Hello, and welcome to the NACCO Industries Q4 2022 Earnings Conference Call. My name is Lauren, and I will be coordinating your call today. [Operator Instructions] I will now hand you over to your host, Christina Kmetko to begin. Christina, please go ahead.

Thank you. Good morning, everyone, and welcome to our 2022 fourth quarter and full year earnings call. Thank you for joining us this morning. I am Christina Kmetko, and I am responsible for Investor Relations at NACCO Industries. Joining me today are J.C. Butler, President and Chief Executive Officer; and Elizabeth Loveman, Vice President and Controller. Yesterday, we published our 2022 fourth quarter and full year results and filed our 10-K. This information is available on our website. Today's call is also being webcast. The webcast will be on our website later this afternoon and available for approximately 12 months. Our remarks that follow, including answers to your questions, could contain forward-looking statements. These statements are subject to a number of 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 have described in our earnings release issued last night and in our 10-K and other filings with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. In addition, we will 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. In a moment, I will discuss our results for the quarter. But first, let me turn the call over to our President and CEO, J.C. Butler, for some opening remarks. J.C.?

Thank you, Christy, and good morning, everyone. I'm very pleased to report that our company once again delivered strong results, generating much higher operating profit, net income and adjusted EBITDA in the 2022 fourth quarter and full year than in the 2021 fourth quarter and full year. Christy will go into more detail about our fourth quarter earnings and provide an overview of our outlook in a minute. But first, let me provide some highlights for the year. Our strong full year operating results were led by our Minerals Management segment, which more than doubled its operating profit and adjusted EBITDA from 2021. These improvements were driven by substantially higher natural gas and oil prices as well as production volume from more recently acquired mineral interest and increased production from legacy mineral interest. Our team at Catapult Mineral Partners continues to look for opportunities to expand our portfolio of mineral and royalty interest through acquisitions, while also promoting development of our existing interests. The team acquired approximately $12 million of additional mineral and royalty interest in 2022 and is targeting additional investments of up to $20 million in 2023. Our 2023 forecast for the Minerals Management segment assumes oil and gas prices -- market prices moderate to levels in line with 2021 averages. However, as we witnessed in 2022, commodity prices are inherently volatile and changes in natural gas and oil prices could result in adjustments to our current forecast. On the upside, the development of additional wells on existing reserves beyond our forecast or future acquisitions could be accretive to our future results. At our Coal Mining segment, a big highlight of 2022 was Rainbow Energy's purchase in Coal Creek Station from Great River Energy. We are very enthusiastic about our new relationship with Rainbow. With this transaction, our…

Thank you, J.C. As J.C. mentioned, we had a strong fourth quarter. I'll start with some high-level comments on our consolidated fourth quarter financial results and then add detail on our individual segments. On a consolidated basis, our 2022 fourth quarter operating profit increased to $15.5 million, up almost 44% versus 2021. Consolidated net income increased to $13.8 million or $1.84 per diluted share, up from $7.8 million or $1.07 per diluted share last year. Consolidated adjusted EBITDA increased 33% to $23.6 million. These improvements were driven by Minerals Management, which more than doubled its operating profit and adjusted EBITDA over the prior year quarter due to both increased production and substantially higher natural gas and oil prices. Significantly lower earnings in the Coal Mining segment partly offset the impact of the higher Minerals Management earnings. Coal Mining fourth quarter revenues increased 30% over 2021 due to a significant increase in customer demand from higher power plant dispatch and a higher per ton sales price at Mississippi Lignite Mining Company. Conversely, operating profit and adjusted EBITDA in the Coal Mining segment decreased significantly. This decrease was due to a substantial increase in the cost per ton of coal delivered and Mississippi Lignite Mining Company and lower earnings at the unconsolidated operations. The decrease in earnings upon consolidated operations was mainly due to a temporary reduction in the per ton management fee at the Falkirk Mine from May 2022 through May 2024. This was partly offset by an increase in earnings at Coteau as a result of contractual price escalation. North American Mining's fourth quarter results improved from the prior year. The year-over-year improvement was primarily due to lower employee-related costs that stem from a voluntary retirement program the company implemented in the third quarter of 2022. The increase in segment…

[Operator Instructions] Our first question comes from Andrew Kuhn from Focused Compounding.

So for North American Mining, the results didn't meet your expectations this year. Can you talk about what type of factors has driven the difference between your return on capital expectations when you first started growing this business and the results we've had so far? Like are these issues of expense management? Is it capital intensity? Is it the contract economics? Any way that you can expand on that would be great.

