NYSE:NC NACCO Industries Q3 2023 Earnings Report $33.50 +0.37 (+1.11%) Closing price 05/7/2025 03:59 PM EasternExtended Trading$33.67 +0.17 (+0.52%) As of 05/7/2025 05:52 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings History NACCO Industries EPS ResultsActual EPS-$0.51Consensus EPS N/ABeat/MissN/AOne Year Ago EPSN/ANACCO Industries Revenue ResultsActual Revenue$46.55 millionExpected RevenueN/ABeat/MissN/AYoY Revenue GrowthN/ANACCO Industries Announcement DetailsQuarterQ3 2023Date11/1/2023TimeN/AConference Call DateThursday, November 2, 2023Conference Call Time8:30AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by NACCO Industries Q3 2023 Earnings Call TranscriptProvided by QuartrNovember 2, 2023 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Thank you for standing by. My name is Deb, and I will be your conference operator today. At this time, I would like to welcome everyone to the NACCO Industries Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. Operator00:00:30I would now like to turn the call over to Christina Kmetko. Please go ahead. Speaker 100:00:35Thank you. Good morning, everyone, and welcome to our 2023 Q3 earnings call. Thank you for joining us this morning. I'm Christina Kmetko and I'm responsible for Investor Relations at NACCO Industries. Joining me today are J. Speaker 100:00:49C. Butler, President and Chief Executive Officer and Elizabeth Loveman, Senior Vice President and Controller. Yesterday, we published our Q3 2023 results and filed our 10 Q. This information is available on our website. Today's call is being webcast. Speaker 100:01:05The webcast will be on our website later this afternoon and available for approximately 12 months. 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, 10 Q and other SEC filings. We may not update these forward looking statements until our next quarterly earnings conference call. Speaker 100:01:39We'll 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. I'd also like to note that during today's remarks, we'll provide information about the remainder of 2023 as well as a high level view of our 2024 expectations. We ask that you remember that the 2024 information is preliminary. We are still in the process of reviewing our annual operating plan. Speaker 100:02:08We will provide more definitive 2024 information as part of our Q4 2023 earnings release. With the formalities out of the way, I'll turn Call over to J. C. For some opening remarks. J. Speaker 100:02:19C? Speaker 200:02:19C. Durrant:] Thank you, Christy, and good morning, everyone. Our Q3 2023 results We're much lower than last year, but that was as expected and in line with the outlook we provided last quarter. To understand our results, it's best to discuss the quarter Business by business, I'll also talk about our future expectations before turning the call back over to Christy. I'll first address the Coal Mining segment. Speaker 200:02:44Last quarter, I talked about the temporary operational inefficiencies at Mississippi Lignite Mining Company related to transitioning to a new mine area And contending with some short term adverse mining conditions caused by increased rainfall, both of which reduced our production and increased our costs. This situation continued into the Q3 and for the same reasons. We do expect production costs To provide some background, we moved to this new mine area because the coal reserves were largely depleted in Mine Area 1, where we've been mining since the late 1990s. We had to open a new mine area with additional reserves to meet our contractual coal delivery requirements, which run to 2,032. This was not a surprise. Speaker 200:03:46We've known that we'd need to move to a new mine area since we started mining over 20 years ago. The move to a new mine area and the related costs are now behind us. We expect to see modest improvement in the 4th quarter with results improving further in 2024. However, the biggest favorable impact will occur in 2025 and future years As operations in this new mine area normalize, you'll recall that we've invested significant capital to develop this mine area. These capital investments have resulted in increased depreciation expense that will continue over the remainder of the contract term. Speaker 200:04:25The added depreciation will affect reported operating profit, but this depreciation is excluded from EBITDA, which we think is a better way to look at this part Our business because we don't expect Mississippi Lignite Mining Company to open additional mine areas through the remaining contract term. Shifting to Minerals Management. Natural gas and oil prices are significantly lower than the very high prices experienced in 2022. These lower prices have led to a significant decrease in Minerals Management's Q3 2023 results compared with the prior year. Natural gas and oil prices are expected to continue to remain below 2022 levels, resulting in a significant decrease in operating profit in Q4 of 2023 compared with 2022. Speaker 200:05:14The team at Catapult Minerals Partners is finalizing a $37,000,000 acquisition anticipated to close during the Q4 that will provide additional diversification into the oil rich Permian Basin. In 2024, Minerals Management is targeting additional investments of up to $20,000,000 These investments As well as the development of new wells on existing owned reserves beyond those included in our forecast would be accretive to future results. Our North American Mining segment generated a moderate operating profit again this quarter compared with a small loss in the prior 3rd year quarter. The aggregates mining part of this segment struggled during 2022, but the challenges we implemented sorry, the changes we implemented To drive improved future financial results are paying off and that's encouraging. I'm optimistic North American Mining can build upon this momentum This is partly offsetting the improvements in results at North American Mining's aggregates operations. Speaker 200:06:24We are no longer recognizing Reclamation income at Caddo Creek since we purchased the membership interest in the Marshall Mine in March 2023, where Caddo Creek had been performing mine reclamation work. Wrapping up my North American Mining comments, let me mention Sawtooth Mining, which is the exclusive contract miner for Lithium Americas Thacker Pass Lithium Project in Northern Nevada. Construction at Packer Pass commenced in the Q1. With that, we began acquiring equipment for the project. We've acquired $23,100,000 of equipment To date, we expect to continue to recognize moderate income through 2025 with higher levels of income anticipated when our customer commences Phase 1 lithium production, which is currently expected to begin in the second half of twenty twenty six. Speaker 200:07:16Moving to Mitigation Resources of North America. This team continues to advance existing mitigation projects and build on foundation and is established over the past several years. I'm pleased to report that they added an additional mitigation bank during the Q3. Mitigation Resources is still in what I'd refer to as the start up phase, but I'm very pleased with the level of growth they've achieved since starting 5 years ago. And I'm even more excited about their prospects. Speaker 