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 NACO Industries Third Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. a question press star then one on your touch tone phone 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 NACO's 2026 Third Quarter Earnings Call. I'm Christina Kmetko, and I'm responsible for investor relations at NACO. Joining me today are J.C. Butler, NACO's President and CEO, and Elizabeth Loveman, our Senior Vice President and Yesterday, we released our third quarter results and filed our 10-Q with the SEC. Both documents are available on our website. During today's call, we will reference 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. turn the call over to JC for his opening remarks. JC.

Thanks, Christine. And good morning, everyone. Our third quarter. performance represents another quarter of solid progress across our businesses. Operating profit increased 37% to 9.3 million, and consolidated EBITDA increased 63% to 1.3 percent year over year and 28 percent sequentially to $20.4 million. These results include $3.4 million in costs associated with the curtailment of certain solar development activities as expected and mentioned last quarter. Reportable segments delivered strong results, each contributing over $7 million to our third quarter consolidated adjusted EBITDA. Utility coal mining and contract mining generated substantial year-over-year operating profit gains, while minerals royalties delivered comparable results. Newer contracts and investments made over the past several years are increasingly contributing to our results, demonstrating real progress in our value creation strategy. This is important because our strategy is centered on building a strong base of long-term earnings and cash flow.

We are creating value by adding new long-term contracts and investments to the contributions from our established businesses and long-term customer relationships. As those newer contracts and investments ramp up, we expect them to contribute increasingly to earnings and cash flow. Returning to our individual businesses, utility coal mining operating profit continued to improve. As we've discussed in prior quarters, challenges at our customers' power plant have affected Mississippi Lignite Mining Company's operations and resulted in delayed payments. I'm pleased to report that the customer's power plant operated more consistently during the third quarter, and I'm encouraged that we've seen improvement in collections of outstanding receivables. The payments are not yet fully current, but the situation has improved from last quarter. We continue to monitor plant performance closely since that directly affects customer liquidity.

Looking ahead, we see potential for improved results in 2027 if the customer's power plant operates more consistently. At our unconsolidated coal operations, results remain stable, which is what we like to see. Beginning October 1st, the owner of Sabine Mining Company assumed responsibility for the final stages of reclamation activities, so we will no longer receive the reclamation fees that Sabine has earned in the past. We currently expect higher earnings from Coteau and Falkirk to largely offset the absence of Sabine-related earnings in 2027. Turning to contract mining, I continue to be very pleased with the progress the business is making to expand its business model and profitability. This segment remains our primary growth platform for mining, and we continue to see significant opportunity for growth. During the quarter, our new dragline services contract in Palm Beach County, Florida, continued to ramp up and contributed to the improved segment operating profit.

This growth more than offset lower customer requirements at certain limestone operations. We continue to monitor customer activity and broader construction market conditions closely. Looking beyond the quarter, we reached another important milestone in October when our contract mining team began operations at a limestone quarry in Arizona under a new dragline mining services contract that extends for more than a decade. This contract expands our geographic footprint and further adds to our portfolio of long-term agreements within contract mining. At Thacker Pass, our customer, Lithium Americas, is targeting mechanical completion of phase one of the lithium processing plant in late 2027, followed by ramp up to commercial production through 2028. As our Sawtooth mining team prepares for production of lithium-rich clay, we expect to invest approximately $16 million in mining equipment during 2027. As a reminder, under our contract, the customer is obligated to reimburse us for these capital equipment investments over five years, beginning the year after investments are made.

The Arizona and Lithium Americas contracts are great examples of how we are growing contract mining. We are taking capabilities we have developed over decades and applying them across different minerals, customers and geographies under long-term agreements. Our success with that approach gives us confidence that contract mining can continue to be an important driver of earnings growth. At Minerals & Royalties, third quarter operating profit was comparable to last year. The current commodity environment is a good reminder that our results are influenced not only by commodity prices, but also by the mix of production across our portfolio. While our recent investments have increased our oil exposure, natural gas is still a significant part of the portfolio. The strong results for our investment in Antero Resources offset the effect of lower natural gas production and pricing in the third quarter.

We continue to manage this business with a long-term view. Our portfolio of mineral and royalty interests and our investment in Iger Resources provide multiple sources of earnings, and we remain focused on building the portfolio thoughtfully over time. At Mitigation Resources, we continue to build the business through expansion of our reclamation and restoration services and development of mitigation banks. Mitigation Resources now has 13 mitigation banking projects spread across several states. These projects are expected to generate stream and wetland credits that can be sold over an extended period, generally 10 to 12 years, providing a long-term revenue stream. We've already realized credit sales from some of our earlier banks with future sales occurring as the portfolio develops. We expect Mitigation Resources to generate a profit in the fourth quarter and in 2027.

