Good morning, ladies and gentlemen, and welcome to the NACCO Industries Fourth Quarter and Full Year 2023 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we welcome back a question-and-answer session. [Operator Instructions]. This call is being recorded on Thursday, March 7, 2024. I would now like to turn the conference over to Christina Kmetko, Investor Relations. Please go ahead.

Thank you. Good morning, everyone, and welcome to our fourth quarter and full year 2023 earnings call. Thank you for joining us this morning. I'm Christina Kmetko, and I'm responsible for Investor Relations at NACCO. Joining me today are J.C. Butler, President and Chief Executive Officer; and Elizabeth Loveman, Senior Vice President and Controller. Yesterday, we published our 2023 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, contain forward-looking statements. These statements are subject to several 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've described in our earnings release, 10-K, and other SEC filings. We may not update these forward-looking statements until our next quarterly conference call. We'll also 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. With the formalities out of the way, I'll turn the call over to J.C. for some opening remarks. J.C.?

Thank you, Christina. Good morning, everyone. As we put 2023 behind us, I'm pleased to be looking forward to 2024. We expected 2023 to be challenging, and it ended up being more difficult than we expected. That said, challenges are what make us stronger, and I definitely believe that we are entering 2024 in a very strong position. Our teams have delivered on our two key strategies to protect the core and grow and diversify, and we emerged from 2023 with a solid foundation for future growth. The unfavorable comparisons we experienced throughout 2023 should turn favorable in 2024 and lead to continuing improvement in the future. Before I get into our fourth quarter highlights, I'd like to recognize our outstanding employees. I'm extremely proud of the way these talented, dedicated, and motivated individuals have worked to make our operations run efficiently, despite any challenges they may face. They continue to find new and exciting ways to support our existing customers while growing and diversifying our company. I want to thank each of them for the hard work and many contributions that they put forth to strengthen us today and to secure new opportunities for our future. I am honored each and every day to work alongside such an amazing team. The most notable item this quarter is the impairment at Mississippi Lignite Mining Company. In mid-December, MLMC received a force majeure notice from its customer. This notice was the result of an issue affecting one of the two boilers at the Red Hills Power Plant. This one unit is still not functioning and the timeline for resolution is uncertain. This issue is expected to result in a significant decline in customer demand during 2024, while the power plant is running on just one unit. Without getting into all the…

Thank you, J.C. I'll start with some high level comments on our consolidated fourth quarter financial results and then add detail on our individual segments. We reported a consolidated net loss of $44 million or $5.88 per share loss compared with net income of $13.8 million or $1.84 per share last year. As J.C. mentioned, our fourth quarter results include a $65.9 million pre-tax asset impairment charge. I'd note that while the impairment relates solely to Mississippi Lignite Mining Company, we recorded 60.9 million in the coal segment and 5.1 million at Minerals Management because certain land assets were included within that business. We generated consolidated adjusted EBITDA of $7.1 million compared with 23.6 million in 2022. Adjusted EBITDA excludes the impairment charge. These lower results were primarily due to significant decreases in our coal mining and Minerals Management earnings. Our coal mining segment reported an operating loss of $62.3 million, which includes the impairment charge of 60.8 million. This compares to a loss of 4.7 million in third quarter 2023 and operating profit of $3.7 million in fourth quarter 2022. We generated segment adjusted EBITDA of $3.2 million this past quarter compared to $8.1 million last year. The decrease in segment adjusted EBITDA was primarily due to the substantial decline in Mississippi Lignite Mining Company results, as well as a decrease in earnings at our unconsolidated operations because of lower customer requirements. Higher employee related expenses also contributed to the decline. Decrease in Mississippi Lignite Mining Company results was primarily the result of fewer tons delivered in part due to the issue affecting the power plant. The decrease in tons delivered contributed to an increase in the cost per ton sold and a $900,000 write down of coal inventory to net realizable value. Excluding the impairment, the primary reason…

Thank you. [Operator Instructions]. Your first question comes from the line of Doug Weiss from DSW Investments. Your line is open.