200:07:46They continue to look for additional projects and expect to achieve Near breakeven earnings in 2024 with increasing profitability over the longer term. I said this last quarter and I'll say it again. We expected 2023 to be a year of unfavorable comparisons for a few very specific temporary reasons that has played out as we expected. Despite this, I am still very optimistic about our outlook as we look beyond 2023. I have a lot of confidence in our team and I'm pleased The way all of these businesses continued to advance their strategies, including efforts to protect our coal mining business. Speaker 200:08:26With that, I'll turn the call back over to Christie to cover our results for the quarter and our outlook in more detail. Christie? Speaker 100:08:33Thank you, JC. I'll start with some high level comments on our consolidated Q3 financial results and then add more color on our individual segments. We reported a consolidated net loss of $3,800,000 or $0.51 per share loss compared with net income of $10,600,000 or 1 $0.45 per share last year. We generated modest EBITDA of approximately $400,000 compared with approximately $22,100,000 in 2022. These lower results or primarily due to significant decreases in our Coal Mining and Minerals Management earnings. Speaker 100:09:09Looking at the individual segments, Our Coal Mining segment had lower results compared with Q3 2022, reporting an operating loss of $4,700,000 Negative segment adjusted EBITDA of $400,000 These decreases were primarily due to the substantial decline in Mississippi Lignite Mining Company results as well as lower earnings at our unconsolidated operations due to lower customer requirements at CATL. Lower employee related costs partly These reduced results. The decrease in Mississippi Lignite Mining Company results was driven by an increase in the cost per ton sold due to the inefficiencies and additional costs associated with moving to the mine area to the new mine area that J. C. Mentioned. Speaker 100:09:54A $2,400,000 write down of on-site coal inventory to net realizable value also contributed to the significant increase in the cost per ton. Also as J. C. Discussed, the primary reason behind the decline in Minerals Management's results is significantly lower prices. To put this more in context, Current natural gas prices as measured by the Henry Hub average natural gas spot price declined 68% from 2022 And oil prices as measured by the West Texas Intermediate average crude oil spot price decreased 12% from last year. Speaker 100:10:31North American Mining's 3rd quarter 2023 operating profit and segment adjusted EBITDA improved significantly over the prior year. This improvement was primarily due to lower employee related costs. As in 2022, operating expenses included $800,000 for a voluntary retirement program. North American Mining also realized improved earnings at its aggregates quarries and at sawtooth. These improved earnings were partly offset by reduced Caddo Creek income. Speaker 100:11:00Looking forward, at our Coal Mining segment, we expect 4th quarter 20 operating results and segment adjusted EBITDA to improve significantly compared with the 2023 Q3, but declined substantially from the 2022 Q4. As J. C. Mentioned, we are anticipating lower production costs at Mississippi Lignite Mining Company. However, while production costs are expected to decline from recent levels, they are expected to remain above historical levels through 2024 when the new pit extension in the new mine area is complete. Speaker 100:11:34We are also anticipating an increase in tons severed, which will contribute to a reduction in the cost per ton sold and improve profitability at MLMC beginning with the Q4 and continuing into 2024. In 2024, we expect co deliveries to increase moderately from 2023. Strong operating profit and significantly higher segment adjusted EBITDA are also anticipated in 2024 compared with 2023. These increases are primarily the result of significant improvements at MLMC and an increase in earnings of unconsolidated operations. The improvement in the unconsolidated operations is expected to be driven by increased customer requirements at Quito and At North American Mining, we expect operating profit and segment adjusted EBITDA to increase significantly in both the 2023 4th quarter full year versus the prior year period. Speaker 100:12:34These increases are primarily due to anticipated earnings improvements under existing contracts, including Sawtooth Mining, partially offset by the completion of services at Caddo Creek. Full year 2024 operating profit contracts, including Sawtooth Mining and an anticipated reduction in operating expenses. Any new contracts The 2023 Q4 and full year are expected to continue to decrease significantly compared with last year. These decreases are primarily driven by current natural gas and oil price market expectations. In 2024, we expect operating profit and segment adjusted EBITDA increased moderately over 2023, primarily due to current market expectations and limited forecasted development of additional new by 3rd party lessees. Speaker 100:13:41Lower operating expenses are also anticipated to contribute to the profit growth. Future investments, including the $37,000,000 investment anticipated to close before the end of 2023 are expected to be accretive to the current forecast. Overall, at a consolidated level, we expect that Q4 2023 improvements We'll produce operating profit and net income versus the losses incurred this quarter. 4th quarter and full year 2023 consolidated operating results and Adjusted EBITDA, however, are expected to be down from the respective prior year periods due to the expected substantial decreases at the Coal Mining and Minerals Management We expect these reductions to be partially offset by favorable changes in income taxes leading to modest income for the 2023 full year. In 2024, we expect a significant increase in consolidated net income and EBITDA over this year. Speaker 100:14:41These improvements are primarily due to increased profitability at the Coal Mining segment from improved results at MLMC, Falkirk and Coachella. Growth at North American Mining and Mitigation Resources is also expected to contribute to the higher 2024 net income. Lastly, from a liquidity standpoint, We ended the quarter with consolidated cash of $128,000,000 and debt of $22,500,000 We had availability of $122,000,000 under our revolving credit facility. During the quarter, we repurchased approximately 24,800 shares for $800,000 under an existing share repurchase program. For the full year, we expect cash flow before financing activities to be a moderate Use of cash. Speaker 100:15:28But in 2024, we expect cash flow before financing activities to be positive, just not to the level generated in 202022. We will now turn to any questions you may have. Operator00:15:53We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Andrew Kun with Focus Compounding. Please go ahead. Speaker 300:16:05Good morning, everyone. Speaker 200:16:06Good morning, Speaker 300:16:07Andrew. So my first question is actually on buybacks, which is what you guys ended your So you bought back $800,000 in stock in September and you did it at a price your stock has traded at before