Hello, everyone. And welcome to the Hallador Energy first quarter 2018 earnings conference call. All participants will be in listen-only mode. [Operator Instructions]. Please note this event is being recorded. I would now like to turn the conference over to Becky Palumbo. Please go ahead.

Thank you, Steven. And thank you all for joining us today to discuss our first quarter 2018 results. This event is being webcast live and you will be able to access a replay of this call on our website. We filed our first quarter Form 10-Q yesterday afternoon. It can be viewed on our website. Participating on the call today are Brent Bilsland, our President and CEO, and Larry Martin, our CFO. Larry will begin with a brief financial overview of the quarter, followed by Brent with comments on operations. After management completes their opening remarks, we will open the line for Q&A. Our remarks will include forward-looking statements that are subject to certain risks and uncertainties that could cause actual results to differ materially. For example, our estimates of mining costs, future coal sales and regulations relating to the Clean Air Act and other environmental initiatives. We do not undertake to update our forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by law. Now, I'll turn the call over to Larry.

Thank you, Becky. Good afternoon, everyone. I need to get a few definitions out of the way before I start. So, we define free cash flow as net income plus deferred income taxes, plus depreciation and amortization, plus ARO accretion, and stock compensation, less maintenance CapEx. We define adjusted EBITDA as EBITDA plus stock compensation, plus ARO accretion. For the quarter ended in 2018 – the first quarter – we had net income of $2.1 million or $0.07 a share. Our free cash flow was $10.7 million. Our adjusted EBITDA totaled $18.9 million for the quarter. And we reduced our debt by $11.3 million as of March 31. We paid dividends of $1.2 million or $0.04 a share. Our bank debt at the end of March was $190.7 million. Our net debt with marketable securities and cash was $173 million. We target our total bank debt to be $175 million at the end of the year. And our debt-to-EBITDA leverage ratio was 2.37 times at March 30. And that is a Sunrise-only bank covenant. That's who the money is borrowed, is our subsidiary, Sunrise Coal. I will now turn the phone call over to our CEO, Brent Bilsland, to talk about results and growth opportunities.

Hello, everyone. And thank you for joining the call. Overall, Hallador had good results with yet another quarter of positive free cash flow and meaningful debt reduction. The highlights are a little hard to see at first glance as we are comparing this quarter's good results to year-over-year great results. Still, we're pleased with where we ended up and we're very optimistic about the future of Hallador. Looking at our average price, as we said on prior calls that we were expecting an $0.80 drop in the average sales price for the year, but the decrease in price this quarter of $1.10 per ton was slightly more just due to the seasonal mix of our contracts. This is expected to even out as higher-priced contracts get shipped later in the year. Our average price per ton for the quarter was $39.13 compared to first quarter of 2017 of $40.23. On the average cost per ton, we had all-in for all the mines $27.32 versus year-over-year at $25.53. This was a $1.78 increase. Management guided Oaktown's operating cost at the $28 to $30 a ton and actual costs were $25.93. So, we beat our guidance. Just comparing year-over-year, first quarter of 2017 was a remarkable number. After our last investor call, there was some concern over our cost structure as costs were higher in the first quarter – excuse me, fourth quarter due to temporary adverse geological conditions. And, perhaps, we didn't do a good enough job explaining that. So, I want to spend a little time pointing out how consistent our cost structure has been. If we look back four quarters, our average cost structure for all the mines has averaged $29.30 a ton. And if we look back eight quarters, again, the average cost for all of our mines…

Thank you. [Operator Instructions]. And our first question comes from Lucas Pipes with B. Riley FBR. Please go ahead.

Hey, guys. Ted Beachley here for Lucas Pipes actually. And first thing, good job on the quarter, everyone. It's very good.

Thank you, Ted.

So, my first question is, are you guys still considering bringing on a third-party operator at Hourglass? If so, really how is the search process going? And would you say this is a priority for you guys or just a possibility?

Well, I think that we are using a fair amount of contractors out there on that project. The mining itself is extremely simple. We're going to use contractors to haul the sand to an existing wash plant and we've signed contracts with a third party to – we purchased their dryer. And then, we've agreed to a throughput agreement where they will process the sand through a wet plant. And we're in the stages now of building a warehouse. So, once that's ready to go, which should be a couple of months away, we'll start shipping sand to customers. I hope that answered your question.