Thanks for the question. I think what I'd do is point to the -- talk about the initiatives that we're working on with respect to getting that business where we want it to be. We mentioned in the release that we've done a review of the operations at each 1 of the quarries. I would say that at a majority of the quarries, things are going very well. We're generating the profits we've expected out of those. There are some quarries where we're not meeting our expectations, which gets thrown into the mix of the whole business. So we're looking at productivity and efficiency improvements. We're working on how we coordinate our work with our customer. In the quarries -- and the North American mining business where we operated the quarries, we're not running the entire quarry. So it's really a coordinated sort of effort between our work and our customers work. So we're trying to get that better in sync so that both sides are more efficient. And as we've described in our earnings releases as well, we're focusing on some administrative areas where we think we can be more efficient. So in that whole collection of things, we think we can make some meaningful progress towards getting this business where we'd like it to be.

Got it. And then I think this is the first 10-K where you mentioned one day possibly developing utility scale solar power reclaim mining ahead. Is that an idea you've been exploring internally for a while? Or is there some other reason that is included in this year's 10-K?

It's an idea. We've been exploring for a while. I think it's not a unique idea. You're seeing a number of companies doing this, and we've been working on it as well. we think that it's got enough potential that we decided that we should start talking about it in our public disclosures.

And then in your 10-K, you used a standard disclosure that cash and cash equivalents consist of cash in bank and highly liquid investments with original maturities of 3 months or less. Given that it would be a large and uninsured depositor at any bank you do business with, I'm just curious if there's been any discussion about being more in 3 months and under investment and less natural bank deposit?

So I mean -- I'm sure like lots of people, right? We just double checked where all of our investments were? Where are they placed? And we don't have very much that's exposed with respect to just regular deposits. A lot of this is in 3-month types of paper, things like that. Does that answer your question?

Yes. No, that's fine.

[Operator Instructions] Our next question comes from Nachy Kanfer from Donovan Energy.

Nachy, actually like knocking on the door. I appreciate all the insights this morning. Just a couple of questions. Actually, follow ups from conversations we've had in previous earnings calls. First, about Mississippi Lignite. A while back, maybe about a year ago, I had asked if the management team has any concern about the creditworthiness of your customer out there, Kafka [ph] generation. And your answer was no. I'm wondering if that's still the case.

Well, I think ultimately, the customer is, TVA, right, which essentially is a government entity. So I think when you look at TVA interest in this plant from a resiliency and reliability standpoint and the way they've described the plant publicly, I think it's pretty safe to say that they intend to operate -- intend to take electricity from this plant for the foreseeable future. So if you work your way back through the value chain, I think that's how we feel pretty comfortable with the way this is all put together. We do acknowledge, however, that Southern Company and the bondholders are trying to work out some situations between them, but that's really between them. But ultimately, TVA is really the end customer here.

Got it. That's helpful. So from NACCO's perspective, a default at [ Kafka ] generation, there's no material risk to coal sales or coal revenue -- coal sales revenue at that customer?

Well, I think it's -- I mean, I'll go back to TVA, right? Everybody's got a chain of contracts that work themselves from us supplying coal all the way through TVA taking energy. And I think the only way anybody gets any recovery on their own investment is by operating the plant. And you can't operate the plant without coal coming out of our mind. So in everybody's best interest to continue to operate.

Got it. And then at Rainbow, I wanted to ask about EPA-proposed action on Coal Creek's Part B application under the coal residuals -- Coal Combustion Residuals [rule]. My understanding is EPA is proposing to deny Coal Creek's Part B application, which would result in a significant capital expense to upgrade ash handling and other things. Don't have a handle on what that capital expense is. I'm wondering if you do -- and if you can give me a sense of kind of -- what does that contract work in terms of EPS or anything else? How are we thinking about that?

Good question. I'm going to give you, unfortunately, 2 answers that aren't going to be very helpful to you. But one is that Coal Creek's negotiations or discussions with the EPA between them. I don't think it's right for me to comment on those. And we have never disclosed our individual profits that we make at any of these mines for obvious competitive reasons.

Understood. I guess can you describe -- so is there a risk that Coal Creek declares force majeure on your like brand new renegotiated contract there? And how are you thinking about that risk? Well, maybe not force majeure. I mean, I'm not an attorney, but...

Yes, well, that's what threw me. I'm like, well, how this force majeure coming to this.

Is there a risk that there's a termination, an early termination of some sort to that coal sales agreement?

Not that we see. I mean, look, is there a remote possibility that anything can happen. I mean, it could get hit by an asteroid, right? So things can happen, but we don't view that as a significant risk.

We have no further questions. I'll now hand you back over to Christina Kmetko for closing remarks.

Thank you. We'll close with just a few final reminders. A replay of our call will be available online later this morning. We'll also post a transcript on the Investor Relations website when it becomes available. If you have any questions, please reach out to me. You can reach me at the phone number on the press release. I hope you enjoy the rest of your day, and now back to our operator to conclude the call.

This concludes today's call. Thank you for joining us. You may now disconnect your lines.