Hey, good morning. Good morning.

Hi, Doug.

Hi. Is it possible to say how much the sort of additional costs are per quarter for the work you're doing on the Mississippi lignite coal mine?

I'm not sure I understand the question.

So, in other words, you know, as you're sort of operating dual mines and moving the equipment and so forth, you know, once that process is completed, how much cost will just drop out of the quarters?

Liz, I'll give this a shot and see what you think. So, I mean, I'm not going to give you an exact dollar amount, but I would say that our costs are going to return to where they were prior to, you know, us incurring these additional costs to move into the new mine area. We'd sort of doubled up on costs and it was less efficient while we were doing this. But I think, you know, once we get established over there and obviously are delivering mining full volumes when the plant's up and running again, I think we'll return to historical cost levels. Liz, is that fair?

I would agree. I would also say you mentioned we were operating at two mine areas. We've already moved over to the new mine area. We're not operating at the previous mine area.

Okay.

Okay, great. Right. We're working on the pit extension.

Yeah, just to clarify, the prior mine area, which we call mine area one, is now in reclamation. And, you know, the costs when we're in reclamation is really more of a balance sheet exercise than it is an income statement exercise, because we've accumulated, you know, reserves to cover reclamation of that mine area. So as we expend costs, those really just come out of that reserve. So at this point, the costs are really all attributable to normal operations in the new mine area. They're just not at the efficiency levels we expect because we're delivering it, you know, we're mining at half rate because the power plant's only running on one unit. And we're getting this initial pit extended to the length we want it to be.

Okay. Then, do you have any visibility on when that second boiler will come up?

You know, our guys at the mine site are in regular communication with the power plant, as you know, typical in all of our operations. You know, they are certainly discussing the timeline. It's really entirely in our customers' control. But I would say I think they are, you know, from everything we can tell, they're handling this very professionally. And, you know, I expect they're going to get this thing back up and running during the year. But I'm not going to put any dates out there. I think it's really up to our customer to decide if they're going to talk about that publicly. But it's expected to be during the course of 2024.

Okay, okay. And in the coal division, the SG&A expense, does that, should I think about that being applied to all your coal operations or just the consolidated coal operations? In other words, do the unconsolidated already include SG&A that's off income statement or is it, or does it all flow into your income statement?

Well, it's kind of a combination of the two. With respect to the unconsolidated mines, which, you know, is really a majority of the coal mining segment, we, the way the contracts work is we do receive some compensation in our fees to cover some overhead costs that we incur. You can't really see that split out because it's all just a part of the fee. But the fees that we receive are some of those are targeted directly towards SG&A costs that we incur in that segment. And so there's, you know, internally, we can see that there's a netting, you know, that covers a lot of those expenses. But externally, you can't really see that. Now, some of the coal segment SG&A is related to our consolidated operations at Red Hills as well. So I'd really say you kind of have to just spread it across and think of the coal segment as a unit, think of it as a business, and those SG&A costs, you know, are all attributable to that segment. However, some of those are by contract, you know, we're doing the work, like we're providing IT platforms and, you know, HR and benefits backbone, and we're getting a G&A fee to cover that.

Okay, makes sense. And, you know, just in terms of while the other boilers is offline, you know, how do you think about the volume in those quarters? Because it looked like they're already operating sub-capacity. So, you know, is it actually a 50% reduction or is it less than that because they were already not at full capacity?

Well, I mean, it's, you know, the two units are similar in size, they're the same size, right? It's a 50-50 kind of proposition. You know, I think, well, I know that the plant is operating at 50% of the level that it would probably be operating if both boilers were operating.

Okay.

Because if the plant's going to be dispatched, they're going to probably dispatch it fully, and if it's not going to be dispatched, it's not. So I think it's kind of, I think it's for the most part a 50-50 proposition.

Okay, got it. So, you know, the congratulations on that, on the new phosphate contract. Is it possible to give some sense of how large that could be?

