NACCO Industries, Inc. Class A Aktie

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the NACCO Industries First Quarter 2026 Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Christina Kmetko, Investor Relations. You may begin.

Thank you. Good morning, everyone, and thank you for joining us for our 2026 first quarter earnings call. I'm Christina Kmetko, and I'm responsible for Investor Relations at NACCO. Joining me today are J.C. Butler, NACCO's President and CEO; and Elizabeth Loveman, our Senior Vice President and Controller. Yesterday, we released our first quarter results and filed our 10-Q with the SEC. Both documents are available on our website. During today's call, we will reference several non-GAAP measures, which we believe provide additional insight into how we manage our business. Reconciliations to the most directly comparable GAAP measures are also available on our website.

Before we begin, let me remind you that today's remarks include forward-looking statements. Actual results may differ materially from those indicated due to a variety of risks and uncertainties, which are described in our earnings release, 10-Q and other SEC filings. We undertake no obligation to update these statements.

With that, I'll turn the call over to J.C. for his opening remarks. J.C.

Thanks, Christy, and good morning, everyone. I'm pleased to say that we delivered a strong start to 2026, reporting significant growth and profitability. First quarter operating profit increased 43% over last year and 45% sequentially. Meaningful growth in our utility coal and contract mining segments drove the year-over-year improvement, while contract mining led the sequential growth, primarily due to the commencement of a new construction project in Florida. These operating results contributed to the 28% year-over-year and 15% sequential increases in adjusted EBITDA. These results reflect the business executing well and delivering as expected.

Let me walk through each of our businesses in more detail. Our Utility Coal Mining segment remains the foundation of our business. And this quarter, Mississippi Lignite Mining Company was one of the main drivers of our operating profit increase. During our year-end earnings call, I discussed the customers' power plant outage that began in mid-February. During the outage, we pivoted effectively and redeployed crews to work on planned reclamation activities. This reduced our asset retirement obligation rather than being recognized as an expense, which would have impacted first quarter earnings. Lower cost per ton helped minimize the effect of reduced deliveries in the first quarter. I'm confident that as long as the customers' power plant operates as planned, the team will continue to mine effectively and control costs, driving improvement in year-over-year results at Mississippi Lignite Mining Company.

Our Contract Mining segment is our primary growth platform for mining and its strong first quarter operating profit reflects the benefits of our strategic initiatives to expand this business. During the quarter, we commenced activities under a multiyear dragline services contract as part of a U.S. Army Corps of Engineers construction project in Palm Beach County, Florida. We are excited about this opportunity because it advances our growth in the large-scale infrastructure projects, and it showcases the efficiency and environmental advantages of our new electric drive MTech dragline. We have 2 MTech draglines on site and plan to add a third to this project later this year. We're encouraged by the early progress on this project.

In addition to the Florida project, we expect to commence operations during the second half of 2026 on the limestone quarry in Arizona, where we will be operating a dragline for an existing customer. This is a great opportunity that expands our footprint into a new region of the United States. Contract Mining continues to build a growing portfolio of long-term contracts through geographic and mineral expansion, which is expected to lead to increasing profitability in this segment.

Turning to Minerals and Royalties. This segment reported comparable year-over-year operating profit. While first quarter results exceeded our forecast, we continue to expect year-over-year decrease in operating profit and segment adjusted EBITDA in 2026 despite higher oil prices. Natural gas remains the primary driver of our near-term results, so higher oil prices certainly contribute to our results, but they do not have the same level of impact. That said, there's a lot of uncertainty in the oil and gas market, so we'll have to see how the situation in the Middle East plays out.

At Mitigation Resources, we expect increasing profitability over time from the sale of mitigation credits and as reclamation and restoration services expand. While performance is currently variable due to permit and project timing, Mitigation Resources is expected to generate profit in the second half of 2026 and move toward more consistent results as the business expands. In mid-April, Mitigation Resources acquired 958 acres in Wilson County, Tennessee, which is east of Nashville. This marks an important step in their growth strategy, representing significant expansion into an area experiencing steady economic growth.

The project is expected to deliver a new mitigation bank with high-quality stream and wetland mitigation credits with availability anticipated in 2029. These credits will support continued residential, industrial and infrastructure development in the 14-county area around Greater Nashville. We are very excited about this project because it allows us to serve twice the typical service range for similar mitigation projects, and we will be serving an area that has experienced steady economic growth. Across the board, we continue to invest in our businesses to drive future growth. We made capital expenditures of $33 million during the first quarter, and we anticipate making additional capital investments through the remainder of 2026, primarily in business development opportunities that meet our strict investment criteria.

Overall, I continue to believe we are well positioned for meaningful growth. We entered 2026 with clear opportunities to build on our 2025 momentum, and we are executing. I remain confident in our businesses and our ability to deliver strong 2026 results as we continue to execute our growth strategies and create long-term value for our shareholders through long-term relationships, long-term contracts and investment in long-term assets.

With that, I'll turn the call over to Liz to provide a more detailed view of our financial results and outlook. Liz?

Thank you, J.C. I'll start with some high-level comments about our consolidated first quarter 2026 results compared to the 2025 first quarter. We generated consolidated gross profit of $14.3 million, an increase of 48% year-over-year despite first quarter revenues of $62.8 million, decreasing 4%. Consolidated operating profit of $11 million increased from $7.7 million in 2025, driven by improvements in both our Utility Coal Mining and Contract Mining segments. These favorable results were partly offset by higher unallocated expenses.

These strong operating profit results, combined with an improvement in other investment income, resulted in net income of $8.8 million or $1.17 per share. This was an 80% increase over first quarter 2025 net income of $4.9 million or $0.66 per share. Consolidated adjusted EBITDA increased 28% to $16.4 million versus $12.8 million for the same period last year.

Turning to the segments. The Utility Coal Mining segment reported operating profit of $7.4 million in 2026, a substantial increase over the $3.8 million generated in the 2025 first quarter. Segment adjusted EBITDA increased to $9.7 million from $5.8 million in the prior year. Efficiency actions and reclamation progress at Mississippi Lignite Mining Company during the power plant outage drove a meaningful improvement in gross profit compared with the prior year when results were affected by a $3 million inventory impairment charge.

Looking ahead, we expect a meaningful increase in operating profit compared with 2025, primarily in the first half of 2026. Improvements at Mississippi Lignite Mining Company driven by an increase in the contractually determined per ton sales price and a lower cost per ton delivered are expected to be partly offset by lower earnings at the unconsolidated mining operations. The lower unconsolidated mining earnings in the second half of 2026 are due to reduced income from the Sabine Mining Company associated with the wind-down of reclamation services. In the Contract Mining segment, current quarter results benefited from the commencement of the Army Corps of Engineers Dragline services contract J.C. discussed.

This contract, combined with increased customer requirements and deliveries at the Limestone mining operations led to a 32% increase in revenues net of reimbursed costs and substantial year-over-year increases in both operating profit and segment adjusted EBITDA. During the quarter, Contract Mining changed its depreciation method for draglines and other large mining equipment from straight line to units of production to better align depreciation with asset usage. This change contributed approximately $900,000 to first quarter operating profit. As activity increases, particularly with the Dragline services project in Florida and the commencement of operations in Arizona, depreciation expense will increase accordingly, and we expect full year depreciation to be generally in line with 2025.

Looking forward, as a result of earnings contributions from new contracts and continued momentum from 2025 activities, we anticipate a substantial year-over-year increase in both operating profit and segment adjusted EBITDA at the Contract Mining segment. In the Minerals & Royalties segment, higher first quarter 2026 earnings from our Eiger equity investment mostly offset lower natural gas revenues, reflecting the benefits of our diversified portfolio and resulting in comparable year-over-year operating profit.

For full year 2026, we expect the increases in income from our equity holding, combined with higher oil prices will be more than offset by anticipated production declines in our natural gas assets and a changing mix of production and development activity, resulting in an overall year-over-year decrease in Minerals and Royalties operating profit and segment adjusted EBITDA. At the consolidated level, we anticipate meaningful year-over-year improvements in consolidated operating profit, net income and adjusted EBITDA in 2026. Excluding the effect of a $6 million after-tax pension settlement charge in 2025, we expect year-over-year growth to moderate in the second half of the year as anticipated results are compared against stronger prior year operational performance.

Looking at our liquidity. At March 31, we had outstanding debt of $126.4 million, up from $100.9 million at December 31, 2025. Our total liquidity was $102.7 million, consisting of $53.2 million of cash and $49.5 million of availability under our revolving credit facility. As a result of the anticipated capital investments, we expect a greater use of cash before financing in 2026 compared with 2025.

With that, I'll turn the call back to J.C. for closing remarks.

Thanks, Liz. To wrap up, our first quarter 2026 results reflect continued execution of our business model and the strength of our operations. As we move forward, we plan to build on this momentum through additional investments in our growth platforms that are expected to deliver improvements in profitability and cash generation. I am encouraged by our performance and remain confident in our ability to generate long-term value for shareholders.

We'll now turn to any questions you may have.

[Operator Instructions] And our first question comes from the line of Doug Weiss with DSW Investment.

So congrats on the good quarter. I guess starting with Mississippi Lignite. It sounds like the plant maintenance has been completed and it's back to business as usual.

Yes. Yes. The outage that occurred, the unplanned outage that occurred earlier in the year has been completed and the plant is actually running pretty well, which helps us because the best situation for us is to be mining at a steady rate so we can operate most efficiently. So that's a net positive.

Right. Is that plant -- are you able to say whether that plant is now providing attractive returns to its owners given the evolution of electricity markets?

We don't have a lot of exposure to the electricity side of that equation. So it would be -- I think it would be reckless for me to speculate on how exactly that's playing out right now. I mean generally, there's high demand for electrons that's supportive of prices. But you got to -- you'd have to work through the mechanics of the PPA that they have the power purchase agreement that they have with TVA in order to really figure out how that works. So, I just cannot -- private to those details.

On the contract on the North American mining, so you've had a contract to start this quarter and then you have a couple more starting through the year. Last year, I guess, there was a big drop-off in the second half, and I think that was partly weather related. Would you anticipate a more a steady sort of cadence through this year and even growth through the year?

Yes. I mean it's always subject to what could happen in the interim that would cause something to go directions we don't anticipate. But as we added, we're ramping up production at the new project in Palm Beach County, the U.S. Army Corps of Engineers project. We've got one dragline operating and another one is just on -- it's either just been commissioned or will be shortly. Third dragline is going to be in there later in the year. So, we're going to see increasing levels of production there in support of that project, which is great. Then in the second half of the year, we're going to start operating the dragline in Arizona, which is great. Those are the main 2 new contracts that we're layering on to our existing contracts this year.