And you did it under a repurchase plan that was approved 2 years ago. So I'm just curious on how we should be thinking about this. Is the change here that you now feel that you have enough cash and enough expected cash flows to fund diversification efforts, Maintain a conservative balance sheet and still afford to do buybacks when they make sense. Should we expect more buybacks going forward? Speaker 300:16:49Any color you can give on this would be great. Speaker 200:16:54Well, we certainly have enough cash. You've been watching us long enough to know that we're big believers in having a bulletproof balance sheet. And I think the combination of A big pile of cash and not a lot of debt reinforces that. I think your question is really around timing, right? We've had this program for a couple of years. Speaker 200:17:19Why are we now buying stock? Yes. I think we've gone through what we knew was going to be a difficult 2023 for Reasons that we expected going into the year, we signaled this more than a year ago. I am sure you know. And we're sort of at a point that when we're we've got a positive outlook. Speaker 200:17:45We're Literally on the eve of 2024 and future years, we feel good about where we're headed. And so we bought stock. Speaker 300:17:56Got it. Got it. So I mean it sounds like something maybe we could expect in potentially in the future, More stock buybacks? Speaker 200:18:09I'm just not going to comment on that. Speaker 400:18:11Sure. And Speaker 300:18:12then moving to Mississippi Lignite Mining Company. So CapEx is expected to be $10,000,000 for full year 2023 and then $10,000,000 again in 2024. I know there'll be some inflation over time and year to year variations, but do you think $10,000,000 a year in CapEx is a realistic long term average for MLMC over the next 9 years or so. Speaker 200:18:39I mean, actually, I don't have the data To tell you, if I think $10,000,000 is the right average number, I will tell you that it's going to be nowhere near what it's been over the last several years as we've opened this new mine area. Going forward, it's really just going to be regular Equipment replacements that may be needed. And none of those should be Extraordinarily large. Is $10,000,000 the right number? I actually don't have enough data in front of me to tell you what it is over the next 9 years, But it's going to be a modest number for sure. Speaker 300:19:21Got it. Great. And then My last question is around Minerals Management and your outlook. So in your earnings release, you have a line that says the company's forecast is based on currently owned reserves. And you also say you're anticipating closing on a $37,000,000 purchase in the Permian in the 4th quarter. Speaker 300:19:40So does that mean that for now your estimates for 2024 don't include any cash flows from this expected purchase? Speaker 200:19:50That's correct. Speaker 300:19:52Got it. That's very helpful. Thank you for answering my questions and I'll jump back in the queue. Speaker 200:19:57Great. Thanks for your questions. We appreciate your interest. Operator00:20:04Your second question comes from the line of Douglas Weiss with DSW Investment LLC. Please go ahead. Speaker 400:20:13Hey, good morning. Speaker 300:20:14Good morning. Speaker 400:20:17Just a few questions. I guess the first on the minerals and mining results. So I understand that prices are down from a year ago, but they're actually up a bit from last quarter, And yet the revenue was down quite a bit from the Q2. Is that wells that are not being replaced? Or I don't know if you could just talk to why There was a sequential Speaker 200:20:43decline. I mean the quarter over quarter decline It's largely related to the fact that we've got a very, very large Stake in wells that we've had assets that we've had in wells that we've had for a very long time, largely in Appalachia, the Marcellus and the Utica. And those natural decline curve, it really from quarter to quarter, month to month, It really just gets into what new production is coming on and how does that compare to the decline curves on the things that are producing. In all honesty, I would say we don't manage the business in a way that is Too concerned about quarter to quarter moves. It's really a business that we're trying to build over the very long term. Speaker 400:21:42Sure. So I mean, is it reasonable to infer that With gas prices so low, those wells people just aren't drilling as much until are waiting for better prices and then the number of wells Speaker 200:22:01Well, I think it's a combination of that. Liz, you've got a Liz has got Speaker 300:22:09a point to add here. Speaker 100:22:10Yes. We did have some settlement income in the Q2 of this year. So that also impacted the quarter over quarter results. If you look in the 10 Q, we have some discussion about that in the Minerals Management segment. Speaker 400:22:22Yes. No, I did see that, but that didn't look like that. I mean, it looked like that was relatively small in the scheme of I mean, in the day Speaker 300:22:31to day. Day to day. Speaker 200:22:32Beginning fact. Speaker 400:22:34Yes. Yes. Go ahead. Speaker 200:22:36Yes. I mean, it's We certainly are more sensitive to what's going on with natural gas than we are with oil at this point, Right. We're working to diversify this into a more balanced portfolio, but we're not there yet. So anything that's happening in the natural gas world, whether it's prices or the Rate with which new wells are being developed on our reserves or Workovers that are being done on existing wells to increase production. We're going to be more sensitive to that than Another minerals company that might be heavily oil weighted. Speaker 200:23:19So natural gas is going to affect us disproportionately more than Oil well at this point. Speaker 400:23:28Okay. And then just from an accounting standpoint, you recognize the cost of goods in that division, But it is a royalty position. So I was just curious what is that sort of $1,000,000 a quarter cost of goods sold there? Speaker 100:23:43It's related to the deductions that we the cost that we're paying off of some of the royalty income. Speaker 400:23:55Okay. Okay. I mean, I can follow-up on that later too. Okay. Are you still there? Speaker 200:24:17Yes. Yes, we are. Speaker 400:24:19Okay. So, I guess moving on to the solar Projects that you've talked about a little bit. Can you give some kind of ballpark on how much capital you think you can allocate there and what kind of Returns you're anticipating? Speaker 200:24:35Well, this is a very new thing for us. So to speculate on how much capital we might allocate to it, I think is premature. I think we're still exploring what that might be. The returns that we're seeing are very nice. We're seeing returns In the high teens, low 20s, and we measure that as return on total capital, return on equity. Speaker 200:25:07So we think these are pretty attractive projects. Speaker 400:25:15Yes. I know that is attractive. On Sacker Pass, you've said that for projections purposes, you should think about that as a mid Size coal equivalent to a midsized coal project. I guess I'm not really sure exactly how to what that means. Can you give a little context for that in terms of what I should think about or