Good afternoon. Thank you for attending today's Hallador Energy's Second Quarter 2024 Conference Call. My name is Cole, and I'll be the moderator for today's call. [Operator Instructions] I'd now like to pass the call over to Sean Mansouri, the Company's Investor Relations Advisor with Elevate IR.

Thank you, and good afternoon, everyone. We appreciate you joining us to discuss our second quarter 2024 results. With me today are President and CEO, Brent Bilsland, and CFO, Marjorie Hargrave. This afternoon, we released our second quarter 2024 financial and operating results in a press release that is now on the Hallador Investor Relations website. Today, we will discuss those results as well as our perspective on current market conditions and our outlook for 2024. Following 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 today'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 week. And with the preliminaries out of the way, I'll turn the call over to President and CEO, Brent Bilsland.

Thanks, Sean. At Hallador, we've been undergoing a strategic and deliberate transformation process to capture increased value from our products and services as the company advances up the value chain. To accomplish this, we have focused on expanding our offerings from fuel production to wholesale electricity sales to ultimately powering the industrial end user. The acquisition of our Merom Power plant, less than two years ago, was the first step in this journey, enabling us the ability to transform our fuel into higher-value wholesale electricity. We took another step forward earlier this year when we signed a memorandum of understanding with Hoosier Energy and WIN REMC, creating a pathway to further increase value and drive margin expansion by enabling sales of wholesale electricity to industrial users of power. We have recently carried out a data center targeted request for proposal that has received a strong response. Our active negotiations on that RFP further strengthen our conviction that power is in critical demand and that we possess a crucial component to the success of these data centers. While we are encouraged by our progress with our counterparties, we caution that these negotiations are ongoing and take time given the potential magnitude for both our partners and our company. Nearly all of these proposed transactions would involve sales of large amounts of our energy and capacity for well over a decade. The state of Indiana, where our power plant is located, continues to solidify its position as the developing hub for high-tech and high-growth sectors. The Indiana Economic Development Corporation reports the plans for nearly $15 billion of new investments in Indiana's technology infrastructure have been announced by Fortune 500 businesses thus far in 2024, underscoring the growth potential in our marketplace. Businesses need power to enable them to build in Indiana,…

Thank you very much, Brent, and good afternoon, everyone. Turning to our second quarter financials. Electric sales for the quarter were $56.8 million compared to $71 million in the prior year period. The decline was primarily due to an abundant natural gas supply, leading to low energy prices. This, coupled with the mild winter and scheduled maintenance resulted in our dispatch rates being decreased. Coal sales were $32.8 million for the quarter compared to $88.6 million in the prior year period. This decline was driven by our decision to reduce our coal production as previously discussed in our restructuring of our Sunrise Coal division. Additionally, a slowdown in customer deliveries coincided with the decrease in coal plant output throughout the quarter. These two segments drove revenue of $90.9 million for the quarter compared to $161.2 million in the prior year period. Net loss for the quarter was $10.2 million compared to positive net income of $16.9 million in the prior year period. This was largely driven by a loss in coal operations of $13.33 per ton due to a reduction in contract average sales price and reduced demand given the oversupply of lower-priced natural gas and reduced dispatch rates at our customers' coal-fired power plants. We improved operating cash flow to $23.5 million for the quarter compared to $18.1 million in the prior year period. Adjusted EBITDA, a non-GAAP measure, which is reconciled in our earnings press release issued earlier today, was negative $5.6 million for Q2 compared to $35.3 million in the prior year period. We invested $13.1 million in capital expenditures during the second quarter, bringing total year-to-date CapEx to $28 million. This puts us well on target for our planned capital outlay of $43 million for calendar year 2024. In response to the current environment, we focused…

[Operator Instructions]. Our first question is from Lucas Pipes with B. Riley. Your line is now open.

Thank you very much, operator, and good afternoon, everyone. Brent, my first question is on the bilateral power agreements with data centers that you mentioned. I wonder if you could maybe speak a little bit to the type of organizations that have shown interest, how mature are they? What's the size? And also, what do you screen for from those potential customers? Are you looking for the best price? Are you looking for a specific credit profile? I would appreciate your thoughts on that. Thank you.