And then you had a large -- sorry, one other question on North American Mining. In terms of how you account for capital expenditure on that division, what is the sort of decision point on whether something gets expensed in the quarter as opposed to allocated to capital?

Yes. I mean normal repairs and maintenance are expensed. If it's something that is going to benefit us over the long-term, like a dragline, rebuild on a dragline hub, those kinds of things that are expected to generate -- we're going to be able to use those over a longer period and they meet our capitalization criteria, we would capitalize those. So just general repairs and maintenance is expensed, other things are capitalized.

Major component, I guess, is the way you can think of it. For a large dragline, the tub is the base that the dragline sits on. These things, the big ones walk, which is fascinating in technology, but it sits and rotates on a tub. Others are on very large tracks kind of like you've seen on a mobile crane or a bulldozer kind of thing, operates on track. So large components get capitalized, everything else gets expensed.

If it's going to extend the useful life, it gets capitalized, I guess, is another way to it.

Like if you take a boom down and do a complete boom rebuild, that probably gets capitalized.

Then you had a large --

Doug, just on that point. We talk about the fact that we pursue contracts that may -- not all contracts have capital upfront, but we do contracts that have initial capital upfront when we may put a dragline in place or mitigation resources, we're buying mineral interest or sorry, in Minerals and Royalties for buying mineral interest, mitigation resources we might buy land. But generally, the maintenance CapEx that we have in our projects going forward is a low number as a percentage of the original. So I don't want you to think that any of these things that Liz was describing, tub repairs, boom rebuilds, I mean, they come up ever so often, but they're a small portion of the depreciation expense that we incur over the life of a contract.

And in terms of Thacker Pass, I believe that's supposed to ramp next year. Any -- I think lithium prices have come up quite a bit. Anything you're seeing there that's worth updating on?

I'm actually headed out there next week. The plant is progressing very nicely. We're doing initial work on mine development. We've got our office trailers established for the mine side will be, which is directly adjacent to the processing plant. I mean that project is moving along nicely. I look forward to being out there next week to see it. You're right, later this year, early next year is when we anticipate -- it's really late next year, and I'm off a year. It's late 2027 is when we anticipate making lithium deliveries to them, which they'll then be processing, but everything seems to be on target.

And they do a very nice job of updating their website with what's going on. So if you wanted to look there, they have that update.

They've done a great job giving the project updates.

And I think they just filed their annual report today. So probably good information out there.

Good. Yes, I'll check that out. Let's see. You had a large expenditure this quarter for mitigation resources. I think that's independent of your comments on buying land in Tennessee. What was the $32 million? What did that relate to?

So our total CapEx for the quarter was $33 million, right, Christy? That was made up of the purchase of land in Tennessee and expenditures on the drag lines for the project in Florida that we just discussed, the Army Corps of Engineers project. That's really what makes up that $33 million.

There are other things in there, too. That's not 100% of it, but it's certainly a majority of those expenditures are related to the land purchase for mitigation resources and the draglines for contract mining.

I see. And when you make a large land purchase like that, what's the payoff in terms of time? When do you start to see cash realizations from that?

I mean, the nature of our projects typically, there's always exceptions. But typically, we expect to get assets deployed pretty quickly and start generating cash returns. If you look at -- I'll give you one example in our minerals business, we, for the most part, look at projects that have payback -- complete payback within 5 years. And then these assets deliver for decades after that. So we always look at -- as we're measuring NPV and IRR on these projects, the speed with which you get your capital back is a big factor in all of this. And of course, as we discuss internally all the time, the faster we can get our capital back means we have capital that we can then redeploy into other assets, other contracts, other opportunities that build on this long-term business model that we've described in our investor deck.

And if you were asked about the Tennessee land, we had issued a press release when we acquired the land, and we noted that credits we anticipate will be available in 2029. There's a permitting that has to happen before the credits are available.

I see. I see. When you buy an asset, like does that improve the utilization of your heavy equipment that you're using to improve that land?

Yes. So within the Mitigation Resources business, when we started, we were just really doing the credits and contracting the dirt work. Very quickly, we realized that we should be doing our own dirt work because we can better control our costs and our schedule. And honestly, we're pretty good at what we do. So we established a business inside Mitigation Resources that we call NIPRA Services that does dirt work not only for Mitigation Resources own projects, but from time to time, we go identify -- that team identifies other restoration and reclamation projects that can be done for third parties.

So we're able to utilize the equipment. And this is smaller equipment. This is not like stuff that we would operate in big coal mines. This is smaller kind of things you can haul over the road. So we do not only our own work, we do work for third parties as well, which has turned out to be a really interesting business with a huge addressable market and I think a lot of opportunity.

Great. I guess last question on the minerals business. So given the increase in oil prices and appreciating that there's a lot of volatility in those prices, do you -- are you getting any indications on whether that's going to lead to more wells over the rest of the year in terms of your partners or?

Yes. I mean they, like everybody else, are watching what's going on with caution. Several years ago, we went through the period where all -- many of the producers were -- it's almost like an Internet business where it's all about the clicks. It was about how many rigs do they have going and how many wells we were drilling and not what was going on with their cash flows. And a bunch of them got burned by that. So amongst the more sophisticated producers, which are primarily the folks that we work with, they're being cautious not to get out over their skis by taking on too much debt or bringing in private equity money that they need in order to fund a huge drilling program.

Now I think that it's sustained. And look, I mean, I read the same stuff you probably read in the Wall Street Journal and other places. But if we have continued higher oil prices, they don't necessarily have to be at the level they are. Would that probably lead to future increases in development? It probably would. But I think they're all waiting to see how this plays out and what really happens to oil prices over the long-term. My own view is if all of a sudden somebody waved a magic wand in the Middle East and everything was settled, which I don't think is going to happen, oil prices are going to drop because the immediate stress will come out of the system. Oil will begin flowing more regularly. But I think there's going to be a risk premium added to global oil prices for quite a while.

And that's going to affect how people think about drilling in the Permian and other oil-producing regions in the United States. Purely my opinion based on what I've been reading, but it feels like how it plays out. And ultimately, that should be good for the oil reserves that we own. I think ultimately, that spills over into natural gas to some extent, although we really haven't seen much movement in natural gas prices thus far, even though what's going on in the Middle East has disrupted LNG shipments.

But my own opinion is, over time, this is a positive for U.S. LNG exports. And we're heavily weighted toward -- we're less heavily than we used to be, but we're still significantly weighted towards natural gas. So ultimately, that should play into a really nice long-term benefit for our natural gas asset.

Congrats on the good quarter.

We'll talk to you next quarter. We appreciate your interest and your questions.

[Operator Instructions] And with no further questions in queue, I'll now hand the call back over to Christie for closing remarks.

Okay. Thank you. We'll conclude our Q&A session. Before we wrap up the call, I'd like to provide a few reminders. A replay of our call will be available online later this morning. We will also post a transcript on our website when it becomes available. If you have any questions, please reach out to me. My phone number is on the press release. I hope you enjoy the rest of your day, and I'll turn it back to Tina to conclude the call. Thank you.

An audio recording of the event will be available via the Echo Replay platform. To access the platform by phone, please dial in using one of the numbers listed and input playback ID 1-6-1-0-2-0-3 followed by the pound key. The replay will expire on Wednesday, May 13th, 2026 at 11:59 p.m. Thank you very much for joining us today. This does conclude today's conference call. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the NACCO Industries 2025 Fourth Quarter and full year earnings call. [Operator Instructions].

It is now my pleasure to turn the call over to Christina Kmetko, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for today's 2025 Fourth Quarter and Full Year Earnings Call. I'm Christina Kmetko, and I'm responsible for Investor Relations at NACCO. I'm joined today by NACCO's President and CEO, J.C. Butler, and Senior Vice President and Controller, Elizabeth Loveman.

Yesterday evening, we announced our fourth quarter and full year results and filed our 10-K with the SEC. Both documents are on our website for your reference. We'll refer today to several non-GAAP metrics to give you a clear picture of how we think about our business. Reconciliations to GAAP can also be found on our website.

Before beginning our discussion, let me remind you that today's remarks will include forward-looking statements. As always, actual outcomes may differ materially due to various risks and uncertainties, which are described in our earnings release, 10-K and other filings. We undertake no obligation to update these statements. With those quick notes out of the way, I'll turn the call over to J.C. for his opening remarks. J.C.?

Thanks, Christy, and good morning, everyone. Before I begin, I'd like to take a moment to discuss an incident that happened at one of our Florida operations. The safety and well-being of our employees has always been a cornerstone of our company's values. Despite this focus, a tragic incident in December resulted in the loss of 2 employees. This loss deeply affected us, and we extend our heartfelt condolences to the family, friends and colleagues of these 2 individuals. This is a solid reminder of the importance we place on protecting the well-being of our people every day.

In the aftermath of this tragedy, we are actively reinforcing our safety expectations across the organization. Our employees are the nucleus of our success and their safety will always come before all else. I'll now discuss our operating performance. We delivered a strong close to 2025. Our fourth quarter operating profit rose 95% over last year and almost 12% sequentially. All 3 of our reportable segments reported improved year-over-year results led by a significant increase in the Utility Coal Mining segment Overall, we continue to build upon the improving profitability and growth we experienced in the third quarter, highlighting the second half that overcame operational challenges experienced during the first half of the year.

We disclosed over the past several quarters that we were terminating our pension plan during the fourth quarter, and I'm happy to report that we have now successfully settled all future pension obligations. As a result of completing this process, we recognized an after-tax termination charge of $6 million. This charge and an increase in tax expense, which Liz will explain in more detail, contributed to our reported fourth quarter net loss of $3.8 million.

These transactional anomalies aside, I feel good about our underlying operating results, which contributed to the 59% year-over-year and 14% sequential increases in adjusted EBITDA. I believe these results represent a business delivering on its potential. Our utility coal mining segment, which features long-term mining contracts remains the foundation of our business. I'm pleased to say that our utility coal mining segment reported a gross profit this quarter after a number of quarters of losses.

For more than a year, I've discussed Mississippi Lignite's unfavorable contract mechanics that resulted in a lower per ton sales price that unfavorably affected results. The team at Mississippi Lignite Mining Company has worked diligently to mine efficiently and control costs. And this quarter, the mine produced and sold more tons. And as a result, benefited from higher production efficiency and a lower cost per ton sold. Production also outpaced deliveries in the period, leading to certain production costs to be capitalized into inventory. These factors drove the current quarter -- the current quarter gross profit compared to the prior year loss when results were affected by a significant inventory write-down.