Yeah. No, perfect. And just kind of shifting. So, congrats also on your new customer through the Princeton Loop. I was hoping for some insight maybe on how customers with Norfolk Southern access are responding to you guys now being able to reach them. And can we expect more contracts in the near future from customers that you could only reach through the Princeton Loop or similar to the one you inked this first quarter.

I think the Loop does a couple of different things for us. One is it gives existing customers that had plans on both the CSX and the NS flexibility, so that if they buy coal from us through a CSX-served plant and they have a problem there, they know that they can come back to us and figure out a way to move that coal to their NS plant while they solve their problem at their CSX plant. So, it gives a lot of flexibility to our customer and makes them feel comfortable that they can then buy bigger volumes from us because they have optionality in where they can go with it. Secondly, yes, there's just customers that we could never bid to before because we just didn't have a way of getting the coal there. So, will we see more customers? We certainly hope so. We have bids out today to plants that we've never been able to bid to in the past. So, we'll see how successful we are through those solicitations.

Yeah. Sounds good. And good job on the quarter again. Thanks, guys.

All right. Thank you, Ted.

Our next question comes from Mat Klody with MCN Capital. Please go ahead.

Hi, guys. How are you?

Yeah. How are you, Matt?

Good, thanks. Congrats on the new sales and the cash profile in Q1. I just wonder if we could touch a little more on the Hourglass Sands project. There's a lot of headlines about growing shortages of sands. And it sounds like an interesting opportunity. Could you just maybe dig a little deeper or provide some sort of range? And talk about – we're talking about the cost to develop it. Any volume, price or margin profile? And I understand it's early, but I'm just trying to get a perspective, a better handle on the opportunity here.

Sure. Well, I think in general, the trend that we are seeing in the industry is, if you look at the frac-ing several years ago, ten years ago, a lot of these guys were using ceramic sand because they were doing two-stage fracs. They were trying to get 1,500 barrels a day of production through two-stage fracs. So, that was 750 barrels a day per stage. And from there, then you migrated from 2 fracs to 50 fracs to 100 fracs to now you've got wells that have 500 stages in them. And so, what's changed in the industry is when you have two stages and you're trying to get 750 barrels of production per stage versus 500 stages where you're trying to get three barrels per stage, we've gone from where connectivity was extremely important to now coverage is probably the bigger focus. So, people are using more sand, but lower grades of sand. And so, that's allowed – but as you use more sand, how do you keep your cost structure low. And that's kind of forcing people – they went from ceramic to Northern White to now you're seeing a lot of sands in Texas come into the market. And this is kind of just an extension of that. This mine was originally a filtration mine and the sand was too fine to be filtration sand, but it's what customers are using now. It is where the industry has trended. So, we like the project and we're ahead of the curve because the permits are materially in place. So, we've kind of stepped into this into maybe a phase one, phase two. Phase one is we're kind of going at this by a low capital exposure way to get sand out the door quickly and meet customers' needs as early as late summer. And then, we're kind of looking at – and through that capacity, we're going to be somewhere in the 800,000 to 1 million ton a year range starting sometime late third quarter, we hope. That's our thinking today. Phase two would be, if the market can handle a lot more of this capacity, then we'll look to maybe build another plant and try to lower our cost curve. So, get your volumes up and lower where we're at in the cost curve. So, that's kind of our thinking. So, for now, this is startup year. It's tough to make money in a startup year. We hope to enter next year at a 800,000 to 1 million ton a year pace. And we think the margin – we think the mining is much simpler than what we're doing in coal and we think the margins will be better than what we're currently doing in coal. So, when you add all that up, I think it can be meaningful to Hallador's earnings stream.

Got it. And your ownership percentage again?

Well, we kind of have a unique structure, but we own 100% of the Class A stock and we capitalize this with some of our money and some of another company's money. They have a royalty interest in the deal, but we control 100% of the Class A stock. Once our capital is returned and a certain hurdle rate is met, then there is some Class B shareholders that would have rights to 10% of the earnings thereafter. So, that's kind of the structure, but we control the company.

Thank you. Congrats again.

All right. Thank you, Matt.

[Operator Instructions]. I'm showing no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to Brent Bilsland for any closing remarks.

And thank you everyone for joining our call. And we'll get back to work. Thank you very much.