Good afternoon. Thank you for attending today's Hallador Energy First Quarter 2024 Earnings Call. My name is Megan, and I'll be your moderator for today's call. [Operator Instructions] I would now like to pass the conference over to Becky Palumbo, Investor Relations with Hallador Energy. Please go ahead.

Thank you, Megan. Thank you, everybody, for taking the time today to join our discussion on our first quarter 2024 earnings. With me today are Brent Bilsland, our President and CEO; and our newly appointed CFO, Marjorie Hargrave. Yesterday afternoon, we released our first quarter 2024 financial and operating results in a press release that is now on our website. Today, we will discuss those results as well as our perspective on current market conditions and outlook for 2024. Following our prepared remarks, we will open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements, 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 yesterday's press release. While these forward-looking statements are based on information currently available to us, 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. In providing these remarks, Hallador 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. We plan on filing our Form 10-Q later this afternoon. And with the preliminaries out of the way, I will now turn the call over to Marjorie.

Thank you, Becky, and good afternoon, everyone. First off, I'd like to personally thank Larry Martin for all of his hard work at Hallador, and for making this transition so smooth and enjoyable. Larry will be on the call to assist in answering questions for this quarter. Before we get started, I'd like to define adjusted EBITDA to refresh everyone's memory. Adjusted EBITDA is the sum of operating cash flow less the effects of certain subsidiary and equity method investment activity, plus bank interest, less the effects of working capital, period changes plus cash paid on asset retirement obligation reclamations plus other operations. For the first quarter of 2024, Hallador incurred a net loss of $1.7 million, which equates to a loss of $0.05 per share for both basic and diluted earnings. Our adjusted EBITDA for the quarter was $6.8 million and our operating cash flow for the quarter was $16.4 million. Of the $16.4 million, we used $14.5 million to reduce our debt and at quarter-end, our funded debt balance was $77 million and our net debt balance was $75.4 million. We also had $18.6 million of LCs outstanding as of March 31, 2024. Our liquidity at quarter end was $39.5 million and our debt to adjusted EBITDA or leverage ratio was 1.58, well within our covenant of 2.25. With that, I'll turn the call over to our CEO, Brent Bilsland.

Thank you, Marjorie. Throughout the first quarter, we continued our progress on transitioning the focus of Hallador from a coal production company to an independent power producer. During the first 3 months of 2024, our Electric Operations revenue exceeded that of our Coal Operations revenue. Additionally, we were successful in adding approximately $138 million in forward energy and capacity sales, growing our Electric Operations forward sales book to approximately $657 million as of March 31, 2024. This represents approximately 44% of Hallador's total contracted forward energy capacity and coal sales through 2029 and roughly -- of roughly $1.5 billion. However, we believe future forward sales from our Electric Operations will soon eclipse our forward sales from our Coal Operations. Since January, we have evaluated and continued to evaluate several major power and capacity sales opportunities, including one proposal made to us that if contracted, will result in a more than $1 billion worth of potential forward power sales. We continue to see strong indicators that demand and pricing remain on an upward trend. According to the Indiana Business Journal, in the last 12 months, there have been 8 new data centers and/or Bitcoin mining facility projects announced in the state of Indiana, where our Merom Power Plant is located. We have also seen a major utility amend their integrated resource plan and publicly state that it previously underestimated new electricity demand growth by as much as 17 times. MISO has released information arguing that their capacity reserve margin, meaning the amount of excess generating capacity in their system could go negative by as soon as next year. Monitoring the equity markets further strengthens our belief that investors and other IPPs are also anticipating similar increases in power demand, demonstrated most clearly through the more than doubling of market capitalizations of…

[Operator Instructions] Our first question comes from the line of Lucas Pipes with B. Riley Financials.

First, I want to add my congratulations to Larry and my best wishes for his retirement. Brent, I want to touch on your kind of forward sales position on the power side. There is that nice jump in 2026 versus 2025 to $55.37 versus just the $36.06. And I wondered if you could remind us what drove that? I have a suspicion, but would be curious to hear more about that. And could you maybe walk us through a pro forma revenue buildup of the Power segment, assuming kind of the forward power price market holds and also you sell the remaining capacity?