I'd like to be able to say the results at Mississippi Lignite Mining Company are moving in the right direction now. especially with an anticipated increase in the contractually determined price per ton. However, the customer's power plant began a maintenance outage in mid-February, which is affecting first quarter demand. The power plant is expected to resume operations in mid-March. We are expecting year-over-year improvements at Mississippi Lignite Mining Company in 2026, but any delay or further changes in demand or dispatch or any reduced power plant mechanical availability could alter our expectations.

Our Contract Mining segment continues to benefit from ongoing progress on operational and strategic initiatives designed to enhance profitability. -- improved margins, driven largely by contracts executed in recent years and other growth initiatives led to an increase in this segment's year-over-year operating performance. This segment remains our growth platform for mining. Through continued geographic and mineral expansion, we are building a growing portfolio of long-term contracts that strengthen the foundation for sustained profitability.

As I mentioned during our Q3 earnings call, we secured a multiyear dragline services contract as part of the U.S. Army Corps of Engineers Dam construction project in Palm Beach County, Florida. This project is already starting to ramp up. We are excited about this opportunity as it advances our growth into large-scale infrastructure projects -- this project also provides an opportunity to showcase the efficiency and environmental advantages of the new electric drive MTECK draglines. We also anticipate commencing operations at a new limestone quarry in Arizona in 2026.

Turning to Minerals and Royalties. This segment grew year-over-year. Royalties from our legacy natural gas assets benefited from higher prices and production, more than offsetting the impact of lower oil prices and production. The Catapult team continues to actively pursue additional investment opportunities to support future growth in earnings.

At Mitigation Resources, we expect increasing profitability over time from the sale of mitigation credits and its reclamation and restoration services expand. While performance is currently variable due to permit and project timing, mitigation resources is expected to generate a profit in the second half of 2026 and move toward more consistent results over time as the business expands. We continue to invest in our businesses to drive future growth. Again, in 2026, we anticipate making significant capital investments. The majority of these planned expenditures relate to business development opportunities and we will only make those investments if the projects meet our strict investment criteria.

Overall, I continue to believe we are well positioned for meaningful growth. We are entering 2026 with clear opportunities to build on our 2025 momentum as we execute our growth strategies and create long-term values for our shareholders. Our approach is rooted in long-term contracts and investments which continued to deliver strong earnings and steady cash flow for compounding annuity-like returns. We executed on this strategy over the past decade and momentum continues to build. I remain confident in our businesses and in our ability to deliver strong 2026 results and continued progress in the years to come.

Before I turn the call over to Liz, I'd like to say thank you to all of our employees. Our team delivered strong 2025 fourth quarter and full year earnings, and their hard work and commitment will enable us to continue to deliver in the future. We have an incredibly strong team across the company, and I am proud of the work that they do. With that, I'll turn the call over to Liz to provide a more detailed view of our financial results and outlook. Liz?

Thank you, J.C. I'll start with some high-level comments about our consolidated fourth quarter financial results compared to 2024. In the 2025 fourth quarter, we generated consolidated gross profit of $12 million an increase of 42% year-over-year, while our fourth quarter revenues of $66.8 million increased 5%. We reported consolidated operating profit of $7.6 million up from $3.9 million in 2024, driven by improvements at all 3 of our reportable segments. These favorable results were partly offset by higher unallocated expenses.

Consolidated adjusted EBITDA increased 59% to $14.3 million versus $9 million for the same period last year. As J.C. discussed, we completed the termination of our pension plan, and as a result, recorded a $7.8 million noncash pension settlement charge or $6 million after tax. This charge, combined with the fourth quarter true-up of tax expense to the full year effective tax rate resulted in a net loss for the quarter of $3.8 million or $0.52 per share. This compared to net income of $7.6 million or $1.02 per share in 2024.

Moving to the individual segments. The Utility Coal Mining segment reported operating profit of $7.2 million in 2025, a significant increase over the $2 million generated in the 2024 fourth quarter. Segment adjusted EBITDA increased to $9.7 million from $4.2 million in the prior year. These year-over-year improvements were driven by the stronger operating performance at Mississippi Lignite Mining Company that J.C. discussed.

Lower general and administrative employee-related expenses also contributed to the higher segment operating profit. Looking ahead, we expect an increase in operating profit in 2026 compared with 2025. Improvements at Mississippi Lignite Mining Company as a result of an increase in the contractually determined per ton sales price are expected to be partly offset by lower earnings at the unconsolidated mining operations. The lower unconsolidated mining earnings are due to reduced income at the Sabine Mining Company associated with the wind down of reclamation services.

In the Contract Mining segment, revenues net of reimbursed costs grew 9% over the prior year, primarily driven by higher part sales, partly offset by increased volumes of lower priced tons. Operating profit of $900,000 and segment adjusted EBITDA of $3.3 million were comparable to the prior year. Improved margins at the mining operations and an increase in parts sales were offset by a $1.1 million loss contingency and lower related employee-related expenses.

The loss contingency is related to costs associated with the incident J.C. discussed previously. Looking forward, higher customer demand, earnings contributions from new contracts and continued momentum from 2025 activities are expected to lead to a significant year-over-year increase in results in 2026.

The Minerals and Royalties segment delivered year-over-year growth in revenues, operating profit and segment adjusted EBITDA due to increased royalty revenues driven by improved natural gas pricing and increased production volumes. These benefits were partly offset by lower royalty oil revenues resulting from reduced oil prices and volumes. Lower employee-related expenses and higher earnings from an equity investment also contributed to the year-over-year profit improvement.

At the Minerals and Royalties segment, newer investments are expected to contribute favorably to 2026 results. However, commodity price forecasts as well as development and production assumptions are expected to result in an overall year-over-year decrease in operating profit and segment adjusted EBITDA, particularly in the second half of the year. It is important to note that our forecast was developed prior to the recent developments in the Middle East. Any significant changes in commodity prices or production as a result of this conflict could change our expectations for 2026. Overall, we anticipate meaningful year-over-year improvements in consolidated operating profit, net income and EBITDA in 2026.

Turning to our liquidity. For the 2025 full year, we generated cash from operations of $50.9 million compared to $22.3 million in 2024. At December 31, we had outstanding debt of $100.9 million, up modestly from $99.5 million at December 31, 2024. Our total liquidity was $124.2 million, which consisted of $49.7 million of cash and $74.5 million of availability under our revolving credit facility. As a result of the anticipated capital investments in 2026, we expect a use of cash before financing greater than in 2025.

With that, I'll turn the call back to J.C. for closing remarks. J.C.?

Thanks, Liz. Thanks, Liz. To wrap up, I remain confident in our trajectory and long-term opportunities. Our businesses provide critical inputs for many industries. As the need for uninterrupted energy grows, industry fundamentals for natural resources are expected to continue to strengthen, reinforcing the critical need to keep existing reliable baseload resources online.

In 2026, the National Coal Council, which is an advisory committee to the U.S. Secretary of Energy was reestablished. This council is focused on advising the Department of Energy on reinforcing coal's strategic role in U.S. energy policy and providing actionable advice on sustaining coal plant operations and prioritizing coal to support grid reliability, which supports our country's economic competitiveness and national security.

The reestablishment of this council and the underlying improving regulatory environment reinforce my confidence in our prospects for 2026 as well as our overall business trajectory and longer-term growth opportunities. The building blocks for durable compounding growth at NACCO are firmly in place. Our team is focused on execution, operational discipline and delivering long-term returns for shareholders.

We'll now turn the call over to any questions you may have.

[Operator Instructions]. Our first question is from the line of Doug Weiss with DSW Investments.

I guess starting with the coal division. Can you quantify how much the step-down in Sabine work is?

We have not quantified that number.

I mean, Doug, what I would say -- Doug, I think what I'd say is when the mine and the plant we're operating, and we're delivering coal. That was the highest level of income that we received from Sabine. As we step down into reclamation, that appropriately because we're scaling down the amount of work, that fee was reduced as we exit that situation it will -- that's when it goes away. So it's not -- I just want you to know that it's not going from like full-bore production level, which we had a couple of years ago to 0. It's stepping down from a lower level.

Right. Okay. And at the same time, you get your price index goes up this year, right?

Yes. You're speaking at Red Hills at Mississippi Lignite Mining Company that yes, we believe it's based on what happens to indices month-to-month, but we believe that we're going to see an increase in price during the course of the year.

Okay. And does that flow in -- is that weighted towards -- is there a seasonal element to that when that really starts to benefit you?

It's a formula that compares current prices for relevant indices to prior indices. So it's tracking movements over a 1- and 5-year period. And so just as we look at what was happening in the prior periods and what our expectations are in the future periods, we're able to develop a forecast. There's not really a seasonal component to price However, there is generally a seasonal component to deliveries in -- particularly in the South, power plants operate at their heaviest level in the winter when it's cold in the summer when it's hot, and the shoulder seasons typically don't operate at the same high level.

Okay. Yes. Sorry, seasonal was a bad choice of words. I really just meant when in the year do you really start to see the benefit from that index reset?

Yes. It's really just going to depend on how the indices play out over time. I think we've mentioned before that petroleum is represented in the basket of indices and who knows how that's going to play out with what's going on in the Middle East, but very difficult to forecast that at this time. Obviously, when we developed our forecast, we didn't know that this Middle East situation was going to develop.

I see I mean, could that create kind of a windfall situation given the spike in oil prices?

I mean, look, I think we could play out lots of scenarios. I think you could say spikes in various things are going to drive the price up. But we can also see things happen in the market that cause some of those indices to drop as well. So I think it's really hard to forecast. I mean every day, you pick up The Wall Street Journal and you can read even in just 1 newspaper various views of how this might play out with respect to petroleum prices and inflation and interest rates and all the other stuff.

Well, and I had understood from your previous comments that it wasn't actually the wholesale petroleum price, it was more of the diesel price at the pump. Is that true or did I misunderstand there?

So the price is based on published indices. So it's not like we drive by the local gas station and see what diesel is selling for. It's -- they're nationally, federally published indices.

Okay. All right. Well, I got you. I guess moving on to contract mining -- how large is the -- I know you probably don't want to quantify it, but just relative to a typical contract is the Army Corps of Engineers contract?

It's a significant contract. We're very excited about the opportunity. As we mentioned, it's an opportunity for us to apply our skills in a new market instead of mining aggregates, they are going to be used either in a cement plant or sold as crushed aggregates or sand or gravel. This is an opportunity to go use our skills for infrastructure projects. So it's a pretty sizable project for us, and we're excited about the new opportunity and the partnership. And what's the timing of that in terms of when that starts and when it gets up to full production? We are already ramping up production. I don't actually know when it gets to full production. Liz, do you know that?

I think it's going to depend a little bit on the timing of getting the additional dragline sections. But it will ramp up throughout this year.