Results could vary from quarter to quarter because of permit and project timing, all although we expect the business to become a more consistent contributor to NACO's results as the portfolio matures. Before turning the call over to Liz, I want to provide an update on solar. As we discussed last quarter, changing market conditions, regulatory developments, and project specific challenges caused us to reassess certain solar development investments. We continue to evaluate strategic alternatives, including potential project sales, contract amendments, and other transactions. Our overriding objective is to minimize our exposure while advancing strategies to monetize these projects. During the third quarter, we incurred approximately $3.4 million in additional costs and may incur further costs associated with these projects in future years. However, the amount and timing of such costs will depend on ongoing discussions with counterparties on our efforts to transfer ownership of or otherwise monetize the projects.

More broadly, this experience reinforces the importance of a disciplined investment approach focused on opportunities with clear strategic advantages, attractive potential returns, and strong long-term cash generation. This approach has led us to actively pursue strategic alternatives for the solar projects with a focus on limiting future exposure and preserving value where possible. From a capital standpoint, we expect to invest up to $32 million during the remainder of 2026 and up to $56 million in 2027. Both amounts include our $20 million annual budget for minerals royalty growth investments. The 2027 estimate also includes the $16 million of saw-tooth capital expenditures discussed earlier, with the remaining $20 million budgeted for ongoing operations and other business development opportunities. Growth investments will only be made when opportunities meet our investment goals. criteria. Overall, I am very encouraged by our year-to-date results.

Our businesses are delivering strong performance, more recent contracts and investments are starting to deliver meaningful contributions, and we expect our recent investments to support improving earnings and stronger cash flows as they mature. With that, I'll turn the call over to Liz to walk through the financial results and outlook in more detail. Liz.

Thank you, JC. Building on JC's operational discussion, I'll review our consolidated third quarter results and then provide some additional information on our segments, Outlook and Liquidity. Overall, our third quarter operating results were very strong year over year. Specifically, consolidated gross profit increased 18% to $11.8 million and operating profit increased 37% to $3 million, even after recognizing the $3.4 million of solar curtailment costs. Consolidated adjusted EBITDA, which is one of our key metrics for evaluating the operating performance of our businesses, increased 63% year-over-year and 28% sequentially to $20.4 million. We also had some significant non-operating activity this quarter. We recognized a $4.5 million gain related to the settlement of an excess pension funding liability with Sabine Mining Company's former customer. This combined with higher operating profits led to income before income taxes of $12.5 million compared with $6 million before income taxes.

We also had a substantial increase in our income tax expense year over year, primarily due to a change in our estimated annual effective income tax rate and the resulting year-to-date adjustment recognized in the third quarter. As a result, we reported net income of $10.9 million or $1.44 per diluted share, compared with 13.3 million in net income. million or $1.78 per diluted share last year. Turning to the segments, utility coal mining operating profit increased to $6.6 million from $5 million in the prior year quarter, while segment adjusted EBITDA increased to $8.9 million from $7.1 million. The improvement was the result of better contractual pricing and lower inventory impairment charges at Mississippi Lignite Mining Company. For the 2026 full year, we continue to expect utility coal mining operating profit to improve over last year. Fourth quarter operating results are expected to be lower than the prior year period because of an anticipated reduction in customer demand and higher diesel fuel costs at Mississippi Lignite Mining Company, along with lower contributions from the unconsolidated operating following the transition of Sabine's reclamation activities effective October 1st. Looking ahead to 2027, we expect overall coal demand to remain consistent with 2026 and profitability to improve.

At Mississippi Lignite Mining Company, more consistent operation of the customer's power plant would support improved results. The unconsolidated operations, higher anticipated results at Coteau and Falkirk, are expected to largely offset the absence of Sabine Reclamation income. Moving to contract mining, operating profit increased to $4.9 million from $1.9 million last year, and segment-adjusted EBITDA increased to $7.6 million from $4.7 million. Revenues, excluding reimbursable costs, increased 75%, reflecting the continued ramp-up of the Palm Beach County Drag Line Services contract. Contributions from that contract more than offset lower customer requirements at our limestone mining operations. We expect substantial year-over-year growth in contract mining, operating profit, and segment-adjusted EBITDA in both the fourth quarter and full year 2026. We also anticipate continued operating profit growth in 2027, including a full year of contributions from the Palm Beach County and Arizona contracts.

In minerals and royalties, operating profit was $7.7 million and segment adjusted EBITDA was $8.7 million, both generally comparable with the prior year quarter. Higher earnings from our IGAR investment largely offset lower royalty revenues, primarily from lower natural gas production and pricing. Looking ahead, minerals and royalties fourth quarter and full year operating profit and segment adjusted EBITDA are expected to be below the comparable 2025 periods, primarily because of lower anticipated royalty income, partly offset by higher expected income from IGAR Resources. In 2027, we expect minerals and royalties to continue generating meaningful earnings and cash flow, although operating profit is expected to moderate from 2026 levels. At the consolidated level, our performance through the first nine months has positioned us for a substantial year-over-year increase in full-year adjusted EBITDA. We currently expect full-year operating profit to be comparable with 2025, even with approximately $15 million of solar-related impairment and curtailment costs recognized through the first three quarters. Income before income taxes and net income are also expected to increase year over year.