It is not a major contract, but I think it's a very important step in our growth of that business. You know, for years, we mined lime rock in Florida using drag lines underwater, or drag lines digging lime rock that's underwater. The drag line, of course, was above the surface. So, you know, we've expanded into lithium. I think that's a very exciting development for us. We've expanded outside of Florida. We're mining other minerals. We're doing sand and gravel and other things. We, for a long time, had had our sights on trying to get into phosphate mining, and we discovered an opportunity that really was several years in the making that we think gives us a nice, you know, nice entry into mining yet another mineral. You know, Florida is a huge contributor to global phosphate production. So I think this, you know, this new contract is a pretty exciting one for us. It is a drag line operation, but of course, it's dry. And, we're very, very pleased to start up, get that started up sometime this year.

Okay, great. How much of the CapEx that you've given in your disclosures is for Thacker Pass this year?

I don't know that, Liz.

We did not call out specifically the Thacker Pass, but we did last year for 2023 when it was material. So I think you can deduce from that that it's not a material amount this year.

Okay, and I, you know, I'm sorry, I would just, on your CapEx question, I would just add that there is a part of the CapEx. I'm not going to say how much, but there is a part of our 2024 CapEx that is CapEx from 2023 that wasn't spent. You know, we're always looking for ways that we can, you know, defer capital spending. It's, you know, it's always a smart thing to do if you can figure out how to either spend less capital or spend it later from a, you know, present value standpoint. Makes good sense. So there's a piece of our 2024 CapEx that's a carryover from 2023.

Okay, got it. And Thacker Pass, my sense is that's a kind of new scope of work for you. How do you think, you know, how do you kind of add the operational capabilities you need to do that? How different is it from the work you're doing, the drag line work you're doing? And, you know, are there operational risks there that you're sort of planning for?

I mean, it's really very, very, very similar to the work that we do in our coal mining operations. You know, we're going to run a full fleet of equipment. It's more similar to our coal mining operations as it is the Lime Rock business, where we are, you know, really operating very specific pieces of equipment in kind of a specialized sort of thing. At the Thacker Pass project, we're going to, we're doing all the work related to mining. It is very, very, very similar, almost identical to the work that we do. There's virtually no operating risk for us. We're operating the same types of equipment. It's a very similar contract structure. We apply the same disciplines that we do, you know, in our other operations. So we don't really see any operational risk in this operation at all. Which is another reason why it's so exciting.

Right. And then I know you're reimbursed for the capital equipment. Do you keep that equipment after the project is complete?

We do.

Okay. Then just a really quick bookkeeping question. You know, the EBITDA you report in your headline results of around 7 million plus is slightly different than on your sub-table where you break out EBITDA and it's sort of 6 million plus. Can you say what the plug is between those two numbers? I can follow up too if it's not an easy one.

We're looking. I think the 6.4 is segment-adjusted EBITDA. Is that the number you're referring to?

Yeah.

The 7.1 is on page 10 of the release. That's consolidated adjusted EBITDA. So we have two different EBITDA metrics. One is segment-adjusted, and our segment-adjusted stops at operating profit, whereas the consolidated-adjusted is more of a traditional EBITDA.

Okay. All right.

Thanks. The recommendation for the 7.1 is on page 10 of the release.

Okay. And just one last question. There's no -- do you get any insurance recovery related to the force majeure?

At Red Hills mine, Mississippi --

Yes.

Yeah, so that's to be determined. We obviously cover business interruption insurance, and we have a team of people that are working on that. We're certainly not at the point where we want to disclose what we think we're going to receive with respect to recoveries. But I will tell you that we have a team of people that are very focused on that right now.

Okay. All right, great. All right. Well, thank you for all the answers.

Doug, I really appreciate the questions and your interest in the company. Thanks. Thanks for calling.

Yeah, great. Have a good day.

Thank you. [Operator Instructions].

I don't think we're going to have any more questions. So thank you, everybody, for dialing in. We'll close with just a few reminders. A replay of our call will be available online later this morning. We'll also post a transcript on our 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 I'll turn it back to Ludi to conclude the call.

Thank you, Christy. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.