Yes, it's going to ramp up throughout the year. And it will be full steam ahead. One of the things that I find interesting about this project, and I think we all are encouraged or excited by this feature is this is not a contract where we're delivering aggregates. We're mining aggregates for a customer that's responding to customer demand. This is a contract where we've been asked to go in and move x amount of material. And obviously, we have to work in coordination with our customer to do that. but this isn't a contract that's got any exposure to market forces. So I think it's a pretty predictable nice contract for us.

Yes. Do you think there's an opportunity to add more business like that?

Well, we don't know, but I think we hope so.

Yes. Okay. And how about Phoenix, how substantial is that new business?

I mean that also is a nice contract. It's a sizable drag line that we've moved out there. As you know, Phoenix is just exploding with growth. So it seems like lots of potential there.

Okay. Interesting. You gave your capital targets, your capital expense targets. I guess 2 questions on that. Well, I guess I'll start -- just -- I'll break them up. On the first one, is it reasonable to think that, that capital will be allocated in a manner similar to 2025 in terms of the divisional breakout?

You mean like the pie chart of CapEx?

Yes. Like how much is going to mining and how much is going to oil and gas?

Well, I mean, I guess I'd break that down by saying we -- I mean, we're really clear that we budget $20 million of investment capital for our Minerals business. And there's nothing saying that we have to spend that $20 million. It's just what we put in our budget. So we spend $20 million -- and if we do great, if we don't, that's okay, too. We're only going to spend it if we find the right projects. So that's kind of a fixed number generally. The total that we published is a pretty big number. And we said that the majority of what we're going to spend is with respect to growth.

So I think it really determines how those opportunities play out. I think we do disclose a breakout in the 10-K. Liz can probably hear point us to that in a second. But ultimately, this is going to depend on what opportunities do we really find.

If you're talking about our forecast, it's in the 10-K, if you want to talk about where does it actually get spent. And it really is dependent upon what projects we find and which ones meet our investment criteria. I think we've been really clear about how we think about deploying capital and if we don't meet our investment criteria, then we just don't invest.

Right. So in terms of the...

You can find the break out in the 10-K in our MD&A, where we have a discussion of 2025 actual and 2026 planned CapEx.

Okay. Okay. Great. In terms of the Army Corps of Engineer work and the Phoenix work, I mean, that capital has already been spent, right? So this would be capital for new contracts. Is that right?

There is some additional capital for the Army Corps of Engineers project. That's going to end up being a 3-dragline project. And so we're still getting the final draglines commissioned in order to constructed and commissioned in order to do that project.

Okay. Would you be able to say about how much is left on that project?

We haven't disclosed that. I mean it's included what we'd spend in 2026 is included in the $36 million we have for the contract mining segment.

So that number is in the $36 million.

Yes. Okay. I guess, in terms of allocating to the Minerals segment, does Eiger give you a good -- do you have an opportunity to continue to invest capital in that operation? And is that an attractive use of your capital as they expand?

Well, I mean a couple of pieces of that. We think it's a very attractive use of our capital. That's why we invested an additional amount in their operations. I think -- and we're very enthusiastic about the investments that we've made with them. I think it's a great piece of our minerals and royalties platform.

The work that they're doing, I think, is for the most part funded. So I don't -- one, I don't know that there would be additional opportunities to invest -- but I also think we want to pay attention to diversifying our investments. The whole premise of Catapult is our Mineral segments as we started with a highly concentrated investment in Appalachian natural gas assets. And the goal here is diversify into other basins and other minerals.

Eiger is a piece of that, taking more Eiger think is more concentration as opposed to more diversification, which is our primary goal. Now I'm not going to rule out that we'd ever invest more in Eiger. But I'd say, generally, we're more in line. We're more likely to end up investing in mineral and royalty interest like we have in the past.

Okay. If you hit that capital target, my guess is you're going to be somewhat cash negative for the year. Do you have a leverage level where you feel -- where you get uncomfortable or where you're willing to go up to?

Well, I don't ever want to get to a level where I start to feel uncomfortable. We talk often about our desire to have a conservative financial structure. As we've discussed we've been through a period of investing in all these businesses, and we believe that we're entering a period of significant harvest -- invest in harvest business model.

So one, we don't know that we're going to spend the entire $89 million. And two, we're going to watch our level of harvest that's going on during the year, and we will certainly manage in an appropriate way so that we don't ever get to a point where we're having a call. And I'm a little uncomfortable with where we are in our leverage. I don't want to get there.

Yes. Okay. I guess last question for me is just on mitigation resources? So is most of the revenue in the unallocated line? Is that mostly mitigation resources?

Yes.

Okay. And how are you feeling about that business in terms of growth? And I saw that you said it would be profitable at the end of the year. Is that something you expect to continue go forward into next year?

Yes. Yes, we expect it to reach profitability and grow from there. the mitigation banks, there's 2 parts to that business. One is the mitigation banking business. Speaking of invest and then harvest. We've identified properties in high-growth areas in some instances, we'll acquire property with opportunity to improve the streams and/or wet lands on that property. And you get permits approved with the Army Corps of Engineers, and then there's basically a 10-year process where we do work that would involve improving the streams and/or wet lands and then monitoring and you receive credits, we know upfront, how many credits we're going to get.

And the mitigation banks that we've already got in place have a very large value of credits that are going to be released from them over time. So we've got a pretty good horizon on the call it, credit inventory that we will be able to sell in the future from -- or just our existing credits.

Now that's all subject to timing because obviously, you've got to get through the Army Corps of Engineers upfront permitting process, then you've got milestones that we need to hit with the work that we're doing. We're confident that we can be successful with that. But then you also got what are customer projects, what's their timing look like? When do they get their Army Corps permits and how does their development proceed. So we think all of this is moving in a positive direction, and we will continue to do so in the future. And all of that gets mixed in with shorter-term reclamation and restoration projects that we're finding really nice success in that part of the business. So you blend those 2 together, and we think this business is on a really nice trajectory that will really start taking hold later this year.

Okay. Great. Well, nice quarter and glad to see things continue to go well overall. And so thank you for your hard work and for taking my questions.

Great. Doug, we always appreciate your questions. Thank you for your interest.

And with no further questions in queue, I will now hand the call back over to J.C. for closing remarks.

This is Christy. With that, I'll conclude our Q&A session.

Before we conclude, I'd like to provide a few 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. My phone number is in the press release. I hope you enjoy the rest of your day, and I'll now turn the call back to Tina to conclude.

An audio recording of the event will be available via the Echo Replay platform. The Echo Replay will expire on Thursday, the 12th March 2026 at 11:59 p.m.

This does conclude today's conference call. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the NACCO Industries Third Quarter 2025 Earnings Conference Call. [Operator Instructions]

It is now my pleasure to turn the call over to Christy Kmetko with Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for today's third quarter 2025 earnings call. I'm Christina Kmetko, and I oversee Investor Relations here at NACCO. I'm joined by our President and CEO, J.C. Butler; and our Senior Vice President and Controller, Elizabeth Loveman.

Yesterday evening, we released our third quarter results and filed our 10-Q with the SEC. Both are available on our website for your reference.

Before we get into the results, let me remind you that today's discussion will include forward-looking statements. As always, actual outcomes could differ materially due to various risks and uncertainties, which are outlined in our earnings release, 10-Q and other filings. We undertake no obligation to update these statements.

We'll also be referencing certain non-GAAP metrics to give you a clear picture of how we think about our business. Reconciliations to GAAP can be found in the materials we posted online.

Lastly, as a reminder, during the second quarter, we changed the names of our reportable segments. Coal Mining was renamed Utility Coal Mining. North American Mining is now Contract Mining and Minerals Management was renamed Minerals and Royalties. Segment composition and historical reporting are unchanged.

With the housekeeping comments complete, I'll turn the call over to J.C. for his opening remarks. J.C.?

Thanks, Christy, and good morning, everyone. I'm happy to report that our third quarter operating profit of almost $7 million improved sequentially from very disappointing second quarter breakeven results.

Our Q3 2025 EBITDA increased to $12.5 million, up from $9.3 million in Q2. This sequential increase was driven by improvements in all segments and demonstrates solid progress in growing our businesses and boosting our profitability.

I'm pleased we were able to overcome most of last quarter's temporary operational challenges to deliver these solid third quarter results.

Our Utility Coal Mining segment is the foundation of our business, anchored by our long-term mining contracts. We continue to have solid demand in our unconsolidated coal mining operations.

However, Mississippi Lignite Mining Company's results continue to be impacted by contractual pricing mechanics that are creating a reduced per ton sales price. The team is working diligently to run the mine as efficiently as possible to meet demand while keeping costs at a minimum, but they cannot outrun the contract mechanics.

We anticipate that this contractual pricing anomaly will begin to rectify itself as we move into 2026.

In our Contract Mining segment, which is operated by North American Mining, tons delivered grew 20% year-over-year and 3% sequentially. Higher customer demand and improved margins at the mining operations led to substantial improvements in both year-over-year and sequential results.

These improved results stem in part from contracts negotiated in recent years and other growth initiatives for this business. Our Contract Mining segment is our growth platform for mining and we continue to add long-term contracts to its expanding portfolio.

We provide contract mining services for several of the top 10 U.S. producers of aggregates and our expanding pipeline of potential new deals is strong. We believe this positions our Contract Mining segment as a core driver of future growth.

Just last week, North American Mining executed a multiyear contract to provide dragline services for an embankment dam construction project in Palm Beach County, Florida, that is expected to be accretive to earnings beginning in Q2 2026.

We are excited about this contract as it advances our growth into large-scale infrastructure projects. It also provides an opportunity to showcase the efficiency and environmental advantages of the new electric drive MTECK draglines, a key factor in our selection for the project.

These new MTECK draglines enhance efficiency and uptime for our customers. We're an exclusive dealer for MTECK draglines in all the 2 U.S. states.

Turning to our Minerals and Royalties segment. Catapult completed a $4.2 million strategic acquisition in July, which expands our mineral interest in the Midland Basin.

The acquisition includes a mix of producing wells as well as additional upside opportunities through future development with existing operators in that region. The Catapult team continues to look for additional investment growth opportunities that will be accretive to earnings.

Mitigation resources, a strong reputation and clear competitive strengths are supporting continued expansion into new markets. Although the business continues to be variable in performance due to permit and project timing, it is expected to achieve full year profitability in 2026 and more consistent results over time as new projects are secured. Overall, I believe we are well positioned for meaningful growth.

Our business model is built on long-term contracts and investments, delivering strong earnings and steady cash flows that will help us deliver compounding annuity-like returns over time. We followed this approach over the last decade and momentum continues to build.

That's why I'm confident in these businesses and our ability to deliver solid 2025 fourth quarter operating results with continued progress into 2026 and beyond.