For fourth quarter 2026, we expect net income to increase year over year, primarily because the pension settlement charge recorded in the fourth quarter of 2025 will not repeat. Consolidated operating profit and adjusted EBITDA could be lower than the prior year quarter, depending on the timing of additional solar project curtailment costs. We expect meaningful year over year improvements in operating profit, net income, and consolidated EBITDA in 2027. Continued expansion in contract mining and mitigation resources, along with improved operating performance across our other businesses, is expected to contribute to this growth. Turning to liquidity, we ended the quarter with $124.8 million of debt and total liquidity of $115.2 million, consisting of $56.5 million of cash and $58.7 million of availability under our revolving credit facility. We expect cash generated from operations to increase moderately in 2026. Because of our planned investment activity, cash flow before financing is still projected to be a use of cash for the year, although we expect that to improve modestly from 2025.

In 2027, cash flow before financing is projected to improve as well recent investments contribute to earnings. With that, I'll turn the call back to JC for some closing remarks.

Thanks, Liz. Overall, I believe our third quarter performance provides strong evidence of the progress we are making across NACCO. Our established businesses generated solid results. Contract mining continues to build momentum as newer contracts ramp up, and we're beginning to see the benefits of new contracts signed and new investments made over the past several years. We believe the contributions of our established businesses and the expected contributions of our growing portfolio of long-term contracts and newer investments provide a strong foundation for continued earnings and cash flow growth. As these investments mature, we expect meaningful improvements in operating profit, net income, and consolidated. We remain focused on execution, improving liquidity, reducing debt over time, and investing selectively in opportunities that can generate attractive long-term returns. Overall, our objective remains straightforward. Build a strong, durable portfolio of high-quality, sustainable investments. businesses that generate increasing cash flow and create long-term value for our shareholders.

I think our third quarter results show that we are delivering on those goals. We'll now turn to any questions you may have.

At this time, I would like to remind everyone, in order to ask a question, simply press star, then 1 on your touchtone phone. Again, that is star 1 to ask a question. And we'll pause for just a moment to compile the Q&A roster. And our first question comes from the line of Douglas Weiss with DSW Investment. Please go ahead.

Hey, good morning. On the coal segment, are you able to say or give some sense of how large the Sabine contract was and how much you lose when that goes off?.

So, you know, when we were still mining, actively mining, it was, you know, a decent contributor to earnings as it went into reclamation, which we've now been doing for two or three years. It has been a much reduced amount. That's the way our contracts work. When you're operating the mine, it's a higher fee. And when you get into reclamation in our management fee contracts, it goes to a smaller, more modest fee. So as we said, you know, we expect growth at Falkirk and Coteau to offset any decline we get from the of the reclamation fees that we were getting in Sabine.

Okay. And what drives the growth at Coteau and Falkirk at the time?.

at the present time? Well, I mean, it's a combination. So the way those contracts work, right, it's a combination of volume and fee, and the fees generally increase with, you know, CPI, PPI inflators. and we're also looking at increased deliveries at those operations. And as you've watched us for a long time, you know that annual delivery schedules, particularly at the larger management fee mines, largely the biggest effect in there is do they plan a big outage in a given year or not and 2027 is going to be is a year when we're expecting you know pretty strong deliveries at both of those operations.

Okay, because they're not planning a big outage. Can you say that again? They're not planning a big outage. You said the biggest factor.

Can you say that again? You said the biggest factor.

Okay. Um, okay. And then on diesel, is diesel a net neutral over time as your pricing contract, um, as MLMC incorporates those costs, or does it remain a net headwind, or does it even become a tailwind?.

Yes, so I missed the first part. How does diesel affect MLMC? Oh, CESL, yes. Is it net neutral?.

You know, it's a combination of, it's really based on electron demand in from TVA. So there is some seasonality, but across the United States, as we've seen increasing demand for electrons, regardless of the season, it's no longer just driven by heating and cooling needs being the swing. You know, I think we're seeing smaller effects of seasonality in demand for electrons, which ultimately translates into what do we think TVA will be looking for from this power plant with respect to dispatch?.

Right. And then to diesel specifically, because you mentioned that was a bit of a headwind, but I know that that figures into your reimbursement payments, is there a time lag there or Yes, do you sort of catch up once the formula picks up those higher diesel prices?.

So diesel impacts our expenses right away, but it goes into the calculation of our sales price over a different time period. So there is a mismatch between when diesel impacts the sales price versus when it impacts our actual expenses.

Yes, sorry, Doug. I thought you said seasonal, not diesel, obviously.

Yes, that's okay. Good to get even more background. I have a question, kind of a big picture question on your SG&A. The people working on utility coal, are they also working on contract mining? do you make somewhat of a qualitative assessment of how to assign that SG&A to the two segments or are they totally different?

Yes, it's a combination, there is a team of people that work in the office at the mine site, you know, at MLMC. And so, you know, they're obviously, you know, charged towards that business. We also, you know, have people in Dallas that provide some support services that gets billed into the utility coal mining segment. They also have expenses, there's SG&A expenses in contract mining as well. The other side of the story is we very much operate the company with a one team approach. And so if anybody needs help with anything, everybody's willing to jump in and help. Um, And we've got a system for allocating costs for that.