Yes, great question. So, we're talking to several different partners, our potential customers. They can range from investor-owned utilities, cooperatives, co-hosting data center developers. So those are the type of counterparties that we're looking at. As we said in the prepared remarks that we anticipate -- Look, all of these counterparties are trying to figure out how to build data centers as fast as they can. And so, they are looking at a major capital investment and they need power for a long period of time, right? They don't want to build these things and then find they can get power in the second or third year. So, as we said in the prepared remarks, we think that this will be a sale of the majority of our energy and capacity. And for a period of time, that exceeds the decade and length. So that kind of gives you the scale of -- if we're successful, this will be a major transaction, transformational to the company. These deals aren't done, right? And they take a long time to negotiate because there's big dollars and a construction project typically on the other side of it. So, what are we looking for? We're looking for a counterparty that has very good credit, right? We want to know that they're going to be there at the end of this contract, not just at the beginning. And so, price likelihood of can we actually transact with the counterparty. And will their credit survive the test of time. Those are probably the three biggest attributes that we're taking into consideration.

And you mentioned that these things can take a while. Any color in terms of how long it could take from here? I know you just mentioned there's a lot of wood to chop. But any perspective you could add that would be appreciated.

That's a great question, too. And we only control one side of the negotiation. And oftentimes, in the negotiation, you have three parties, right? You have ourselves, the wholesaler of power capacity. You have someone that like a Hoosier that has the right to sell industrial power that we have, an MOU to potentially sell through, and then you have the end user. And so, because there are three different groups typically to the transaction, our crystal ball on how long this all takes is a little more opaque. So, what does it feel like? It feels like I don't know, somewhere near the end of the year or Q1 of next year. That's what it feels like. But we'll just have to stay tuned.

Brent, I appreciate that. Really helpful. Thank you for taking a stab. I appreciate there's uncertainty in different parties. One other question from me. Just in terms of looking out to the second half of 2024 in the context of the first half performance. Obviously, power pricing has been softer. I thought you mentioned 1.6 million megawatt hours sold in the first half. But for the second half, where do you think that number should shake out? You mentioned somewhat higher, I think, July utilization rates, but gas prices are super weak. If you had to point to specific -- if you had to point to a range for generation, I would appreciate your thoughts on that. Thank you.

Well, look, the market has improved from the standpoint of -- in March, we had gas inventory levels that were 38% above the 5-year average. That's just a staggering amount of gas that would sit around in storage. And so, the market -- gas price down, we believe, to incentivize it's used, right? And so, what's happening is, you have higher heat rate plants dispatching in front of coal plants because we have just incredibly cheap gas. People tend to look at Henry Hub and the IMEX pricing, but really, Chicago Citygate is probably a better indicator for us, and it's been a discount even to those markets. So, a lot of sub-$2 gas in the first half of the year. So, the inventory levels have improved, right? So, at the end of July here, I think the 26th the last report, inventory levels had come down by 22% to 16%. And inventory levels were 16% above the 5-year average. So we still have a lot of gas, but we're a lot better positioned than we were at the beginning of the year. The other thing is this, we're in the summer months, right? So, we had good heating demand in July. We should have decent heating demand in December. It's hard to say what the balance of the year will bring. We should see cooling demand again in sometime between - around Thanksgiving. So, when we look at the period of time we have left, we don't have any scheduled outages, whereas in the first half of the year, half of our plant was offline for 70 days. Now part of that was 1 unit. Part of that was the second unit. So, it wasn't like it was one unit. But when you combine those, there were 70 days only half the plant available to us, no scheduled outages in the back half of the year. So, if market prices call for that plant to run, it will run. We did 1.6 million megawatt hours roughly in the first half of the year. We've already exceeded 25% of that in July alone. So, the market will be better. We should run more. And if you look at the price of gas, when you get to December, it's above $3. So, at those prices, not only do we dispatch more, we should start to see higher gross margins when we run the plant, right? So, more widgets, greater margins. And that's what we say when we think that we'll finish the year strong and start to return to more profitable times than we've seen in the first half of the year.

Thank you very much, Brent. I really appreciate it all. I'll turn it over for now. Continued best of luck.

Thank you.

[Operator Instructions] There are no additional questions at this time. So, I'll pass the call back to the management team for any closing remarks.

I want to thank everyone for taking the time today to tune into our earnings call. I want to thank our management team. And thank you, everyone, for their interest in Hallador. Thank you.

That concludes today's call. Thank you all for your participation. You may now disconnect your lines.