Our long-term strategy is laid out in our latest investor presentation. A copy of that presentation is on our website, along with recording from the end of August when we attended an investor conference in Chicago.

In this presentation, we explained how we have built a portfolio of strong businesses focused on compounding growth and we describe our strategies for achieving our long-term target of $150 million of annual EBITDA in the next 5 to 7 years. If you've not seen that presentation, I encourage you to review it after this call.

With that, I'll turn the call over to Liz to provide a more detailed view of our financial results and outlook.

Thank you, J.C. I'll start with some high-level comments about our consolidated third quarter financial results compared to 2024. Then I'll discuss the results at our individual segments.

Consolidated revenues were $76.6 million, up 24% year-over-year, while gross profit of $10 million improved 38%. While consolidated earnings improved sequentially, as J.C. mentioned, they decreased compared with the prior year third quarter due to the 2024 $13.6 million benefit from business interruption insurance recoveries.

Our third quarter 2025 operating profit was $6.8 million, down from $19.7 million last year. Excluding the insurance recovery income, the underlying consolidated operational performance overall was stronger with a net improvement in operating results.

Substantial year-over-year operating profit improvements in our Contract Mining and Minerals and Royalties segments more than offset lower results in the Utility Coal Mining segment and an increase in unallocated expenses.

We reported third quarter 2025 net income of $13.3 million or $1.78 per share versus $15.6 million or $2.14 per share in 2024. Significant favorable tax effects in the current quarter helped minimize the decline in net income. EBITDA was $12.5 million versus $25.7 million for the same period last year.

Moving to the individual segments. At the Utility Coal Mining segment, the decline in operating profit and segment adjusted EBITDA was primarily driven by the 2024 insurance recoveries that I've just mentioned.

The underlying Mississippi Lignite Mining Company business results were also affected by a reduced contractually determined per ton sales price in 2025. Looking ahead, we anticipate steady customer demand for the remainder of 2025 and in 2026 at our unconsolidated mining operations.

At Mississippi Lignite Mining Company, fourth quarter 2025 results are expected to improve over 2024 due to operational efficiencies. However, this improvement is not expected to offset the effect of the reduction in the 2025 contractually determined per ton sales price, causing Mississippi Lignite Mining Company and the Utility Coal Mining segment's 2025 full year results to decline compared with 2024.

We expect improving profitability in 2026, driven by anticipated improvements at Mississippi Lignite Mining Company in both sales price and cost per ton delivered, particularly as the customers' power plant is able to operate more consistently and formula-based pricing improves as expected.

In the Contract Mining segment, revenues net of reimbursed costs rose 22%, driven by higher customer demand and increased parts sales. Improved margins at the mining operations and increase of part sales and lower operating expenses led to significant increases in both operating profit and segment adjusted EBITDA.

Operational efficiencies, partly offset by elevated operating expenses are expected to lead to improved 2025 fourth quarter profits in the Contract Mining segment with momentum accelerating into 2026. These factors, combined with earnings from the new contract J.C. mentioned, are expected to lead to a significant increase in year-over-year results.

At the Minerals and Royalties segment, operating profit and segment adjusted EBITDA increased year-over-year, primarily due to an improvement in earnings from an equity investment and increased royalty revenues, mainly driven by higher natural gas prices.

Looking forward, Minerals and Royalties operating profit and segment adjusted EBITDA for the 2025 fourth quarter are expected to decrease compared with 2024, primarily driven by current market expectations for natural gas and oil prices as well as development and production assumptions.

While fourth quarter 2025 results are projected to decline, full year operating profit is expected to increase over 2024, excluding a $4.5 million gain on sale recognized in the 2024 second quarter.

In 2026, operating profit is expected to increase modestly over 2025 as income from Catapult's newer investments is expected to be mostly offset by reductions in earnings from legacy assets.

Overall, we anticipate consolidated operating profit for the 2025 fourth quarter to be comparable to the prior year quarter. Full year operating profit will be lower than 2024 due in part to the 2025 second quarter breakeven results.

We're also terminating our pension plan during the fourth quarter, which will simplify our financial structure going forward. While the plan is overfunded, the termination will trigger a noncash settlement charge.

The pension settlement charge and lower operating profit are expected to lead to a substantial year-over-year decrease in net income and EBITDA compared with the 2024 fourth quarter and full year. We expect meaningful year-over-year improvements in both operating profit and net income in 2026.

From a liquidity standpoint, at September 30, we had total debt outstanding of $80.2 million, down from $95.5 million at June 30 and $99.5 million at December 31, 2024. Our total liquidity was $152 million, which consisted of $52.7 million of cash and $99.3 million of availability under our revolving credit facility.

During the quarter, we paid $1.9 million in dividends. And as of September 30, 2025, we had $7.8 million remaining under our $20 million share repurchase program that expires at the end of 2025.

We are forecasting up to $44 million in capital spending for the remainder of this year and up to $70 million in 2026. Most of this is earmarked for new business development. As our returns from previous investments start to materialize, we expect cash flows to improve over the prior year. In 2026, we expect cash flows to be comparable to 2025.

With that, I'll hand it back to J.C. for closing remarks.

Thanks, Liz. To wrap up, I have a lot of confidence in our trajectory and our future. We are operating in an increasingly favorable environment. There is strong and growing demand for energy and for the products and services that we provide. Recent government support is also helping to strengthen all of our businesses.

I believe the building blocks for durable compounding growth at NACCO are firmly in place. Our team is focused on execution, operational discipline and driving long-term returns for shareholders.

We remain confident in our ability to deliver sound fourth quarter 2025 operating results with momentum building as we move into 2026.

With that, we'll now turn to any questions you may have.

[Operator Instructions] Our first question comes from the line of Doug Weiss with DSW Investments.

So congrats on a good quarter. I guess starting with the Contract Mining segment. If I just look in your financial filings, you ascribed about $200 million of asset value to that segment.

So it looks like at the moment, the ROIC is a little below your targets of mid-teens ROIC. I'm just curious, is that a function of how the contracts were priced historically? And going forward, you think you've made changes that will address that? Or are there other factors you would point to?

Yes. Good question. I would say that there's a little bit of I guess I'd call it timing. There's both past and future in there. You've got assets that are attributed to projects that we're working on contracts we've got that are fully operational and delivering full levels of profitability.

There's also assets in that segment with respect to things that are yet to deliver. We've talked about the long-term nature of these projects and they tend to be invest and then harvest kind of projects where if we do put capital upfront, it's because we're going to earn returns later.

I guess that one place I would point in the Contract Mining segment is the Sawtooth mine in Northern Nevada, where we've agreed to commit some of the initial capital for equipment. We get repaid for that over time.

But that project isn't going to really fire up and start delivering full levels of profitability until, I think, end of 2027 is when we expect to start delivering lithium. '28, '29, beyond that, I mean, this thing -- this is going to be a great project for us.

So some of the capital that you're seeing in that total asset number includes things like that. I mentioned Sawtooth. It's not the only one.

I guess the other one I'd point out is we just -- yesterday, was it yesterday we released the announcement about the [ FAO ] project?

Tuesday.

Tuesday. Two days ago already. We announced -- we issued a press release for a new project that we signed up in Florida, which we mentioned in our comments. We've got some capital committed there as well and that's going to start delivering profitability early next year.

So it's a bit of a mismatch between the assets that are there and the current profitability of the business. In all honesty, I think that's -- given the way we're growing the business and continuing to grow the business with these long-term projects, I think there will probably always be a bit of this mismatch in those metrics when you look at them purely on a period basis.

Liz, do you have anything you'd add to that?

No, I think that is a good description.

Does that make sense?

Okay. It does, it does. And then you've traditionally done dragline work, but you've -- Sawtooth, I believe, is surface work. And I'm curious, are the economics any different as you move outside of dragline? And do you have a desire to -- do you have a preference between those types of projects?

Well, let me get to the preference piece at the end because I've got to think about that. So the Contract Mining segment is really mining services for things that are not coal or not coal related to energy generation.

And you're right, there's one piece of the business. 15 years ago, we called it Florida dragline operations and it was using draglines to mine aggregates that were underwater for aggregates producers. Over the last 10 years, we've been expanding that. But really, we can kind of do any kind of mining.

When you think about the very comprehensive scope of what we do in our coal mining operation, we can run draglines. We can do truck shovel operations for people. We run virgin surface miners.

And as you get to Sawtooth, we're going to run the entire mine. Now there's no dragline at Sawtooth and there won't be. But it's much more akin to one of our surface mines where we're doing everything from start to finish with respect to the mining. That's different than the dragline operations where we are just running a single piece of equipment.

We're really happy to deliver whatever kind of services a customer needs. Really, our preference is that we find a partner that's a good long-term partner where we can really be an integrated part of their operations.

When you think of all of those things that we do in the Contract Mining segment, we're part and parcel of what happens with each customer's project. And if that's running a dragline, that's fine. If it's running lots of equipment, that's fine, too.

I would say that the more work we do at a given location, the more opportunities we have to get paid for our service since we really are, at the end of the day, a service company. But it's really more about finding the right partners and the right projects than having a strong preference for one model over the other. Happy to grow in any way.

I would also add that our fee would be commensurate. If we bring capital to the table, we would structure our fee to cover the cost of that capital.

Yes, that's fair. If we're operating somebody else's equipment, we're going to have a lower fee there. If we bring capital, obviously, we need to be compensated for the capital we're bringing. Good point, Liz.

Right. I mean, in terms of your new business development, do you have a sales force that -- like your typical person out there in the field, are they -- do you have people who are entirely focused on aggregate and people who are focused on non-aggregate opportunities? Or does everyone sort of cover everything?

We operate with sort of a one-team approach, very much a one-team approach. So anybody that's out in a business development effort knows that they have specific things that they can offer as well as comprehensive things they can offer because as a good example, the [indiscernible] project we just signed up in Florida, we're going to be operating draglines there to build this embankment.

But to the extent that that project needs assistance or wants advice from any other part of the business, we'll be there in a heartbeat no matter whether they're in the environmental part of the business, Mitigation Resources or an expert from North American coal.

So our business development people really are very well informed and well educated about the range of capabilities that we have. And we approach each project and each potential customer with kind of a -- it can be specific or it can be very broad in terms of what they need.

Okay. In the Utility Coal segment...

Sorry, just one more thing I would add. We think that that approach helps us identify and secure more projects than if we're very specific. If you're -- I don't really think of any of our people as salesmen given the long-term nature of it.

I think it's more like business development. But we believe that if they're focusing broadly on solutions that we can provide for potential customers, we're more likely to come up with success as opposed to having somebody focused on one specific area, they might not be addressing the larger opportunities that might reside with that potential customer.