But we find that we can be more efficient and more effective if we're really using leveraging all the talents we've got across the company in each of the businesses, as opposed to having people really siloed into any part of the business.

Right. In a scenario where MLMC didn't renew after 2032, How much flexibility would you have to reduce associated SG&A to reassign those people? In other words, how much of the SG&A is specific to MLMC and how much of it is going to be necessary for the unconsolidated operations.

Yes, so, you know, the folks that are at the, obviously, the work at the mine site, Some of them would be needed during a reclamation period, but it would be, you know, it would reduce over time as the mine was reclaimed. and eventually you know wouldn't be needed the other uh people You know, we now have a very diverse business. So if you look at people in Cleveland, people in Dallas, more supporting a whole collection of businesses. And as those businesses grow, I mean, they've grown a lot in the last 10 years, they're going to grow a lot more between now and 2032. You know, they will have plenty to do. But we do operate a pretty lean operation. So to the extent that we've got excess that isn't deployed somewhere, we will certainly address that.

Yes, okay. On the solar operation, in terms of the costs you've called out, is that just a write-off of previous investment? Is that non-cash?.

You know the impairment that we took in the second quarter was largely non cash. The charges we took this quarter were of both. I'm going to hand this over to Liz here in a second to get into the details of that. But, you know, at the end of the second quarter, we believed that the best path forward at that time was really to unwind the projects and exit, you know, the agreements that we had. And our $7 million estimate at that time was based on that. 7 million estimate of future costs. Since then, you know, as we've studied this more over the last few months, we found that there's, multiple paths forward for these that, you know, allow us to work on strategies where we limit our exposure to, we advance strategies that could monetize the projects as opposed to just straight up exit them and perhaps keep some passive upside in those. So as we've been going down that path, in some instances that's led us to a decision to make some additional expenditures.

So, you know, that's how that's been evolving. I'd say it's a more dynamic situation now than it was at the end of the second quarter. We thought it was a pretty clear break and we now see more opportunity there. to improve on our situation through alternative paths forward. Liz?.

And the 3.4 million expense was specifically related to the termination of a power purchase agreement, PPA, that we had in place. And so that was terminated in October of 2026. have that amount recognized as an expense and a payable at the September 30th balance sheet date and then subsequent to that increases our outstanding debt. So you'll see an additional 3.4 million, you know, on our revolving credit agreement in Q4.

Okay. So you had a commitment to deliver that power. Is that the issue? And so now you have to make good on the absence of the power?.

we did have because there was a power purchase agreement tied to one of these solar projects. We mentioned that it was in our best interest to end the PPA. Right. So the PPA has gone away. However, you know, there's still other aspects of that project that we think could be attractive to a potential buyer.

Any thoughts on the timing of when you'll have clarity on the upside scenarios there?

Well, I can tell you, we'd all love to know that. Yes. But you know, this, to be honest, this is something that's going to play out over the coming quarters. could expand a year or more, but we're trying to get these things buttoned up. in an orderly as way as possible, but we're not going to rush it. I mean, we've all watched companies over the years that decide they're going to exit something and they just blow it up and spend a whole bunch of money. And we tend to be more cautious and opportunistic than that. So, you know, the path we're down is how do we limit our exposure and try to get as much upside as we can.

And our outlook that we provided for remainder of 26 and 27 includes our best estimate of how that plays out today. Yes, good point. We've included our estimated cost in our outlook in our forecast, which is reflected in our outlook.

Okay. But you haven't... you haven't really figured in it i mean how um you probably don't want to say that but is there any way to sort of give a range of what you think the upside opportunity is.

I would love to, but I don't think I should. You know, look, this is... If we thought this was going to be really bad, our outlook would be worse. And if we thought that there was a total bonanza on the back side of this, our outlook would have been really high. So, you know, we think this is something that's, you know, not a big number either direction, but it's just really where we are right now, it's really hard to predict that. OK, we dedicated over the last week trying to figure out how to give our audience a number or a range, and we ultimately decided we can't.

Yes. Okay. Fair enough. On the contract mining, I think your guidance implies somewhat of a step down in the fourth quarter, but you do have the Arizona work coming online. So is that conservatism or do you see a pretty more substantial seasonal step down in Florida? What's behind those numbers?.

So the background story, I mean, obviously we've got Palm Beach coming online. We right now have three drag lines operating there, two smaller ones and one larger one. These are the electric M-TEC drag lines. We're bringing a fourth drag line on site. that should be up and running, you know, in the next few months. And so, you know, we get into 2027, we're going to have that dragline running in 2027 is going to have the benefit of all of our full year of operation in Arizona, which would be great. The other part that's going on is there's some one-off that I really I can tell you they are one-off temporary things happening at various customer quarries, primarily in Florida, most of our operations in Florida. So that's not surprising. We've got a customer that's reducing inventory on site.