Yes. So as stated on the call, we sold a fair amount of 2024 and 2025 energy to the seller of the plant as a condition of selling the plan at $34 a megawatt hour. And what we're trying to -- what we stated on the call is that we essentially have sold over 5 million-megawatt hours since that time to other participants and including -- well, any of the market at $54. And so we continue to see fairly strong pricing in the forward sales curve. And it's just a result of -- I mean, you can't pick up the paper any day and not read or hear about how all this new demand we're seeing from AI and EVs and onshoring. And we've got MISO expressing their concerns about could the reserve margin go negative next year, which I don't even know if that's possible, but it kind of speaks to the tightness of the market. And so as we continue to make forward sales, we're encouraged by the pricing that we see. We also, as outlined, saw an offer made to us for over $1 billion worth of future energy and capacity sales. So the reason we don't have that contracted yet, and that deal may or may not happen. But there's a number of RFPs going on right now, plus our RFP associated with mostly data center-type customers, trying to get them to locate on or near the property. So we think there's a lot of competition and one of the things we just kind of wanted to state is that if you look back, I think in the third quarter, we had something like we added $300 million in sales in the fourth quarter, like $400 million in the Power division. This quarter, $138 million.…

So should we assume that you would be kind of more hedged in the future?

Yes. That's our goal. We've been trying to do that in a very low-risk way, right? We've talked in the past about unit contingent, plant contingent-type transactions in that if we can't produce, we don't have to cover. So those have been slower to put together, but we've been successful in putting those together. And so we will hopefully continue to do more of that. None of that is ever guarantee. We're just seeing a very large level of interest from a lot of different players. And so that's got us encouraged.

Very helpful. If you were to do something kind of behind the meter with the data center at the site, what would be a good benchmark for the power pricing? Would it be based on kind of MISO pricing in the curve? Or would this be a bilateral agreement where prices could deviate from those benchmarks?

Well, we'll see. I mean, we're -- we don't have the results back from the RFP. We're expecting those data points later this month. But certainly, those type of transactions will have to compete with what we can do in the more traditional markets. And we feel that competition is good for us.

And can you speak a little bit to the connectivity at the site? Would your site qualify for any data center? Or could there be limitations due to constraints on the bandwidth of your connectivity?

So we have a 1-gigawatt interconnection at Merom. I believe the transmission line is flowing in and out of that substation there are around 1.6 gigawatts and so it offers an interesting situation where we can potentially supply a customer directly from the plant or those electrons can be purchased from the grid.

But in terms of the kind of fiber access no constraints you're aware of?

Well, pretty much every location has to do some level of fiber build into the location, right? Because these are very -- potentially, I guess, the first question is what will the size of the facility be and whatnot. So those are all questions that we've yet to answer, but again, we kind of mentioned earlier that our Chief Legal Officer kind of comes from the data communications world. So we've been able to tap into that network of people and get really good advice. So we think that and talking to the customers and talking to our advisers that this is very feasible and there seems to be a high level of interest.

[Operator Instructions] Our next question will go to the line of Jeff Bronchick with Cove Street Capital.

Brent, maybe just go over the cash flow implications of what we have today and the current structure is in place, and sort of an expectation for cash needs over the balance of the year as far as you can see? And then help us walk through what the model looks like under you get rid of the contractual low sales, and you're signing these conceptual big contracts. How does the cash flow model look going forward?

Well, we get a lot of questions wrapped up in one there. So I think we're clear that we don't give out forward-looking guidance. I think we can talk at a high level of what our cost structure looks like and what our revenue looks like.

I'm not looking for guidance. What I'm saying is you guys have woken up and said, we're changing the model. And the model change clearly has cash flow implications, which are transitory -- at least transitorily not good, and therefore, you guys are tapping different versions of liquidity to kind of keep the engine rolling. And I'm just curious, I understand transition issues, but on a higher level, like an independent IPP that's publicly traded, we should look like what as far as a cash flow profile. I'm talking free cash flow. That's what I'm trying to get at.

Yes. I think what we're trying to say is, look, on the revenue side, we've got -- I mean we clearly state what our prices are, right, there are average prices are for the energy, somewhere between $36 a megawatt hour average in 2025 to as high as $55.37 in 2026. That's for the energy. Capacity, we're targeting $65 million in sales. Some years are better than that. Some years are worse. But if you divide that by 6 million-megawatt hours, that's going to be a little over somewhere between $10, $11 a megawatt hour, right? So total those 2 lines together and you have, depending on the year, somewhere between $47 and $56 -- or excuse me, $66 a megawatt hour. That's the revenue line. On the expense side, we have a cost structure that's going to be in the variable costs that's this quarter was around $32 and a fixed cost that -- assuming a $60 million cost divided by 6 million-megawatt hours would be $10, right? So now $60 margins, $40 cost. That's a $20 margin, 6 million-megawatt hours, that's $120 million if we can hit all of our goals. We'll see if we're successful in hitting all of our goals.