I mean, so if you were to just look out 5 years from today, I mean, I think today, you're predominantly aggregate mining plus Sawtooth and then you had the phosphate opportunity and this new opportunity. And maybe there are others that I'm not aware of.

But if you look 5 to 10 years from now, would you see the business as more diversified? Or would you still see aggregates as the predominant end customer?

Well, you're really talking about the pie chart of what's the mix of business. I think 5, 10 years from now, the pie chart is going to be a lot bigger.

We're going to have a lot more projects given the opportunities that we're seeing on the horizon. And I would just add that as we expand the areas of the country where we operate and we expand the range of equipment and the customers we have, well, that just creates more opportunities to touch people and get to know people in various areas.

So I think we're going to see an increasing range of opportunities just because we're operating in more areas. I think that the aggregates piece is going to continue to be a substantial part of the business.

We operate equipment for some of the very largest aggregates producers in the United States and we continue to find new business for them. So I think that's going to continue to grow. I also think that we're going to continue to find more opportunities, perhaps even an increasing pace of new opportunities that are broader than just mining aggregates for aggregates production.

You look at the [ Fail ] contract, I mean, it's kind of got one foot in both camps because in one respect, we're going to use a dragline to excavate aggregates, but the aggregate is going to be used to build this embankment dam.

And it's really more of a civil earthworks project than it is delivering aggregates to an aggregates producer that's selling them for construction and cement and other things. So I think that's introducing a new market to us that we're very excited about.

This happens to be a similar force project that we use as a dragline, but we now have our toe in a market where we could put the full range of skills that we have to work and find new opportunities.

So I think -- I mean, I've got actually a fair amount of confidence that 5 to 10 years from now, you're going to see a lot more things inside this contract mining business than we're doing today. But I still think the limestone business is going to be a very important piece of that, given the strength of the customers that we work with.

Okay. Sounds good. Let's see. On the Utility Coal segment, you've had this pricing agreement that has pressured this year's results. In the K, you describes what sounds like a similar contractual structure in the unconsolidated operations.

I'm just curious, obviously, those are doing well. So I'm just curious how those 2 contracts differ and if there's any risk on the unconsolidated?

You're asking about the difference between the unconsolidated mines and Red Hills? Yes.

[Indiscernible]. Yes.

Entirely different contract structures. The unconsolidated mines are purely fee-for-service. The customers pay 100% of the cost at a mine and they provide all the capital in one form or another, either through guaranteeing loans or funding us directly. And we collect a fee for every ton of coal that we deliver. So it's purely a service business.

At the MLMC, Mississippi Lignite Mine Company Red Hills mine, that is a -- that's a more traditional contract generally. We own all the capital. We pay all the costs.

Where it's a little different than a typical mining contract is the price that we sell the coal for is not market price. It's a price that's determined by a contractual formula. And this formula was devised in 1994, '95, long before any of us were involved.

It's got very particular mechanics with respect to how we are able to charge for the coal that we deliver related to the change in indices, a basket of indices over time that reflect inputs that are used in mining.

Think about things like diesel fuel and tires and labor. And so it's this set of indices that match those things and you look how those change over time, both over a 1-year and 5-year period. And then you do a bunch of math.

And we're going through a period right now where if you think about 5 years ago, right, 5 years ago was November of 2020, we were going through all the whipsaws of index indices related to COVID. And so we're seeing the 5-year lookback piece of the formula sort of jerking us around. At the same time, you've got lower diesel prices. So it's an entirely different contract structure.

I guess I would point out that, look, the operating profit can get beat up by this. I tend to look at EBITDA for this contract because even though we've spent a lot of capital in the past, that contract expires in 2032.

So we're really kind of putting a lot more capital in there. So I think the EBITDA with respect to that mine and actually the whole segment is a better metric for me to watch.

Right. No, that makes sense. I guess what I was curious about is it sounds like the unconsolidated is just a fairly straightforward inflation adjuster. In other words, you just -- in terms of what fees you pay.

It's CPI and PPI for the most part. Maybe there's some other indices, but it's -- fee basically goes up by CPI and PPI.

Okay. Got it. Got it. You had a little bit of a larger-than-normal unallocated expense line this quarter. Could you say why that was up?

Yes. There's a few things in there that are causing that increase, mainly employee-related and there's 2 components to that. We had higher medical expenses. And we also had our share-based compensation.

We had an increase in our share price if you look year-over-year. So when you include that component into our incentive compensation calculation, purely because of the increase in share price, we're going to have a higher incentive compensation expense. And we also had higher business development expenses running through the quarter.

Okay. Okay. Are you still moving ahead with your solar project?

Yes. Yes. We are working pretty diligently right now on getting those projects that are in the pipeline safe harbored for tax credit purposes. But yes, we're working on those very diligently.

And so it sounds like you're looking at multiple locations now for those?

Yes.

Okay. Let's see. That might be all I have. Well, I appreciate all the good work and it really seems like things are moving in the right direction.

Well, we appreciate your continuing interest and your great questions.

There are no further questions in queue. I'll turn the call back over to Christina.

All right. With that, we'll conclude. Before we do, I'd like to provide 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 do have any questions, please reach out to me. My number is in our press release, and I hope you enjoy the rest of your day.

I'll turn it back to Tina to conclude the call.

As Christina said, an audio recording of this event will be available later this evening via the Echo replay platform. To access the platform by phone, playback ID is 728-4609 followed by the # key. This replay will expire on Thursday, November 13, at 11:59 p.m.

Thank you for joining us today. This does conclude today's conference call. You may now disconnect.

Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Global Indemnity Group Second Quarter 2025 Earnings Call -- I'm sorry, NACCO Industries Second Quarter 2025 Earnings Call.

[Operator Instructions] It is now my pleasure to turn the call over to Christina Kmetko, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us on today's second quarter 2025 Earnings Call. I'm Christina Kmetko, and I oversee Investor Relations here at NACCO. I'm joined by our President and CEO, J.C. Butler, and our Senior Vice President and Controller, Elizabeth Loveman.

Yesterday evening, we released our second quarter results and filed our 10-Q with the SEC, both are available on the website if you haven't had a chance to review them. Before we dive in, let me remind you that today's discussion will include forward-looking statements. As always, actual outcomes could differ materially due to various risks and uncertainties, which are outlined in our earnings release, 10-Q and other filings. We don't plan to update these statements until our next call. We'll also be referencing some non-GAAP metrics to give you a clear picture of how we think about our businesses. Reconciliations to GAAP can be found in the materials we posted online.

Lastly, we mentioned in our earnings release, during the quarter, we changed our reportable segment names to make it easier for our stakeholders to associate the business activities with each segment. Coal Mining was renamed Utility Coal Mining. North American Mining is now referred to as Contract Mining, and Minerals Management was renamed Minerals and Royalties. The composition and historical reporting of each segment remained the same.

With the housekeeping out of the way, I'll hand things over to J.C. for his opening comments. J.C.?

Thank you, Christy, and good morning, everyone. I want to open today by giving you a sense of how we see our business developing where our momentum is most visible and how we're navigating we believe, are temporary challenges.

The operational challenges we mentioned occurred primarily at our utility coal mining and contract mining segments. These temporary disruptions affected our second quarter results, but my confidence that our business remains strong. We're also comparing these results against a particularly strong prior year quarter, where earnings a year ago were boosted by a sizable gain on the sale of legacy land.

We experienced strong revenue growth, specifically in the Utility Coal Mining segment, but it wasn't enough to overcome operational disruptions in the utility coal and contract mining segments as well as higher unallocated costs. Within the Utility Coal Mining segment, challenges at Mississippi Lignite Mining Company primarily drove the lower segment results. MLMC's customer has and continues to experience and efficiencies at its power plant.

This, in turn, affects our ability to efficiently mine coal. Our team continues to respond to these unfavorable conditions with agility, but the operating inefficiencies tied to the power plant and lower pricing did weigh on our results. Disruptions at the Contract Mining segment due to temporary mechanical issues at certain quarries resulted in fewer trends delivered and higher operating costs. That said, parts sales helped offset some of this, and we expect stronger results in the back half of the year as benefits from additional parts sales and several new and extended contracts kick in.

The second new MTech dragline was commissioned early in the third quarter and an existing customer quarry, joining on commissioned at the end of the first quarter at a different quarry. These new MTech draglines are great additions to the fleet. Their design simplifies maintenance, which allows increased uptime and greater efficiency. Amid these temporary bumps, our underlying growth drivers are performing well.

Within Contract Mining, soft tooth mining is continuing to provide support for the Factor [indiscernible] project in Nevada, which is now under construction. This operation generates stable income today and is expected to provide enhanced income and lasting cash flow as the project transitions to full-scale lithium production in late 2027. We are now providing contract mining services for several of the top 10 U.S. producers of aggregates and our expanding pipeline of potential new deals is strong.

We believe that our continued engagement with current and potential customers positions North American Mining and the Contract Mining segment is a key pillar for future growth. Turning to our Minerals and Royalties segment. In July, Catapult completed a $4.2 million strategic acquisition that expanded our minerals interest within the Midland Basin. This deal included 10,500 gross acres and approximately 400 net royalty acres and includes a mix of producing wells as well as additional upside opportunities through future development with existing operators in the area.

Switching gears, we are also seeing growth of mitigation resources. We had expected Mitigation Resources to achieve full year profitability in 2025. However, temporary delays in federal permitting have pushed out that expectation. Mitigation Resources is now expected to achieve full year profitability in 2026 and move toward more consistent results over time. The pace of growth that Mitigation Resources is building as this key team continues to secure new projects, which build on results from projects that are currently under lag.

Despite the current quarter challenges, we're well positioned to achieve meaningful growth going forward. Our fundamental business model is built on a strong collection of long-term contracts and investments that produce relatively strong and steady earnings and cash flows over time. Each year, we add to this business model by securing more long-term projects and making investments that will contribute to future results, creating a compounding effect.

Many of these opportunities are built on a fee-for-service model where we have little or no capital exposure while others might require us to invest capital upfront. Regardless of the model, very few of our businesses require significant amounts of maintenance CapEx. Our goal is to keep adding layers that will provide something approaching annuity-like returns and cash generation over time. All of this is underpinned by a business model purposely built for durability and compounding growth.

We've been pursuing this approach for 10 years, and it's really gaining momentum. This is why I remain confident in our ability to deliver what we believe will be improving results in the second half of the year and continuing in the future years. Before wrapping up my comments, I'd like to note that I believe our new segment names do a much better job of describing what we do in each of our businesses. We made this change as part of a larger effort to enhance our communications with shareholders and others who might be interested in our company.

With that, I'll turn the call over to Liz for a closer look at the financials. Liz?