Once they get their inventory reduced to the level they want, obviously we'll be producing again to match consumption. And there's some one-off things that are sort of slowing down production right now. which is not reflective of any overall macroeconomic changes. However, you know, there is a little bit of softness, particularly in Florida, well, there's softness. I'll say we see it mostly in Florida because that's mostly where we operate. I think it's probably some uncertainty around the election. I think it's some interest rates. None of our customers are telling us that they see any major economic downturn happening.

Florida is still growing, it's not growing as fast as it was. But that's kind of what the, those are the dynamics that are driving the contract mining business. business right now as we see it in the future. So just to add some clarity to that, we did say in the third quarter that.

you know, the new Palm Beach contract kind of offset some softness in the remaining limestone operations. But for overall Q4 and 2027, we did say we expect substantial year-over-year growth. in the overall segment.

Right. Okay. And I guess you didn't address the sequential growth in your most recent update.

Sequential from Q2 or from...

No, so Q3 to Q4.

Outlook, we said we anticipate a substantial year over year, but we did not compare to Q3. That's correct. Yes.

Okay. Let's see. So next year, I think you've mentioned the cash outlook is getting better. been generating sorry you've been allocating your free cash flow to investment i'm just curious you The stock's pulled back quite a bit. I'm just curious how you think about capital allocation and share buybacks versus investment at this juncture, especially as you begin inflecting to more positive free cash flow.

Yes. So if you, you know, I wish there was a line in the cash flow that was somewhere between cash flow from operations and cash flow before financing. The growth investments, and it's one of the reasons we expanded our CapEx. explanation. If you look at cash flow from operations, less capital that we're really committed to spend, and that would be the 16 million that's going to Sawtooth and, you know, sort of the maintenance CapEx piece of 2027. We said maintenance plus growth was 20 million. out of the $56 million total, part of that's maintenance. So, you know, we need to spend 16 at Sawtooth, and we will spend that. We've got, you know, the other portion of that 20. So if you did cash flow from operations less, Those two things, we generate a lot of cash.

It really then turns into what do you do after that? Obviously, we've been paying a dividend since 1961, and we're going to continue to do so. We've stated our intentions to strengthen our balance sheet. I think that's a really important thing for us to do. We're doing a lot of things that I think are going to help that over the course of next year. So then you start to think about what's left, right? You've got share repurchases and you've got opportunities for growth. Both of those contribute to shareholder value. I think our primary focus as we've been growing the company is, you know, let's go after new business opportunities that really give us what we're looking for, long-term earnings growth, long-term cash flow growth with strong, stable customers.

It's the, you know, it's the flywheel that really has built this business to where we are today, and we want to continue doing that. So that's kind of how we think about that. I will say we're looking at ways that we can get more growth out of each dollar of investment in growth. Or how do we get... How do we get the same growth with less investment? So in other words, saying how do we how are we more capital efficient with our growth dollars? That's something that all the leaders of our businesses are thinking about and looking at. And, you know, I think we've got some opportunities there.

Right. And when you say you're taking some steps next year you think will be helpful to the balance sheet, are you you indicating a focus on receivables or inventory? What are you referring to there?.

I mean, it's really just a whole range of things. I mean, it's all the stuff anybody would look at, right? It's some working capital. It's, you know... the capital intensity of each of our businesses? How do we think about best know what should we have on our balance sheet what should we not how do we think about that it's a study that we're in the middle of right now so i don't I don't really want to provide much more color on it, but I think we've got some interesting opportunities ahead of us.

Right, okay. Last question is just, I think in your slide deck you, indicate that your book value understates the market value of the land associated with mitigation resources. Are you able to frame that in terms of what you think the market value is and what the timeline is for realizing that land value?.

Well, the short answer is no, but I'm not going to give you that, but I will tell you our logic. So when we identify an area to build a mitigation bank, you want to be in a high growth area because that's where there's going to be a lot of demand for real estate development. You know, people, Department of Transportation, building roads and expanding roads, people put building apartments, putting in schools, it's all the sort of development that comes in a high growth area. So we want to buy a piece of land that's in the same watershed as the high growth area. but we need to buy it at a price that makes it economically attractive for us to develop a mitigation bank. So generally we're finding a piece of property that's got an opportunistic price for us, an attractive price for us, Because we're going to go in and improve the streams, wetlands if there are any, put a conservation easement on the part of the land that is relevant for that work. And the rest of the land is available for sale. Actually all the land is available for sale, but the land that's most attractive is that.

It doesn't have a conservation easement on it. So if you think about the fact that you've got growth and development coming in the direction of your mitigation bank and you bought it early and you bought it at a good price, the investment thesis there is this the value of that land should go up um possibly in a very meaningful way as development advances, as growth advances in that area. So that's why we feel pretty strongly that we've got some underlying hidden value in the land that we've acquired for these mitigation banks.

Right. Are you able to put any numbers in terms of acreage, anything that would help size the asset?.

We haven't disclosed any of that yet, but Doug, it's an interesting question that we'll talk about. That's something we should think about. It's a good question.

Okay, great. Uh, thanks, as always, and congrats on another dek.