what that would be earning at full production? Speaker 200:25:45Yes. I mean, that's not we've never disclosed that kind of granular information with respect to our mines. Obviously, as you can imagine, when you look at the volumes that come out of Kislausau and Fall Creek, Kislausau and Falkirk, We're getting a lot of income out of those. This is going to be more like a Coyote Creek, Bean court sort of operation with respect to income. My advice to you would be sort of look at what we're earning in our coal segment and Divided by tons roughly to get some averages. Speaker 400:26:23This Speaker 200:26:24is going to be a relatively small. It's going to be a modest operation. I will say that as we've been involved with this project over the last several years, We have had some nice gains with respect to the work that we're going to be performing for Lithium Americas, At the Seth Thacker Pass project, we're currently performing some what I'd call dirt work construction Activities for them with respect to the processing plant development. And so We think it's a good partnership and we're looking for ways that we can help them not only under the current scope, but how we might expand that relationship in the future. Speaker 400:27:13Okay. On the Mississippi mine, I was just curious when the contract ends in 2,030 I mean, I think you the impression I get is that's sort of the end of the operation there. But is there not Secondary buyers that would still be interested in that coal, which would encourage continued production, could you just explain that quickly? Speaker 200:27:36Well, the current contractual relationship started in the mid to late 2019 90s and runs through 2,032. There certainly are core reserves in the area that could be used In the future, the power plant certainly should have life that goes beyond 2,032. One of the things that we're very interested in, looking for ways that we might be able to Extend the life of the mine. Who how that works with respect to the power plant and what the power plant Doing and what other things might happen on that location are yet to be determined, but we certainly would be interested in extending that further And I'm working on a number of things to that end. Speaker 400:28:32Okay. And my last question, so you're Putting a lot of capital into the mineral and mining business on the royalty side, But you have this expertise in aggregate mining, which seems to be a very attractive areas, but particularly at the moment. I was curious if You've given any thought to direct ownership of aggregates reserves? Speaker 200:29:01Well, it's okay. So I'm going to interpret that as 2 questions. One is you said aggregates reserves, But I'm guessing you also mean with respect to the processing and sales of the aggregates. Yes. So we have a long history in mining. Speaker 200:29:21I think we're really, really good at what we do. I think we have a great ability to improve the economics for our customers by Utilizing our mining expertise, that does not translate into Processing the aggregates, deciding what products you're going to manufacture or Selling those into the market. We have no experience there. We have no skills. There's always the question of can you go just acquire those and we could, but we're sort of big believers And let's build off the skills that we have rather than decide to go something completely different. Speaker 200:30:11So as far as integrating vertically into the production and sales of the aggregates Sales or processing and sales. I think that's a big reach for us. With respect to owning The limestone reserves or sand and gas gravel reserves, We've considered it, I'd say not in a tremendous amount of depth, But it is something that we've thought about. We've done well over our history by owning coal reserves and we've thought about whether that might be An interesting thing for us. The difference between the two is we're sort of experts in lignite and there are 2 Very well defined lignite reserves in the United States, and we knew where those are, and we focused our operations on those. Speaker 200:31:10When you get into aggregates of all types, they're almost everywhere, Right. So it's just a vast amount of minerals are out there and trying to decide which ones that we would invest in And how those would how we could leverage that into increased opportunity in the future, It's harder to see the economic justification for doing that. So you look at Expanding backwards into buying the reserves or forwards into getting into processing and sales, You kind of go back and say, our expertise is really in the mining and that's where we're focused at this point. We by the way, We think it's a we think the mining piece is a huge market. And it's not just as We've said for a long time, right, it's not just limestone and it's not just operating draglines. Speaker 200:32:09There's lots of minerals out there that we can mine. Lithium Project is a great example of that. We're pursuing opportunities to mine other minerals and we can use lots of equipment. Historically, we've used draglines. Today, we're also operating in some truck shovel fleets, and we're operating a surface miner, all in aggregates Speaker 400:32:34Okay, great. Well, thanks for all the answers. Speaker 200:32:38Yes. We appreciate your questions. Thanks for calling. Operator00:32:44Your next question Speaker 100:33:10Does that answer? Operator00:33:10We have no further questions at this point. Yes, I will now turn the call back over to Kristina Kmetko for closing remarks. Speaker 100:33:19Thank you. With that, we will conclude our Q and A session. And I I have no further comments. 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. Speaker 100:33:36If you do have any questions, please reach out to me and my phone number is on the release. I hope you enjoy the rest of your day. And I'll turn the call back over to Deb to conclude the call. Operator00:33:56To access the recording, use conference ID 83926, toll free dial in number 1-eight hundred-seven 70 2030, toll free dial in number 1-six forty seven-three sixty two-nine thousand one hundred and ninety nine. On core replay dates November 2, 2023 up until November 9, 2023, 1159ET. Thank you all for joining. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallNACCO Industries Q3 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) NACCO Industries Earnings HeadlinesNACCO Industries Inc (NC) Q1 2025 Earnings Call Highlights: Strong Coal Mining Performance and ...May 2, 2025 | finance.yahoo.comNACCO Industries, Inc. (NC) Q1 2025 Earnings Conference Call TranscriptMay 1, 2025 | seekingalpha.comAltucher: Turn $900 into $108,000 in just 12 months?We are entering the final Trump Bump of our lives. But the biggest returns will not be in the stock market.May 8, 2025 | Paradigm Press (Ad)NACCO INDUSTRIES ANNOUNCES FIRST QUARTER 2025 RESULTSApril 30, 2025 | prnewswire.comNACCO INDUSTRIES ANNOUNCES DATES OF 2025 FIRST QUARTER EARNINGS RELEASE AND CONFERENCE CALLApril 22, 2025 | prnewswire.comNacco Industries rises 14.1%April 11, 2025 | markets.businessinsider.comSee More NACCO Industries Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like NACCO Industries? Sign up for Earnings360's daily newsletter to receive timely earnings updates on NACCO Industries and other key companies, straight to your email. Email Address About NACCO IndustriesNACCO Industries (NYSE:NC), together with its subsidiaries, engages in the natural resources business. The company operates through three segments: Coal Mining, North American Mining, and Minerals Management. The Coal Mining segment operates surface coal mines under long-term contracts with power generation companies. Coal is surface mined in North Dakota and Mississippi. The North American Mining segment provides value-added contract mining and other services for producers of aggregates, activated carbon, lithium, and other industrial minerals; and contract mining services for independently owned mines and quarries in Florida, Texas, Arkansas, Virginia, and Nebraska. This segment also offers mining design and consulting services. The Minerals Management segment is involved in the leasing of its royalty and mineral interests to third-party exploration and production companies, and other mining companies, which grants them the rights to explore, develop, mine, produce, market, and sell gas, oil, and coal. NACCO Industries, Inc. was founded in 1913 and is headquartered in Cleveland, Ohio.View NACCO Industries ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Disney Stock Jumps on Earnings—Is the Magic Sustainable?Archer Stock Eyes Q1 Earnings After UAE UpdatesFord Motor Stock Rises After Earnings, But Momentum May Not Last Broadcom Stock Gets a Lift on Hyperscaler Earnings & CapEx BoostPalantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release? 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There are 5 speakers on the call. Operator00:00:00Thank you for standing by. My name is Deb, and I will be your conference operator today. At this time, I would like to welcome everyone to the NACCO Industries Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer Thank you. Operator00:00:30I would now like to turn the call over to Christina Kmetko. Please go ahead. Speaker 100:00:35Thank you. Good morning, everyone, and welcome to our 2023 Q3 earnings call. Thank you for joining us this morning. I'm Christina Kmetko and I'm responsible for Investor Relations at NACCO Industries. Joining me today are J. Speaker 100:00:49C. Butler, President and Chief Executive Officer and Elizabeth Loveman, Senior Vice President and Controller. Yesterday, we published our Q3 2023 results and filed our 10 Q. This information is available on our website. Today's call is being webcast. Speaker 100:01:05The webcast will be on our website later this afternoon and available for approximately 12 months. 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, 10 Q and other SEC filings. We may not update these forward looking statements until our next quarterly earnings conference call. Speaker 100:01:39We'll 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. I'd also like to note that during today's remarks, we'll provide information about the remainder of 2023 as well as a high level view of our 2024 expectations. We ask that you remember that the 2024 information is preliminary. We are still in the process of reviewing our annual operating plan. Speaker 100:02:08We will provide more definitive 2024 information as part of our Q4 2023 earnings release. With the formalities out of the way, I'll turn Call over to J. C. For some opening remarks. J. Speaker 100:02:19C? Speaker 200:02:19C. Durrant:] Thank you, Christy, and good morning, everyone. Our Q3 2023 results We're much lower than last year, but that was as expected and in line with the outlook we provided last quarter. To understand our results, it's best to discuss the quarter Business by business, I'll also talk about our future expectations before turning the call back over to Christy. I'll first address the Coal Mining segment. Speaker 200:02:44Last quarter, I talked about the temporary operational inefficiencies at Mississippi Lignite Mining Company related to transitioning to a new mine area And contending with some short term adverse mining conditions caused by increased rainfall, both of which reduced our production and increased our costs. This situation continued into the Q3 and for the same reasons. We do expect production costs To provide some background, we moved to this new mine area because the coal reserves were largely depleted in Mine Area 1, where we've been mining since the late 1990s. We had to open a new mine area with additional reserves to meet our contractual coal delivery requirements, which run to 2,032. This was not a surprise. Speaker 200:03:46We've known that we'd need to move to a new mine area since we started mining over 20 years ago. The move to a new mine area and the related costs are now behind us. We expect to see modest improvement in the 4th quarter with results improving further in 2024. However, the biggest favorable impact will occur in 2025 and future years As operations in this new mine area normalize, you'll recall that we've invested significant capital to develop this mine area. These capital investments have resulted in increased depreciation expense that will continue over the remainder of the contract term. Speaker 200:04:25The added depreciation will affect reported operating profit, but this depreciation is excluded from EBITDA, which we think is a better way to look at this part Our business because we don't expect Mississippi Lignite Mining Company to open additional mine areas through the remaining contract term. Shifting to Minerals Management. Natural gas and oil prices are significantly lower than the very high prices experienced in 2022. These lower prices have led to a significant decrease in Minerals Management's Q3 2023 results compared with the prior year. Natural gas and oil prices are expected to continue to remain below 2022 levels, resulting in a significant decrease in operating profit in Q4 of 2023 compared with 2022. Speaker 200:05:14The team at Catapult Minerals Partners is finalizing a $37,000,000 acquisition anticipated to close during the Q4 that will provide additional diversification into the oil rich Permian Basin. In 2024, Minerals Management is targeting additional investments of up to $20,000,000 These investments As well as the development of new wells on existing owned reserves beyond those included in our forecast would be accretive to future results. Our North American Mining segment generated a moderate operating profit again this quarter compared with a small loss in the prior 3rd year quarter. The aggregates mining part of this segment struggled during 2022, but the challenges we implemented sorry, the changes we implemented To drive improved future financial results are paying off and that's encouraging. I'm optimistic North American Mining can build upon this momentum This is partly offsetting the improvements in results at North American Mining's aggregates operations. Speaker 200:06:24We are no longer recognizing Reclamation income at Caddo Creek since we purchased the membership interest in the Marshall Mine in March 2023, where Caddo Creek had been performing mine reclamation work. Wrapping up my North American Mining comments, let me mention Sawtooth Mining, which is the exclusive contract miner for Lithium Americas Thacker