Thank you, J.C. Let's get into the results for the quarter, and I'll try to keep it as straightforward as possible. Consolidated revenues were $68 million, up 30% year-over-year. That's really being driven by the utility Coal Mining segment as Mississippi Lignite Mining Company's customer returned to more normal operations after running at reduced capacity from much of last year.

Both an increase in other income and a favorable change in income taxes helped to partly counterbalance the impact from operational disruptions. This combination resulted in consolidated net income of $3.3 million, down from $6 million in the prior year. Diluted earnings per share decreased 40% -- 46% year-on-year, again, reflecting those operational headwinds and last year's unusually strong comparison.

EBITDA was $9.3 million versus $13.5 million in the same period last year. There's a little more color at the segment level. At the Utility Coal Mining segment, the decline in operating profit and segment adjusted EBITDA was primarily driven by unfavorable results at Mississippi Lignite Mining Company, although the cost per ton of coal delivered improved, the lower contract pricing more than offset that improvement. Looking ahead, we expect improvement in the second half of 2025 compared with the first half of the year.

Still, the current formula-based contract pricing remains a headwind compared to the second half of last year, which also benefited from business interruption insurance income. Anticipated improvements in both sales price and cost per ton delivered are expected to result in a return to profitability at Mississippi Lignite Mining Company in 2026 assuming the customer power plant operations and demand stabilize and formula-based pricing improves as expected.

At North American Mining, revenues net of reimbursed costs rose 3%, driven by increased part sales. However, this upside was offset by fewer tons delivered due to customer operational delays plus higher operating costs, including unexpected repairs and maintenance expenses. This resulted in a decrease in the current quarter profit and segment adjusted EBITDA. With operational efficiencies expected to improve and a growing focus on parts sales, we expect the Contract Mining segment profits to strengthen in the back half of the year with the momentum continuing into 2026.

With the Minerals and Royalties segment, last year's results included a large onetime gain. Excluding that, this year's operating profit and EBITDA actually increased, thanks primarily to a 30% rise in revenues, largely due to higher natural gas prices. As J.C. mentioned, Catapult completed a new acquisition in July, expanding our mineral interest portfolio. Both this new acquisition and Catapult's equity investment should contribute more meaningfully to results starting in the second half of 2022.

Adding everything together for the remainder of the year, we anticipate a substantial increase in consolidated 2025 operating profit over the first half, but full year operating profit will still fall short of last year, which included a large gain on sale. We will complete the termination of our pension plan by the end of this year. While this will trigger a noncash settlement charge, the plan is overfunded and the move will simplify our financial structure going forward.

Nonetheless, the pension settlement charge and lower operating profit are expected to lead to a substantial year-over-year decrease in net income and EBITDA compared with the 2024 second half and full year. From a liquidity standpoint, at June 30, we had total debt outstanding of $95.5 million. Our total liquidity was $139.9 million, which consisted of $49.4 million of cash and $90.5 million of availability under our revolving credit facility.

During the quarter, we paid $1.9 million in dividends, and as of June 30, 2025, we had $7.8 million remaining under our $20 million share repurchase program that expires at the end of this year. We are forecasting up to $86 million in capital spending this year, which is higher than we projected at the end of last quarter. Most of this is earmarked for new business development. As our returns from previous investments start to materialize, we expect cash flow to improve over the prior year and continue to increase steadily next year.

With that, I'll hand it back to J.C. for closing remarks.

To wrap up, I am confident in our future. We are operating in a very favorable environment. There is strong growing demand for the products and services that we provide and rapidly growing demand for energy. Recent government support is also further boosting all of our businesses. Short-term disruptions aside, I believe the building box for durable compounding growth at NACCO are firmly in place. Our team remains focused on execution, operational discipline and driving long-term returns for shareholders. We're optimistic about what the rest of the year holds and even more so about our prospects for 2026 and beyond.

With that, we will now turn to any questions you may have.

[Operator Instructions] Our first question comes from the line of Douglas Weiss with DSW Investment.

Starting with the coal segment. So on your unconsolidated businesses, volumes were a little bit lighter than they've been over the last couple of years. Could you say why that happened?

It was really a collection of minor things in a number of places. There's nothing there that I would specifically call out, and there's nothing that I really think is a problem going forward. It's really just kind of single quarter noise going on that has been the main problem.

Okay. So you would see that -- I mean, it dropped from...

Yes. There's nothing in there that's reason for concern.

Okay. You'd see kind of returning to trend line there. Yes. And then when you say MLMC will return or you expect it to return to profit next year? Are you talking about gross profit?

Yes. It's not a combination. We think the formula pricing is going to improve based on what we know about the formula and now we can look at where we think inflation will go in the future as well as we're expecting that the plant is going to operate more consistently, which allows us to operate more consistently and drive down our cost.

Right. And that formula, is it redetermined based on year-end pricing?

No. It's reset. It is monthly or quarterly?

Monthly. That includes [indiscernible] we look back a monthly and the 5-year.

And so it's a contractually great formula that came up with back in the mid-1990s that takes a 1-year look back as well as a 5-year look back published nationally published indices that reflect general inputs in mining and power production.

I see. But is it resetting every quarter? Did I understand you?

Yes.

Yes.

Okay. So you could actually see better pricing over the next couple of quarters if depending on...

Yes. Well, based on the way we're forecasting the coming quarters, yes.

It's really in 2026 that we see the substantial improvement in the sales price.

There's going to be some noise going through the pricing formula, which isn't surprising. I mentioned earlier that it's a 1-year look back. So what is what is a stated index for or something today versus a year ago but also today versus 5 years ago. When you think about 5 years ago, the economy was going through the roller coaster of COVID when things, prices and lots of things dropped a lot early on and then spiked up.

So as you do in a 1-year look back, I mean that's not -- there's not a lot of noise there. But as you do on a 5-year look back, there is some noise 5 years ago, and that's messing with the formula right now. And we expect that's going to stabilize as we move into 2026.

Okay. And MLMC had the boiler problem, and it sounds like they're having some more operational problems. Is that coincidental? Or is it just a really old facility that you think may have ongoing issues?

Well, I mean it's not a terribly old facility. This thing started up in 2020, which in the scheme of U.S. power plants is pretty -- coal-fired power plants, it's pretty new. Obviously, the boiler issue a year ago, more than a year ago was a very substantial onetime issue that took out half the plant for half of the year. That's clearly a very -- you only expect that to happen at most once in the life of a power plant over many decades.

The things that are going on now are more sort of minor things that power plants are big complicated machines. They do, from time to time, have things like tube leaks and other mechanical issues. The ones they're going through right now are not extraordinary in any way. They just happen to be happening at a period of time to affected the second quarter results.

Okay. Okay. for North American mining volume was -- I haven't remembered your new headings by the way, but I will for next quarter. But the volume was light, why was that?

Did you say why was that?

Yes. Why did volume drop off?

Yes. So it was a combination of some customer -- reduction in customer demand, which might be some general softness in their customer demand. But I don't think any of it is really significant. There were some minor issues with, I think, with some of their facilities, although nothing major. And we had some mechanical issues with some of our equipment, primarily draglines that made it able for us to deliver.

It's one of the reasons that customers keep inventory stockpiles on site, it creates a buffer for them and for us with respect to deliveries. The repairs that we have made have been successful, and we don't see a problem with any of that going forward.

Okay. In terms of the CapEx, it's back-end weighted. Is most of that -- how is that allocated at this point? Is a lot of that for the contract mining or...

So a vast majority of it is related to growth initiatives. It's money that we're spending in order to secure new contracts, new projects. And you'll remember that our business model is -- and where we can, we like to have a service model. We don't have any capital upfront, and we just collect a fee going forward. But in some instances, particularly at North American Mining, but also at Catapult, we'll invest capital up front that will in Catapult's case by mineral and royalty interest to make other investments that will then have very long-term returns with no further investment on our part or at -- when you look at contract mining in North American Mining, it might be a dragline that will buy upfront and the maintenance CapEx on those things is a fraction of the depreciation over time. So a majority of that CapEx, which is later in the year is tied to growth tied to new contracts and new investments.

And which...

To me -- sorry to interrupt. But to me, the really attractive thing about that in our business model, is we don't really have a lot of ongoing CapEx unless we see opportunities for growth that meets very well developed, and I think, robust and proven set of investment criteria that we have for new projects. So we got low CapEx unless we see opportunities to grow in these long-term multiyear contracts. And in that case, we're going to increase our CapEx spend because it's an opportunity to grow the business.

Right. And I -- it sounds like you continue to sign new projects in the contract mining segment.

Yes. Certainly, in the contract mining segment, but I would say that's true across the entire company. We, over the last number of years, have build an incredibly effective business development machine that is continuing to add new long-term multiyear projects and contracts and investments on top of those that are already in place, kind of the fundamental base of our business is the long-term contracts at our Coal Mining segment -- Utility Coal Mining segment as well as the income that we generate out of our natural gas reserves in Appalachia that we've owned for decades.

Those long-term platforms have really fueled the success over the last 10 years that we've added more and more long-term contracts. And as we continue to exercise that business development muscle, we're getting better and better at it. I'd say in the beginning, we were hitting a lot of singles, which I was very happy with. We've more recently started hitting more doubles and triples and even some home runs with respect to these long-term projects, contracts and investments.

And as we have those, we're fortunate that we've got a balance sheet and stable cash flows that allow us to keep adding those to the portfolio that we already have. So it really has a very much a compounding effect as we as we think about the growth trajectory that we're on.

When you say triples and home runs, are you thinking -- can you give some specific examples? Are you thinking within the Contract Mining segment or Catapult?

It's really kind of across the board. We've found some opportunities in each of our businesses to find projects that are increasingly attractive to us, both in terms of their size, in terms of the profit opportunities that they offer us in terms of the length of the contract. And I would also say we're finding ways to branch out really just kind of on the edges of what we do.

A great example of that, I would point out is our lithium project. We signed that in 2019. We've been working with the customer to develop that project ever since. And we're making a modest amount of money right now and we're supporting them in development. But as we get to 2027 and beyond, when we start delivering lithium to them, that things very substantial, meaningful project for us. So it's one example of something that we've already signed. We have others in other parts of our business. that I have similar feelings about those. And we've got a number in the pipeline that I think are equally as excited.

Okay. Great. In terms of the cash flow statement, it looks like you still haven't realized the -- you still haven't received the cash from your investments in working capital over the last couple of years. Do you expect that later in the year?

So we did say we expect more favorable cash flows this year than last year. If you look at our balance sheet, you can see we have the positive vendors of $16.3 million as current. So we anticipate the collection of that. Last year, we did '23, '24, we were building up inventory in the in the contract mining business that we don't anticipate significant increases in that going forward. So that's I guess a little bit of color around that.