Once I give you the interest, you're going to ask me for the price too. Maybe I can Google it. I can ask ChatGPT, too.

Okay. Thanks, as always, for the time, and congrats on another good quarter.

Yes, thanks, Doug, for calling in.

We appreciate your ongoing interest.

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

Okay, great. We'll conclude our Q&A session. And before we wrap up the call, I'd like to provide a few reminders. A replay of today's call will be available online later this morning. We'll also post a transcript on our website when it becomes available. And if you have any questions, please reach out to me. My phone number is included in the earnings release. Thanks for joining us today. I hope you enjoy the rest of your day, and I'll turn it back to Tina to conclude the call.

Thank you.

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

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Thank you for standing by. My name is Tina and I will be your conference operator today. this time I would like to welcome everyone to the NACO industry second quarter 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. ask a question, simply press star 1 on your telephone keypad. To withdraw your question, press star 1 again. It is now my pleasure to turn the call over to Christina Metzko, Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for our 2026 second quarter earnings call. I'm Christina Kometko, and I'm responsible for investor relations at NACO. Joining me today are JC Butler, NACO's president and CEO, and Elizabeth Loveman, our senior vice president and controller. Yesterday we released our second quarter results and filed our 10-Q with the SEC. Both documents are available on our website. During today's call, we will reference 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 files. We undertake no obligation to.

update these statements. Now I'll turn the call over to JC for his opening remarks. JC. Thanks, Kristi, and good morning, everyone. I want to start by saying that from an operating standpoint, the second quarter showed meaningful progress across NACO's businesses. Utility coal mining, contract mining, and minerals and royalties all contributed nicely to strong year over year improvement in gross profit and adjusted EBITDA. As we disclosed in our earnings release, the second quarter included impairment charges related to solar development projects that more than offset the strong operating performance of our established businesses and resulted in a consolidated operating and net loss. During the quarter, additional information and developments regarding two solar development projects within REGEN resources became available, which caused us to reassess the economics of these projects. This included updated information about increased costs and delays in connecting generation facilities to the grid.

These new features are also available to the grid. Negative developments collectively reached a tipping point in the quarter. Two key factors are at play. Tax law changes tied to the One Big Beautiful Bill Act, which was signed into law just over a year ago, created tremendous timing and related procurement challenges for renewable development projects like ours, which were started long before the One Big Beautiful Bill came into play. Those factors, coupled with intent short-term demand for generating equipment, EPC services, and equipment required to connect projects to the grid, and price increases linked to this demand and tariffs, created a perfect storm. As part of our routine quarterly review, it became apparent that two impacted projects were veering off the path we anticipated, leading us to take the impairment. Our review of the situation resulted in impairment charges totaling $12 million in the quarter.

We believe these impairments reflect a realistic view of the challenges in developing solar projects today, and we believe this was the right call for our business. We are not treating this as business as usual. We understand that the impairment raises questions about our capital allocation discipline. particularly in a business with risks that differ from our established mining and natural resources operations. We reassess these projects based on updated costs, timing, grid connection, regulatory and market information, and we are pursuing a range of alternatives to monetize these investments and reduce future exposure. These alternatives include potential asset sales, contract amendments, and other strategic actions. Depending on the outcome, there could be additional curtailment charges, but our focus is on preserving value where possible and limiting future capital requirements. As many of you know, we've always taken a long-term approach to building this company.

We invest in business and opportunities where we believe our operating expertise, core skills, patience, and disciplined capital investments can create value over time. That approach has helped grow and diversify NACO over the years, in most instances with great success. However, an important part of that philosophy is continually evaluating investments as markets evolve. We assess opportunities against our financial objectives and expected returns, and we are willing to adjust our priorities when we see better paths to long-term value creation. Recent developments with our solar projects have reinforced the need to apply heightened scrutiny to investments outside our established operating platforms. With that, let's turn to our core businesses. At Utility Coal Mining, Mississippi Lignite Mining Company was a main driver of the operating profit increase in Utility Coal Mining, as our team effectively responded to changing conditions.

Operational issues at the customer's power plant affected production requirements, and our team shifted resources to planned reclamation activities. This reduced our asset retirement obligation rather than having those costs be recognized as an expense that would have impacted second quarter earnings. This nimble response allowed them to continue working while also advancing work that supports the long-term life cycle of the mine and is consistent with how our coal mining teams operate. We have long-standing customer relationships built around reliability, safety, environmental responsibility, and the ability to adapt to situations required. Separately, we are actively engaged with the customer regarding the delayed payments disclosed in our 10-Q. We are focused on collecting amounts owed, preserving our contractual rights, and evaluating all options available under the contract. While we will not discuss specific legal strategies on this call, we understand the importance of enforcing the economic protections in the contract if payment delays continue.

Contract mining continues to be our primary growth platform for mining, with strong second quarter results reflecting the successful execution of this growth. The new dragline services work in Palm Beach County, Florida, is ramping up. Our limestone mining operations continue to serve growing needs. customer requirements, and we are preparing to begin operations at a new limestone quarry in Arizona later this year. This business builds on our existing expertise through great geographic and mineral expansion and a growing portfolio of long-term contracts with strong customers. We're improving profitability, enhancing earnings visibility, and creating long-term value. That kind of growth fits NACO well. In minerals and royalties, we continue to successfully manage a diversified portfolio of oil and gas mineral and royalty interests and related investments.

