In the first quarter to mirror them and other customers.
Brent: We supplement our own coal production with low cost third party purchases.
Brent: To diversify supply.
Brent: Enhanced sales flexibility and optimize fuel costs and margins that mirror.
Brent: Looking ahead, we continue to see growing demand for reliable power.
Brent: Particularly as grid volatility grows with the retirement of dispatch of generation and the demand growth environment.
Brent: This demand paired with supportive regulatory sentiment.
Brent: <unk> ability to deliver dependable energy.
Brent: Positions us well for sustained growth.
Brent: Our pursuit of dual fuel capabilities and potential acquisition of other dispatch will generation asset.
Brent: Flex our confidence in the long term economics and viability of our platform.
Brent: With a robust contracted sales booths strengthening fundamentals.
Brent: An ongoing interest from high demand end users.
Brent: We believe we are well positioned to materially strengthen our opportunities for growth and cash flow generation.
Brent: For many years.
margin hardware: I will now hand, the call over to our CFO margin hardware to take you through our financial results.
Brent: Marty.
Marty: Thank you Brent and good afternoon, everyone jumping right into first quarter results.
Marty: On a segment basis electric sales for the first quarter increased to $85 9 million compared to $69 7 million in Q4, and $60 7 million in the prior year period.
Marty: Well closed sales were $54 8 million.
Marty: First quarter compared to $42 4 million in Q4 and $66 million in the prior year period.
Marty: The increase in electric sales was primarily due to new contracts entered into in Q1 2025.
Marty: And in fact in 2024, as well as higher energy pricing and dispatch volume.
Marty: The expected year over year decline in comp sales was driven by our decision to reduce coal production as part of the restructuring of our Sunrise coal Division.
Marty: On a consolidated basis total operating revenue increased to $117 8 million for the first quarter compared to $94 8 million in Q4, and 111 6 million in the prior year period.
Marty: Net income for the first quarter improved to $10 million compared to net losses of $215 8 million in Q4, and $1 7 million in the prior year period.
Marty: Large loss in Q4 was primarily driven by a noncash long lived asset impairment for Sunrise coal.
Marty: Operating cash flow for the first quarter increased to 38 4 million compared to $32 5 million in Q4, and $16 4 million in the prior year period with the increase driven by higher power pricing and improved coal mining margin in the first quarter.
Marty: <unk> 2025.
Marty: Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today increased significantly to $19 3 million for the first quarter compared to $6 2 million in Q4, and $6 8 million in the prior year period, reflecting the improving trend.
Marty: And our power business.
Marty: We invested $11 7 million in capital expenditures during the first quarter of 2025 compared to $14 9 million in the year ago period.
Marty: As of March 31, 2025 are forward energy and capacity sales position was $634 million compared to $685 7 million at the end of Q4.
Marty: 657, 5 million as of March 31, 2024.
Marty: When combined with our forward fuel sales of $422 7 million as well as intercompany sales to narrow our total formula account book as of March 31, 2025, with approximately one 5 billion.
Marty: During the first quarter, we reduced our total bank debt to $23 million compared to 44 million at December 31, 2024, and 77 million at March 31 2024.
Marty: Additionally, we did not utilize our ATM program in the first quarter and have not utilized it since Q2 2024.
Marty: Total liquidity at March 31, 2025 was $69 million compared to $37 8 million at December 31, 2024, and $39 5 million at March 31 2024.
Marty: This concludes our prepared remarks, we will now open it up for questions from those participating in the call.
Marty: Operator back to you.
Speaker Change: Thank you as a reminder to ask a question you will need to press star one one on your telephone.
Marty: To remove yourself from the queue you May press star one again.
Marty: Please standby, while we compile the Q&A roster.
Nick Giles: Our first question comes from the line of Nick Giles B Riley Securities. Please go ahead.
Thank you operator, and good afternoon, everyone.
Nick Giles: Brent if I heard correctly it sounds like there was a.
Nick Giles: Request for an extension of the exclusivity period, but you may consider not renewing exclusivity.
Nick Giles: Given other unsolicited offers so.
Nick Giles: Given that you appear to be in the late innings of a deal with initial counterparty.
Nick Giles: How should we think about renewing versus not.
Nick Giles: What would <unk>.
Nick Giles: Other potential customers ultimately compete on.
Nick Giles: Thank you.
Nick Giles: Yes, thanks, Nick.
Nick Giles: Yeah.
Nick Giles: Look were.
Nick Giles: We've said we're <unk>.
Nick Giles: Uncertain, whether the deal gets done before the.
Nick Giles: Exploration.
Nick Giles: Our counterparty has requested that the.