Okay. Yes, you said you expected to generate cash this year. I think on a net basis, is that right? Net of CapEx. That's just what I recall the guidance being earlier in the year. Could be...

This quarter, we said it would be an improvement in cash flow, but it was still a use of cash. But yes, you're correct. We had previously initially said we thought it was going to be an increase in cash flow, yes.

The change is partly related to these additional CapEx opportunities. I really -- I very much think of this CapEx opportunities to secure some new projects.

I see. So has your expectation for operating cash flow changed? Or are you just -- or is it just you're spending more?

Well, I'd say that the they have changed to the extent that the second quarter didn't play out like we thought it would. If you neutralize the second quarter, we still feel pretty good around where we're heading. The second quarter is really the driver in the slight change in sentiment. It's not an ongoing change of the it's really second quarter in that.

And going into 2026 is when we really anticipate a more steady increase in annual cash flow generation.

Look, remember, if we find some great opportunities to enter into some great new projects that do require some CapEx upfront. We're probably going to pursue those. But I would think as an investor, that's a good sight.

Yes. No, absolutely. On the pension settlement, it sounds like that's noncash. And correct me if I'm wrong on that. But in terms of the overfunding, what happens to the overfunding there?

Similar to what happened with -- if you see we have a prepaid profit sharing amount on our balance sheet at the end of the quarter, we can use that to fund other qualified planned funding requirements.

It's money that's sitting on the balance sheet that we -- look, we can't use it for CapEx, but we can certainly use that money that's sitting in that account to fund qualified plan contributions, the 401(k) kind of stuff. So if you think of money is fungible, that's sitting in an account that can be used for a specific purpose, we otherwise would have been using general funds for that.

Correct.

And you're correct that the pension charge is a noncash change. It's going to -- look, it's going to hit the income statement. It's going to make it look bad, but it's -- I view it as a good fact. We're going to get out of the pension business. We've been out of pensions for a long, long time. This is finally terminating it and getting it out of our financial statements. Pension is frozen for 25 years.

Maybe not 25, but...

Substantial amount of time.

Yes. Right. Okay. Last question for me is there's been a fair amount of press coverage about activity in the Appalachia region with data centers and of the grid natural gas contracts. Does that -- I mean, presumably, that could be beneficial for gas prices, but does it have any other implications for your reserves in that region?

I would say indirectly, yes. directly, we're -- we just own the minerals. We really can't enter into a contract for our minerals to go into a power plant but serving a data farm. But I would say, when you think about basis, if you're familiar with patients, it's really the team transportation cost to get some more something is produced to the central markets. I'd say it's helpful for natural gas pricing in the Appalachian region, the closer you bring demand to the product, that's always a good sight.

Okay. All right. Great. We'll always appreciate the answers and look forward to talking to you next quarter.

Just one other thing on your last question. The other thing you can do is any -- as you try to move oil and gas around the country, people are always looking at pipeline capacity. And to the extent that you bring demand nearby, it probably expands the offtake ability out of that basin, which helps, right? It encourages more production and encourages people to come in and focus more on a given basin because you're not trying to put every bit of production through the existing pipeline. The last [indiscernible].

Just one -- a point of clarification, real quick. The pension plan was frozen in 2020, you were right it was 25 years ago. And as actually started deliveries or 2002, not 2000, just clarifying.

It's a long time ago.

Yes. Both of them are a long time ago.

Our final question comes from the line of [ Daniel Bori ] with AWCL.

We have moved from, I don't know, $80 million or $100 million in net cash to $46 million in net debt. Can you talk about kind of philosophically where you want to be after this large CapEx cycle cash flow cycle changes, is there a period of deleveraging you see what -- where are we going?

Yes. We are headed towards less leverage rather than more. I'm not saying that's going to be happen in the next quarter. But our objective is to have less leverage than we do. Although we operate in an incredibly attractive political environment right now, I do recognize -- we recognize that there is political risk, particularly on our coal business. And we have some entrepreneurial startup risk, although today, I think our businesses are much more mature than they were a few years ago.

So my philosophy that our philosophy is -- if we've got political risk on a core part of our business, and we have entrepreneurial start-up risk in other parts of our business, we should have no risk on our balance sheet. And that's why internally, we talk about maintaining a bulletproof balance sheet, and that's what we strive to have -- and what we mean by boot balance sheet is very low levels of debt and a substantial amount of cash.

And look, I described to you the philosophies from assessing risk -- the other reason, I think, very, very conservative balance sheet is important because as we meet with customers, potential customers and represent to them that we're going to we're going to start a set of services for them that are completely integrated into their business, whether that's running the coal mine, that supplies to power plants, 100% of the fuel for power plant or if we're doing the all of the binding with respect to an aggregates quarry or a cement plant.

If we're going to stand with them and we sign a 20-year contract, we need to be able to look them in the eye and assure them that we're going to be here. If we are taking financial risk, the one thing that can get in the way of that long-term approach is a balance sheet that starts making decisions for the business. As long as the balance sheet is bulletproof, we will never get that situation that we can assure our partners that we're going to be an integrated important part of their business for decades to come.

Our largest -- our longest customer relationship is 46, I think, going on 47 years in North Dakota at one of our coal mines. That's the kind of relationship we want to have with many of our customers. So in order to do that, we need to make sure that we can tell them that we're going to be here. We've been here at 111 years right now. And 12 years, and we're shooting for the next 100.

It's a remarkable run. This parts business Contract Mining, is it a new business model? Are you trying to run down inventory? Is that part of the change in contracts there? Can you talk more about what the changes from the past. It seems over the last couple of quarters, we've started talking much more about the parts business.

Yes. I mean I would say it's an evolution in the business model. We have stocked parts in inventory for a very long time, servicing our draglines that we operate, the equipment that we operate in these integrated operations with our customers. As that business, the fundamental contract mining business really led by North American Mining has grown over time. We have expanded the range of equipment that we operate, which has caused us to expand the inventory that we carry. And as we have looked at that business, what we see is that one, we've been incurring costs to carry those and manage those and we had a minimum -- should get reimbursed for those.

But we also find their instances where many of these pieces of equipment, some of these draglines haven't been manufactured for decades. And the parts are getting -- parts and components are getting harder and harder to find. So we've concluded that really the right decision for us and for our customers is for us to stock those, particularly those more difficult to find components and parts on site. And it essentially rather than searching a country for those when we might need them, we're going to stock them ourselves and then really operate as a parts distributor, both internally and externally. So it's really kind of an evolution of the business as we think about how we can best serve our customers in this space.

That helps a lot. And on North American mining or the Contract business, when we start up a new -- add a new quarry, are we moving draglines from closed North American coal mines over? Is that a major portion of this business? And if so, is that a kind of limiting factor on the growth of contract mining? Or are those completely separate?

It's great question. They're completely separate. A majority of the draglines that we operate in our Coal Mining business are absolutely huge machines much larger than you would ever operate at any kind of a quarry. When we start up a new -- so you don't have to worry about that being a limiting factor. The process for starting up a new quarry and for aggregates customer, I guess I would start with saying in some instances, we'll go in and take over operation of the equipment that they already have on site.

So there's really not a transition or there's no concern about where the equipment is coming from. In other instances, it's an operating quarry, we may move in a dragline that is more efficient or that we think is better suited for the operating quarry that would all have been part of the negotiations with that customer. With respect to the equipment we're going to use and how we're going to serve them.

If it's a greenfield quarry then we and the customer are going to work together to determine what equipment, what draglines would be needed for that particular operation. And we will either source it out of draglines that we already have in our contract mining fleet that might be available. Or given that we operate more draglines than anybody in the country by a substantial amount. We've got tremendous knowledge about where draglines are and what might be available and what repairs they might need.

And so if it's a greenfield, we'll either take one that we already own or we will get one from somebody else and more move it into that facility and put it to work. So it's really a whole combination of things, but we are not moving them out of our coal mining operation. Hopefully, that's helpful.

That's fair...

Okay. I guess I would just add one other piece to that. I talked a lot about old drag lines. In the last few years, we have developed a relationship with a company in the Netherlands called MTech Cranes. And their primary -- a vast majority of their business is manufacturing cranes, which are similar technology, but not identical to a dragline. And we have worked with them so that they are now manufacturing in electric dragline, the older drag lines tend to be driven by diesel, their mechanical machines, whereas the MTech machines are much more modern technology.

We've been deploying those drag lines. In fact, we're the only operator of MTech draglines in the United States, and we are the exclusive dealer for MTech draglines in 48 of 50 states. We're an exclusive dealer for MTech driveline parts in the United States. So this kind of fits with your earlier question about parts. It also fits with the question that you had about where do we get our drag lines from these new electric drag lines for the right operations, rightsize operations are incredibly effective machines in terms of their operating efficiencies, their maintenance, their uptime. We're really excited about the opportunities that we think lie ahead because of this relationship we have with MTech.

Thanks for that. The last one, I think, [ Iger ] is a business we've invested somewhere around $20 million then. Are they themselves fully invested? Or is this kind of $300,000 of sort of run rate earnings from them? And then could you talk about what their capital allocation plan is? Is that a growth business? Is it kind of a yield thing? What are we doing there?

So Iger is a -- I mean to begin with, Iger's got its own website. It's a very modest website, but it sort of derive to what they do. It's a private business. We made an investment in them because we think that they have a very interesting business model with respect to the -- both the basin where they're invested, and the we're investing for us we look at it as a non-op investment.

We are not operating any of the mine -- any of the mine, sorry, any of the wells. And quite honestly, right now, they are either. But their business model is very focused on expanding the productivity of wells that they have in their control. And we think that it is a business model that is very similar to ours, very complementary 2 hours, which is why we made the investment.

But to us, it's simply a non-op working interest, meaning we're not operating -- we're not responsible for operating. Somebody else is taking air care of all that. So for us, it's another investment in the portfolio. As to what's the run rate for income, I think we are optimistic about their business model. It's -- our investments are relatively recent. And I would say they're -- I think they're building momentum in what they are doing. But I'm not going to make any specific outlook comments about where we think they're headed. But we do think, overall, obviously is going to be an attractive investment for us.

All right. I appreciate you taking my questions.

No. We really appreciate your interest, and we appreciate your call.

With no further questions in queue, I will hand the call back to Christina for closing remarks.

Okay. Thank you so much. Before we conclude, I'd like to provide a few 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 follow-up questions, please reach me at the call number in the release. I hope you enjoy the rest of your day, and I'll turn it back to Tina to conclude the call.

To access the replay of today's call, dial toll 1 (800) 770 -2030, playback ID is 6790172 followed by the pound key. This does conclude today's conference call, you may now disconnect.