This business aligns well with our core growth strategy by levering our core skills and assets to generate meaningful ongoing cash flows across the broad range of natural resource businesses. BEAM continues to take a disciplined, data-driven approach to evaluating the portfolio and future opportunities. While second quarter results for minerals and royalties were strong, results in this segment can be affected by commodity prices, production timing, and the pace of domestic development activity. We manage the portfolio with a long-term view and continue to build on the quality of the assets we own. We expect profits in this segment to moderate near-term due to normal production declines on existing wells and a continuation of the current pace of domestic development activity, particularly in natural gas. Mitigation Resources continues to build its platform in natural resource restoration and reclamation services. We are pleased to see that Mitigation Resources is building a strong and sustainable business by leveraging our environmental and land management skills and experience. performance is currently variable as this business grows, mitigation resources is on a very nice trajectory towards profitability that we believe will provide consistent results as the business expands.

Stepping back, the first half of the year reinforced what we believe makes us unique. We have core legacy businesses that generate strong earnings and cash flow today, growth platforms that are expanding, and a disciplined investment process that requires us to continually evaluate where capital can create the most value. you. Sometimes that means investing for growth. Sometimes it means adjusting courses, facts, and circumstances change. Both are part of responsible long-term investment discipline. As part of our disciplined investment approach, we remain focused on strengthening our balance sheet. We are prioritizing the use of free cash flow to enhance liquidity and reduce debt while continuing to fund disciplined high return investment opportunities.

We anticipate investing up to $35 million in the remainder of the year, primarily for business development opportunities, but only if investment opportunities meet our capital investment criteria. Recent developments have reinforced our focus on investing where there are clear value creation pathways. We believe this approach presistence us to execute our growth strategies while strengthening our balance sheet and creating long-term value for our shareholders. With that, I'll turn the call over to Liz to walk through the financial results and outlook.

in more detail. Liz? Thank you, JC. Building on JC's operational comments, I'll provide an overview of our financial results. The key takeaway is that our operating businesses delivered strong quarterly year-over-year operating I'm sorry, strong quarterly year-over-year profit improvements while reported gap results reflected the solar-related impairment charges JC discussed. Consolidated revenues were $72.3 million, up 6% from $68.2 million in the prior year quarter. Gross profit was 15.2%. up 123% from $6.8 million last year, reflecting strong performance across each reportable segment. The consolidated operating loss was $2.3 million, compared with an operating loss of less than $100,000 in the prior year quarter. The net loss was $1 million, or 13 cents per quarter. share compared with net income of $3.3 million or 44 cents per diluted share in the 2025 second quarter.

Consolidated adjusted EBITDA was up 72% to $15.9 million from $9.3 million last year. This measure excludes the solar related charges and highlights the importance improvement in the underlying operating businesses. At the segment level, utility coal mining results were affected by operational issues at Mississippi Lignite Mining Company's customers power plant. While revenues decreased due to lower customer requirements, operating profit increased to $6.3 million from $1.2 million in the prior year quarter. and segment-adjusted EBITDA increased to $8.7 million from $3.4 million. These improvements primarily reflect better Mississippi lignite mining company results as resources were shifted to planned reclamation activities, as increased earnings from unconsolidated operations and lower operating expenses. Looking forward, we expect full-year utility coal mining operating profit to increase year-over-year due to the strong first half performance. In the second half of 2026, we expect results at Mississippi Lignite Mining Company to decline from the first half due to lower custom demand, higher diesel fuel costs, and an anticipated inventory impairment charge.

We are also monitoring the customer's payment status closely, and our outlook reflects the need for continued caution around customer demand, collection timing, and inventory valuation. Earnings of the unconsolidated mining operations are also expected to decrease due to completion of Reclamation Services at the Sabine Mining Company on September 30, 2026. Segment profitability is expected to improve in 2027, driven by increases in both the consolidated and unconsolidated mining operations. In the contract mining segment, current quarter results benefited from the commencement and wrap up of the Palm Beach County Drag Line Services Contract. This contract combined with increased customer requirements and deliveries at the limestone mining operations led to a 34% increase in revenues net of reimburse costs and substantial year over year increases in both operating profit and segment-adjusted EBITDA. Operating and profit increased to $3.8 million from $1 million, and segment-adjusted EBITDA increased to $6.3 million from $3.9 million. For both the second half and full year of 2026, we expect substantial year-over-year growth in contract mining, operating profit, and segment-adjusted EBITDA.