Pass Lithium Project in Northern Nevada. Construction at Packer Pass commenced in the Q1. With that, we began acquiring equipment for the project. We've acquired $23,100,000 of equipment To date, we expect to continue to recognize moderate income through 2025 with higher levels of income anticipated when our customer commences Phase 1 lithium production, which is currently expected to begin in the second half of twenty twenty six. Speaker 200:07:16Moving to Mitigation Resources of North America. This team continues to advance existing mitigation projects and build on foundation and is established over the past several years. I'm pleased to report that they added an additional mitigation bank during the Q3. Mitigation Resources is still in what I'd refer to as the start up phase, but I'm very pleased with the level of growth they've achieved since starting 5 years ago. And I'm even more excited about their prospects. Speaker 200:07:46They continue to look for additional projects and expect to achieve Near breakeven earnings in 2024 with increasing profitability over the longer term. I said this last quarter and I'll say it again. We expected 2023 to be a year of unfavorable comparisons for a few very specific temporary reasons that has played out as we expected. Despite this, I am still very optimistic about our outlook as we look beyond 2023. I have a lot of confidence in our team and I'm pleased The way all of these businesses continued to advance their strategies, including efforts to protect our coal mining business. Speaker 200:08:26With that, I'll turn the call back over to Christie to cover our results for the quarter and our outlook in more detail. Christie? Speaker 100:08:33Thank you, JC. I'll start with some high level comments on our consolidated Q3 financial results and then add more color on our individual segments. We reported a consolidated net loss of $3,800,000 or $0.51 per share loss compared with net income of $10,600,000 or 1 $0.45 per share last year. We generated modest EBITDA of approximately $400,000 compared with approximately $22,100,000 in 2022. These lower results or primarily due to significant decreases in our Coal Mining and Minerals Management earnings. Speaker 100:09:09Looking at the individual segments, Our Coal Mining segment had lower results compared with Q3 2022, reporting an operating loss of $4,700,000 Negative segment adjusted EBITDA of $400,000 These decreases were primarily due to the substantial decline in Mississippi Lignite Mining Company results as well as lower earnings at our unconsolidated operations due to lower customer requirements at CATL. Lower employee related costs partly These reduced results. The decrease in Mississippi Lignite Mining Company results was driven by an increase in the cost per ton sold due to the inefficiencies and additional costs associated with moving to the mine area to the new mine area that J. C. Mentioned. Speaker 100:09:54A $2,400,000 write down of on-site coal inventory to net realizable value also contributed to the significant increase in the cost per ton. Also as J. C. Discussed, the primary reason behind the decline in Minerals Management's results is significantly lower prices. To put this more in context, Current natural gas prices as measured by the Henry Hub average natural gas spot price declined 68% from 2022 And oil prices as measured by the West Texas Intermediate average crude oil spot price decreased 12% from last year. Speaker 100:10:31North American Mining's 3rd quarter 2023 operating profit and segment adjusted EBITDA improved significantly over the prior year. This improvement was primarily due to lower employee related costs. As in 2022, operating expenses included $800,000 for a voluntary retirement program. North American Mining also realized improved earnings at its aggregates quarries and at sawtooth. These improved earnings were partly offset by reduced Caddo Creek income. Speaker 100:11:00Looking forward, at our Coal Mining segment, we expect 4th quarter 20 operating results and segment adjusted EBITDA to improve significantly compared with the 2023 Q3, but declined substantially from the 2022 Q4. As J. C. Mentioned, we are anticipating lower production costs at Mississippi Lignite Mining Company. However, while production costs are expected to decline from recent levels, they are expected to remain above historical levels through 2024 when the new pit extension in the new mine area is complete. Speaker 100:11:34We are also anticipating an increase in tons severed, which will contribute to a reduction in the cost per ton sold and improve profitability at MLMC beginning with the Q4 and continuing into 2024. In 2024, we expect co deliveries to increase moderately from 2023. Strong operating profit and significantly higher segment adjusted EBITDA are also anticipated in 2024 compared with 2023. These increases are primarily the result of significant improvements at MLMC and an increase in earnings of unconsolidated operations. The improvement in the unconsolidated operations is expected to be driven by increased customer requirements at Quito and At North American Mining, we expect operating profit and segment adjusted EBITDA to increase significantly in both the 2023 4th quarter full year versus the prior year period. Speaker 100:12:34These increases are primarily due to anticipated earnings improvements under existing contracts, including Sawtooth Mining, partially offset by the completion of services at Caddo Creek. Full year 2024 operating profit contracts, including Sawtooth Mining and an anticipated reduction in operating expenses. Any new contracts The 2023 Q4 and full year are expected to continue to decrease significantly compared with last year. These decreases are primarily driven by current natural gas and oil price market expectations. In 2024, we expect operating profit and segment adjusted EBITDA increased moderately over 2023, primarily due to current market expectations and limited forecasted development of additional new by 3rd party lessees. Speaker 100:13:41Lower operating expenses are also anticipated to contribute to the profit growth. Future investments, including the $37,000,000 investment anticipated to close before the end of 2023 are expected to be accretive to the current forecast. Overall, at a consolidated level, we expect that Q4 2023 improvements We'll produce operating profit and net income versus the losses incurred this quarter. 