Nick Giles: We agreed to an extension.
Nick Giles: And we're evaluating if thats something that we want to do or not we feel we feel really good about this.
Nick Giles: Made a lot of progress.
Nick Giles: But we're also encouraged by.
Nick Giles: The interest.
Nick Giles: Interest that we see from other parties.
Nick Giles: And so as.
Nick Giles: As we continue to make progress over the next month.
Nick Giles: We will evaluate whether it's in our shareholders' best interest to grant an extension or two.
Nick Giles: Continue to negotiate non exclusively.
While entertaining.
Nick Giles: Other interest.
Nick Giles: Thanks for that Brendan maybe just as a follow up with the EPR submitted by.
Speaker Change: Who is your having received approval I have to imagine.
Speaker Change: Really a key hurdle has been cleared and in reaching a definitive agreement. So just curious how you would describe final steps from here.
Speaker Change: Are there any.
Speaker Change: Other major considerations with the initial counter party or would you describe it as down to the final details.
Speaker Change: Yeah.
Speaker Change: Yeah again, our deal is in front of the meter and so.
Speaker Change: What what you've seen with Hoosier is.
Speaker Change: A powered land development.
Speaker Change: Development.
Speaker Change: We will be selling to the bus bar and so as long as the power has taken somewhere in MISO zone, six which is pretty much the entire state of Indiana and northern third of Kentucky.
Speaker Change: We don't really.
Speaker Change: Not a great importance to us where the power is taken off so I don't want people to get overly.
Speaker Change: Focused on one powered land.
Speaker Change: Opportunity and assume that that's us or only.
Speaker Change: Our only opportunity.
Speaker Change: As far as where the negotiations are.
Speaker Change: Yes, I would say that all the major.
Speaker Change: Most of the major points have been negotiated.
Speaker Change: Oh.
Speaker Change: We've made great progress with the utility with the developer.
I really think it's more down to the hyper scaler.
Speaker Change: Negotiating the finer points of the transaction with the developer and making sure all of those points align with all four counterparties.
Speaker Change: Yeah.
Speaker Change: Great that makes sense.
Speaker Change: One more if I could I mean, it's it's good to hear an update on the potential to co fire with natural gas. So I was just wondering if you could add any color around potential timing cap.
Speaker Change: Capital intensity, if I can.
Speaker Change: Remember correctly, there was a requirement to do something like this early in the 2030, but it sounds like you may be pulling that forward now so I appreciate any additional color.
Yes, I mean current law says that we must co fired by 2032.
Speaker Change: We expect the Trump administration to probably roll that back.
Speaker Change: That being said, we've said for quite some time, we feel that either the government at some point will require us to put a gas line tomorrow or.
Speaker Change: Or the customer will.
Speaker Change: Pay us to do so.
Speaker Change: So we feel it was appropriate to begin analyzing this process so that we can.
Speaker Change: Better update the shareholders on capital cost timing feasibility that sort of thing we think the project is very feasible we've hired.
Speaker Change: A contractor to analyze it.
Speaker Change: Has been successful and co firing other coal fired power plants across the country and everything we're hearing to date is very positive.
Speaker Change: Towards our situation, we think it's probably.
Speaker Change: Something is very feasible and probable to be be able to be accomplished in a reasonable timeframe.
Speaker Change: So it's something we're evaluating from now we expect to update the.
Speaker Change: The shareholders more on that in the future, but we're still in the early innings of of that process.
Speaker Change: Got it got it no that's helpful.
Speaker Change: Maybe if I could just a clarifying question I mean, you've talked about you've talked in the past about the advantage of.
Speaker Change: Contracting energy sales on a contingent basis. So I was wondering if you could clarify whether any long term deal.
Speaker Change: With a hyper scaler or the likes.
Speaker Change: Yeah.
Speaker Change: Should we think of this is contingent and should we think about this as a firm basis.
Speaker Change: Just how should we think about structure here.
Speaker Change: Yes.
Speaker Change: Negotiated that structure to be a unit contingent basis.
Speaker Change: And for well over a decade and link.
Speaker Change: Got it okay.
Brett: Well, Brett I really appreciate all the color.
Speaker Change: Ill.
Speaker Change: Go ahead and jump back in the queue, but if there aren't any.
Speaker Change: Although I know it's been please operator, let me, let me know and I'll continue to ask a couple more if that's okay.
Nick Giles: Alright, Thanks for your interest Nick.
Nick Giles: Thank you.
Speaker Change: Ladies and gentlemen, this concludes our question and answer session and today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Hum.
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Speaker Change: Mhm.
Speaker Change: Hum.
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