But isn't by definition, the IPP world, I mean, you're never going to sell -- you don't want to sell out 100% of your capacity at the prices that the buyers want and vice versa. So there's always a contracted versus spot. Hence, is not the IPP model highly variable in -- you'll gush cash in the next year, you'll be doing converts from the board? I mean, just help me out on how you're looking through this over multiple years. Let's assume you guys execute perfectly. That's what I'm trying to get at.

Well, I think on the capacity side, we clearly list out that we have a high percentage of our capacity sold. And so obtaining that goal, there's a high likelihood of doing that because we've already got a high percentage of it sold, right? I mean if you're looking at percent of capacity contracted, it's 100% this year, it's 82% next year, it's 77% the year beyond that, it's 64% in the year beyond that. So we don't have a lot of work to do to obtain that goal. Where we've got to do work is on the energy side of the business, which is why we think in the next handful of months that we have participated in RFPs of our customers, and we've launched an RFP to target data center or industrial uses the power through an agreement with Hoosier Energy that we announced last quarter. So we'll see how successful we are, but we would like to get a decent percentage of our plant contracted out so that we can get both units up and running and at least have both units running at minimum load, which would be about 65% of our generated output to run at minimum load all the time. So that's kind of the goal. And that's, I think, what we're looking at. And then the coal side of the business, our power plant is one of our largest customers. And so that kind of has an internal hedge on our cost structure, being able to produce coal at costs and deliver it to ourselves. We do purchase some coal from outside parties, just to kind of diversify that risk. And that seems to be working out as well.

[Operator Instructions] The next question will go to the follow-up of Lucas Pipes with B. Riley Financials.

Brent, I want to ask you about recently unveiled EPA Clean Power rule. At what point would you consider making investments? What do you think is the legal outlook for this rule? I appreciate your thoughts.

Well, look, I think the world is trying to balance a couple of different things. On one hand, we want to keep the lights on 24/7, and we seem to have, for the first time in 20, maybe 30 years, significant growth in demand for electrons. And at the same time, the world desires lower carbon emissions. So that's kind of the tug-of-war that I think goes on there. And the challenge that we're all being guided to. And the grid took 150 years or so to build and it's designed for a system of baseload power and spinning generation. And in many cases, it needs on-site fuel. And so we're trying to transition to something else in a short period of time, and that's going to be really, really challenging. And so we've seen this new carbon plant come out. I suspect it will be stayed. And we've read different legal series and the like that it's probably headed to the U.S. Supreme Court. And if I had to bet, I would bet they'll probably say it was unlawful. But regardless of that, to me, it does give a path for our business to run through 2039 and that would be with co-firing with gas, which we have for the last 9 months been studying to see if that is an alternative that a lever that makes sense for us to pull. So we're continuing to evaluate that, and we're continuing to evaluate these new rules. There's going to be a lot of changes. But I think at the end of the day, the fact that we'll always went out is the lights must always stay on. And if they don't, there'll be new leaders, right, because people just aren't going to accept rolling blackouts in this country. And…

Very helpful. Two follow-ups on this. First, co-firing with natural gas, how much would that cost to make a plant change for that? How long would it take? And then on the back of your thesis that you just articulated, are you looking at acquisitions of other coal-fired power plants, be it in MISO or across the nation?

Yes. So we're still -- like I said, we're still evaluating what co-firing the plant would look like. And there's different ways of doing that. So we're not really ready to come out with a cost estimate, though it is feasible. And then secondly, excuse me, I got interrupted. The second part of your question again, Lucas was what? Acquisitions?

Yes.

Yes. I think we're always in the market, and we're always having some level of conversation with someone about acquisitions and what that might look like. It's definitely something that as we talked about on the call, we continue to build out our team of experts and kind of bolster our capabilities to acquire plants, operate plants and increase the overall value of those assets. And I think that's what we're trying to do. And that's part of the reason of the RFP with the different data center groups to see if that's another way that we can add value to the platform that we have.

[Operator Instructions] There are no additional questions waiting at this time. So I'll pass the conference back over to Brent Bilsland for closing remarks.

Well, I just want to thank everyone for their time today and their continued interest in Hallador. Thank you.

That concludes the Hallador Energy First Quarter 2024 Earnings Call. Thank you for your participation. I hope you have a wonderful rest of your day.