4th quarter and full year 2023 consolidated operating results and Adjusted EBITDA, however, are expected to be down from the respective prior year periods due to the expected substantial decreases at the Coal Mining and Minerals Management We expect these reductions to be partially offset by favorable changes in income taxes leading to modest income for the 2023 full year. In 2024, we expect a significant increase in consolidated net income and EBITDA over this year. Speaker 100:14:41These improvements are primarily due to increased profitability at the Coal Mining segment from improved results at MLMC, Falkirk and Coachella. Growth at North American Mining and Mitigation Resources is also expected to contribute to the higher 2024 net income. Lastly, from a liquidity standpoint, We ended the quarter with consolidated cash of $128,000,000 and debt of $22,500,000 We had availability of $122,000,000 under our revolving credit facility. During the quarter, we repurchased approximately 24,800 shares for $800,000 under an existing share repurchase program. For the full year, we expect cash flow before financing activities to be a moderate Use of cash. Speaker 100:15:28But in 2024, we expect cash flow before financing activities to be positive, just not to the level generated in 202022. We will now turn to any questions you may have. Operator00:15:53We will pause for just a moment to compile the Q and A roster. Your first question comes from the line of Andrew Kun with Focus Compounding. Please go ahead. Speaker 300:16:05Good morning, everyone. Speaker 200:16:06Good morning, Speaker 300:16:07Andrew. So my first question is actually on buybacks, which is what you guys ended your So you bought back $800,000 in stock in September and you did it at a price your stock has traded at before And you did it under a repurchase plan that was approved 2 years ago. So I'm just curious on how we should be thinking about this. Is the change here that you now feel that you have enough cash and enough expected cash flows to fund diversification efforts, Maintain a conservative balance sheet and still afford to do buybacks when they make sense. Should we expect more buybacks going forward? Speaker 300:16:49Any color you can give on this would be great. Speaker 200:16:54Well, we certainly have enough cash. You've been watching us long enough to know that we're big believers in having a bulletproof balance sheet. And I think the combination of A big pile of cash and not a lot of debt reinforces that. I think your question is really around timing, right? We've had this program for a couple of years. Speaker 200:17:19Why are we now buying stock? Yes. I think we've gone through what we knew was going to be a difficult 2023 for Reasons that we expected going into the year, we signaled this more than a year ago. I am sure you know. And we're sort of at a point that when we're we've got a positive outlook. Speaker 200:17:45We're Literally on the eve of 2024 and future years, we feel good about where we're headed. And so we bought stock. Speaker 300:17:56Got it. Got it. So I mean it sounds like something maybe we could expect in potentially in the future, More stock buybacks? Speaker 200:18:09I'm just not going to comment on that. Speaker 400:18:11Sure. And Speaker 300:18:12then moving to Mississippi Lignite Mining Company. So CapEx is expected to be $10,000,000 for full year 2023 and then $10,000,000 again in 2024. I know there'll be some inflation over time and year to year variations, but do you think $10,000,000 a year in CapEx is a realistic long term average for MLMC over the next 9 years or so. Speaker 200:18:39I mean, actually, I don't have the data To tell you, if I think $10,000,000 is the right average number, I will tell you that it's going to be nowhere near what it's been over the last several years as we've opened this new mine area. Going forward, it's really just going to be regular Equipment replacements that may be needed. And none of those should be Extraordinarily large. Is $10,000,000 the right number? I actually don't have enough data in front of me to tell you what it is over the next 9 years, But it's going to be a modest number for sure. Speaker 300:19:21Got it. Great. And then My last question is around Minerals Management and your outlook. So in your earnings release, you have a line that says the company's forecast is based on currently owned reserves. And you also say you're anticipating closing on a $37,000,000 purchase in the Permian in the 4th quarter. Speaker 300:19:40So does that mean that for now your estimates for 2024 don't include any cash flows from this expected purchase? Speaker 200:19:50That's correct. Speaker 300:19:52Got it. That's very helpful. Thank you for answering my questions and I'll jump back in the queue. Speaker 200:19:57Great. Thanks for your questions. We appreciate your interest. Operator00:20:04Your second question comes from the line of Douglas Weiss with DSW Investment LLC. Please go ahead. Speaker 400:20:13Hey, good morning. Speaker 300:20:14Good morning. Speaker 400:20:17Just a few questions. I guess the first on the minerals and mining results. So I understand that prices are down from a year ago, but they're actually up a bit from last quarter, And yet the revenue was down quite a bit from the Q2. Is that wells that are not being replaced? Or I don't know if you could just talk to why There was a sequential Speaker 200:20:43decline. I mean the quarter over quarter decline It's largely related to the fact that we've got a very, very large Stake in wells that we've had assets that we've had in wells that we've had for a very long time, largely in Appalachia, the Marcellus and the Utica. And those natural decline curve, it really from quarter to quarter, month to month, It really just gets into what new production is coming on and how does that compare to the decline curves on the things that are producing. In all honesty, I would say we don't manage the business in a way that is Too concerned about quarter to quarter moves. It's really a business that we're trying to build over the very long term. Speaker 400:21:42Sure. So I mean, is it reasonable to infer that With gas prices so low, those wells people just aren't drilling as much until are waiting for better prices and then the number of wells Speaker 200:22:01Well, I think it's a combination of that. Liz, you've got a Liz has got Speaker 300:22:09a point to add here. Speaker 100:22:10Yes. We did have some settlement income in the Q2 of this year. So that also impacted the quarter over quarter results. If you look in the 10 Q, we have some discussion about that in the Minerals Management segment. Speaker 400:22:22Yes. No, I did see that, but that didn't look like that. I mean, it looked like that was relatively small in the scheme of I mean, in the day Speaker 300:22:31to day. Day to day. Speaker 200:22:32Beginning fact. Speaker 400:22:34Yes. Yes. Go ahead. Speaker 200:22:36Yes. I mean, it's We certainly are more sensitive to what's going on with natural gas than we are with oil at this point, Right. We're working to diversify this into a more balanced portfolio, but we're not there yet. So anything that's happening in the natural gas world, whether it's prices or the Rate with which new wells are being developed on our reserves or Workovers that are being done on existing wells to increase production. We're going to be more sensitive to that than Another minerals company that might be heavily oil weighted. Speaker 200:23:19So natural gas is going to affect us disproportionately more than Oil well at this point. Speaker 400:23:28Okay. And then just from an accounting standpoint, you recognize the cost of goods in that division, But it is a royalty position. So I was just curious what is that sort of $1,000,000 a quarter cost of goods sold there? Speaker 100:23:43It's related to the deductions that we the cost that we're paying off of some of the royalty income. Speaker 400:23:55Okay. Okay. I mean, I can follow-up on that later too. Okay. Are you still there? Speaker 200:24:17Yes. Yes, we are. Speaker 