Hallador Energy Q3 Earnings Call Highlights

Key Points

• Hallador swung to a third-quarter net loss of $4.5 million, from $23.9 million in profit a year earlier. Revenue declined to $130.3 million, while adjusted EBITDA fell to $17.3 million, pressured by lower third-party coal sales and a $9 million increase in purchased-power costs.
• Merom generation rebounded after scheduled maintenance, and an October agreement with an investment-grade utility adds an estimated $700 million in capacity and energy value over six years starting in 2029. Management says about 95% of Merom’s accredited capacity is contracted through 2035.
• Hallador is targeting a year-end investment decision on its roughly $800 million Turtle Creek gas power project, aiming for operations in the second half of 2028. The project has no signed output contract yet; funding options include debt, project financing, equity, or selling part of the project, with management seeking to limit shareholder dilution.

Hallador Energy NASDAQ: HNRG reported a third-quarter loss as lower coal sales and higher purchased-power costs weighed on results, while executives said they were working toward a year-end investment decision on the Turtle Creek gas power project.

The company reported a net loss of $4.5 million for the quarter, compared with net income of $23.9 million a year earlier. Revenue fell to $130.3 million from $146.6 million, although it rose 28% from the second quarter as delivered energy sales increased.

Chairman and Chief Executive Officer Brent Bilsland said the Merom power plant generated more than 1.4 million megawatt hours during the quarter, despite one unit being offline for scheduled maintenance into July. He also highlighted an October power agreement with an investment-grade utility and the company’s plans to develop Turtle Creek.

Merom Contracts and Reliability

Merom’s generation increased 77% from the second quarter after the maintenance outage ended. Chief Financial Officer Todd Telesz said availability was 74% for the third quarter and 80% in August and September.

Bilsland said the company is investing in the plant’s mechanical systems, staffing and technology to improve reliability. Hallador is introducing artificial intelligence tools that use real-time data to help identify potential problems and reduce downtime, he said.

Hallador’s forward sales position, incorporating the October agreement, totaled about $3 billion at the segment level, including roughly $500 million of intercompany coal sales. Approximately 95% of Merom’s accredited capacity is contracted through 2035 and about two-thirds through 2040, Bilsland said.

The October agreement covers an estimated $700 million in capacity and energy over six years beginning in 2029. Bilsland said approximately $420 million of that amount is estimated unit-contingent energy revenue rather than a fixed commitment. Combined capacity and energy pricing exceeds $80 per megawatt hour.

The contract is with an investment-grade utility, not a data center, Bilsland emphasized. The utility may reduce energy purchases to zero for up to 90 days per contract year, while contract provisions place fuel-price risk with the customer, he said.

Hallador’s forward sales figures include estimated energy revenue and depend on generation assumptions, unit contingencies, volume options and other terms. The company’s sales table assumes annual generation of 5.2 million megawatt hours, a level Bilsland said is higher than Merom has achieved in the past.

Turtle Creek Decision and Financing

Hallador is targeting a final investment decision on Turtle Creek before year-end, subject to board approval. The project’s interconnection study is complete, but the agreement has not been executed. The company has filed an air permit application and is finalizing engineering and construction arrangements.

Bilsland said turbines and generators acquired for the plant have been exported from the Philippines and are expected to reach the United States later this year. The equipment has never operated and will be inspected and refurbished by Siemens. Hallador continues to target commercial operation in the second half of 2028.

Hallador does not yet have a signed agreement for Turtle Creek’s output and is targeting long-term contracts in early 2027. Bilsland said the company is considering a tolling structure under which a customer would supply fuel and direct when the plant operates, limiting Hallador’s exposure to gas prices and availability.

Management estimates the project will cost roughly $800 million and has set a goal of creating approximately $1.6 billion of value over about 24 months. Bilsland described that as an estimate based on equipment acquisition, permits, contracts and eventual operation, not a guaranteed outcome. He said value will depend in part on contract margins and market conditions.

In September, Hallador entered a $600 million senior secured construction bridge loan facility, with $550 million funded at closing. Telesz said $329.8 million of the funded proceeds remained in restricted cash at quarter-end, primarily for the turbine acquisition and related costs. The company is also negotiating a $75 million revolving credit facility.

Hallador expects to fund the remaining capital needed through a combination of debt, project financing, equity or the sale of part of Turtle Creek. Bilsland said the company’s objective remains little or no shareholder dilution. He also said selling all or part of the project could be an option to maximize shareholder value.

Quarterly Results and Outlook

Third-quarter electric sales were $92.8 million, compared with $93.2 million a year earlier. Third-party coal sales declined to $36.1 million from $51.3 million as the company sold approximately 400,000 fewer tons to outside customers.

Adjusted EBITDA fell to $17.3 million from $24.9 million a year earlier, primarily reflecting a $9 million increase in purchased-power costs, Telesz said. The quarter’s net loss included a $5.7 million loss on extinguishment of debt associated with refinancing the previous credit facility.

Cash used in operations was $21.8 million, compared with $23.2 million generated in the prior-year quarter. Capital expenditures rose to $57.1 million from $19.4 million, primarily because of Turtle Creek development spending and reliability investments at Merom.

Telesz said reported losses will likely widen before Turtle Creek begins operating because earnings will include interest expense on the project’s financing while the plant is not yet generating revenue. Most of that interest is accrued rather than paid in cash, he said.

For 2027, Bilsland pointed to higher contracted power and coal pricing. Telesz said prepaid power forwards extend through the first half of the year, with none currently scheduled for the second half.

About Hallador Energy (NASDAQ:HNRG)

Hallador Energy Company NASDAQ: HNRG is an energy company focused primarily on the production and sale of thermal coal. Through its subsidiaries, the company operates coal mining assets in the Illinois Basin, supplying coal to electric power generators and other utility customers.

Hallador's principal operations have included Sunrise Coal, which manages underground and surface mining activities in Indiana. The company's coal products are used mainly for electricity generation, with sales serving utility markets in the Midwestern United States.

In addition to coal mining, Hallador has expanded into power generation through its ownership of the Merom Generating Station in Indiana.

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