400:24:19Okay. So, I guess moving on to the solar Projects that you've talked about a little bit. Can you give some kind of ballpark on how much capital you think you can allocate there and what kind of Returns you're anticipating? Speaker 200:24:35Well, this is a very new thing for us. So to speculate on how much capital we might allocate to it, I think is premature. I think we're still exploring what that might be. The returns that we're seeing are very nice. We're seeing returns In the high teens, low 20s, and we measure that as return on total capital, return on equity. Speaker 200:25:07So we think these are pretty attractive projects. Speaker 400:25:15Yes. I know that is attractive. On Sacker Pass, you've said that for projections purposes, you should think about that as a mid Size coal equivalent to a midsized coal project. I guess I'm not really sure exactly how to what that means. Can you give a little context for that in terms of what I should think about or what that would be earning at full production? Speaker 200:25:45Yes. I mean, that's not we've never disclosed that kind of granular information with respect to our mines. Obviously, as you can imagine, when you look at the volumes that come out of Kislausau and Fall Creek, Kislausau and Falkirk, We're getting a lot of income out of those. This is going to be more like a Coyote Creek, Bean court sort of operation with respect to income. My advice to you would be sort of look at what we're earning in our coal segment and Divided by tons roughly to get some averages. Speaker 400:26:23This Speaker 200:26:24is going to be a relatively small. It's going to be a modest operation. I will say that as we've been involved with this project over the last several years, We have had some nice gains with respect to the work that we're going to be performing for Lithium Americas, At the Seth Thacker Pass project, we're currently performing some what I'd call dirt work construction Activities for them with respect to the processing plant development. And so We think it's a good partnership and we're looking for ways that we can help them not only under the current scope, but how we might expand that relationship in the future. Speaker 400:27:13Okay. On the Mississippi mine, I was just curious when the contract ends in 2,030 I mean, I think you the impression I get is that's sort of the end of the operation there. But is there not Secondary buyers that would still be interested in that coal, which would encourage continued production, could you just explain that quickly? Speaker 200:27:36Well, the current contractual relationship started in the mid to late 2019 90s and runs through 2,032. There certainly are core reserves in the area that could be used In the future, the power plant certainly should have life that goes beyond 2,032. One of the things that we're very interested in, looking for ways that we might be able to Extend the life of the mine. Who how that works with respect to the power plant and what the power plant Doing and what other things might happen on that location are yet to be determined, but we certainly would be interested in extending that further And I'm working on a number of things to that end. Speaker 400:28:32Okay. And my last question, so you're Putting a lot of capital into the mineral and mining business on the royalty side, But you have this expertise in aggregate mining, which seems to be a very attractive areas, but particularly at the moment. I was curious if You've given any thought to direct ownership of aggregates reserves? Speaker 200:29:01Well, it's okay. So I'm going to interpret that as 2 questions. One is you said aggregates reserves, But I'm guessing you also mean with respect to the processing and sales of the aggregates. Yes. So we have a long history in mining. Speaker 200:29:21I think we're really, really good at what we do. I think we have a great ability to improve the economics for our customers by Utilizing our mining expertise, that does not translate into Processing the aggregates, deciding what products you're going to manufacture or Selling those into the market. We have no experience there. We have no skills. There's always the question of can you go just acquire those and we could, but we're sort of big believers And let's build off the skills that we have rather than decide to go something completely different. Speaker 200:30:11So as far as integrating vertically into the production and sales of the aggregates Sales or processing and sales. I think that's a big reach for us. With respect to owning The limestone reserves or sand and gas gravel reserves, We've considered it, I'd say not in a tremendous amount of depth, But it is something that we've thought about. We've done well over our history by owning coal reserves and we've thought about whether that might be An interesting thing for us. The difference between the two is we're sort of experts in lignite and there are 2 Very well defined lignite reserves in the United States, and we knew where those are, and we focused our operations on those. Speaker 200:31:10When you get into aggregates of all types, they're almost everywhere, Right. So it's just a vast amount of minerals are out there and trying to decide which ones that we would invest in And how those would how we could leverage that into increased opportunity in the future, It's harder to see the economic justification for doing that. So you look at Expanding backwards into buying the reserves or forwards into getting into processing and sales, You kind of go back and say, our expertise is really in the mining and that's where we're focused at this point. We by the way, We think it's a we think the mining piece is a huge market. And it's not just as We've said for a long time, right, it's not just limestone and it's not just operating draglines. Speaker 200:32:09There's lots of minerals out there that we can mine. Lithium Project is a great example of that. We're pursuing opportunities to mine other minerals and we can use lots of equipment. Historically, we've used draglines. Today, we're also operating in some truck shovel fleets, and we're operating a surface miner, all in aggregates Speaker 400:32:34Okay, great. Well, thanks for all the answers. Speaker 200:32:38Yes. We appreciate your questions. Thanks for calling. Operator00:32:44Your next question Speaker 100:33:10Does that answer? Operator00:33:10We have no further questions at this point. Yes, I will now turn the call back over to Kristina Kmetko for closing remarks. Speaker 100:33:19Thank you. With that, we will conclude our Q and A session. And I I have no further comments. 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. Speaker 100:33:36If you do have any questions, please reach out to me and my phone number is on the release. I hope you enjoy the rest of your day. And I'll turn the call back over to Deb to conclude the call. Operator00:33:56To access the recording, use conference ID 83926, toll free dial in number 1-eight hundred-seven 70 2030, toll free dial in number 1-six forty seven-three sixty two-nine thousand one hundred and ninety nine. On core replay dates November 2, 2023 up until November 9, 2023, 1159ET. Thank you all for joining. You may now disconnect.Read morePowered by