Second half results are expected to moderate from the strong first half due to lower anticipated customer demand. In 2027, a full year of earnings contributions from Palm Beach Dragline Services contract together with potential new deals in the pipeline, are expected to lead to significant operating profit improvement. In the minerals and royalties segment, operating profit increased to $6.7 million from $5.2 million, and segment-adjusted EBITDA increased to $7.7 million from $6.1 million. The improvements were primarily due to a 46% increase in royalty revenues driven by higher oil prices and a favorable adjustment to prior performance. period pricing estimates, partly offset by lower second quarter earnings from our IGR investment. For the remainder of 2026, we expect increased income from our IGRE investment and higher oil prices to be more than offset by anticipated production declines and a changing mix of production and development activity. As a result, operating profit and segment-adjusted EBITDA are projected to decline compared with the first half of 2026. as well as the second half and full year 2025. In 2027, we expect the minerals and royalty segment to continue generating meaningful earnings and cash flow, although operating profit is expected to moderate, primarily due to normal production declines and a continuation of the current moderate pace of domestic development activity.

At the consolidated level, we expect a strong performance generated by reportable segments during the first half of 2026 to drive year-over-year improvements in full-year 2026 consolidated adjusted EBITDA, which excludes the solar impairment charges and a $7.8 million pretax pension settlement charge recorded in 2025. Given the effect of changes and potential curtailment and impairment charges in the second half of 2026. We anticipate second half and full year operating profit and net income will be lower than in 2025. Consolidated adjusted EBITDA in the second half of 2026 is expected to remain strong, although the pace of growth is expected to moderate relative to both the first half of 2026 and prior year periods. From a liquidity standpoint, at June 30, 2026, we had outstanding debt of $120.1 million, Total liquidity was $114.6 million, consisting of $45.5 million of cash and $69.1 million of availability under a revolving credit facility. While we anticipate a moderate year-over-year increase in cash generated from operations, cash flow before financing is projected to remain a use of cash in 2040. reflecting our planned investment activity. We expect cash flow before financing for 2026 to improve modestly over 2025, and we expect that improvement to continue into 2027.

With that, I'll turn the call back to JC for closing remarks. Thanks, Liz. To wrap up, the second quarter demonstrated the strength.

of our core operating businesses. Our teams are executing well. Contract mining continues to demonstrate the value of the long-term growth platform we're building. And our other businesses continue to expand capabilities that can contribute over time. At the same time, we're focused on directing capital only towards the opportunities we believe offer the strongest risk adjusted returns. We remain focused on execution, liquidity, disciplined capital investments and long-term cash flow generation. Reisman, investments mature, and new contracts contribute more fully. We expect our businesses to support improving results and stronger cash flows over time.

We'll now turn the call over to any questions you may have. As a reminder, to ask a question, simply press star 1 on your telephone keypad. Again, that is star 1 to ask a question. And our first question comes from Douglas Weiss with DSW Investments. Please go ahead.

Hey, good morning. Good morning. So congrats on another good result. I guess starting with MLMC, It seems like there are a few things going on at once there and I was hoping to just get a little more clarity on each. I guess you alluded in the queue to reduce demand for MLM's use generation. My sense, I would have thought that demand pretty steady given the growing need for electricity. Could you just comment on that?.

Yes, sure. It's a good question. So there's three things that we're One is we deliver the fuel, the power plant generates electrons, and TVA takes the electrons to put onto the grid. You know, we stand ready to deliver the fuel when it's needed, as we're contractually obligated to do. The power plants... operates when it is able to operate. Although, as you know, because you've followed the company for a long time, the power plant goes through both planned outages when it's sort of periods of routine maintenance. Those are typically done during the spring and the fall when the weather is pretty moderate and, you know, there's... not the same level of demand on the grid in general, because of less air conditioning needs and things like that in the south. So you got the planned outages, but then you also have the unplanned outages.

And as you know, over the last several years, the plant has had a number of periods of unplanned outages. During the second quarter, there was a pretty significant unplanned outage at the plant. We knew it was going to be down for a while while they were repairing it. So we diverted our work to reclamation activities that go through, you know, those costs get charged the balance sheet as opposed to the income statement because we've got a reclamation liability. Okay. So you've got the plant that has planned and unplanned outages, but then the other piece of this is when the plant is up and available, is TVA taking the electrons or not? It's called dispatch. There are times when generally, yes, from a macro standpoint, increasing demand for data and other things, certainly is increasing demand. There are periods of time when, you know, TVA finds itself with excess electrons and it will choose which assets it's going to dispatch. tax law convoluted.

I think distorting tax law sometimes causes renewables to be dispatched ahead of base load generation. because of the tax credits. And then there are just other times when the weather turns out to be really mild or other things happen and TVA just doesn't need the electrons. So as we sit on the backside of this, we're subject to power plant, being up and running and TVA needing the electrons. Our, you know, our history is our history. The forecast is based on what are we hearing from our customer and TVA. But, you know, the indications that we get are general and not specific. know day by day or week by week and so it can change from that our current expectation um is what it is, and we're just going to have to see how that plays out with the power plants and TVA with respect to electrons.

Is that exploiting? Yes. Yes, no, that's helpful. And as far as the receivable, you know, it doesn't sound like from a practical standpoint there's much... in the near term to be done on that except, you know, wait for the plant to become pretty.

more fully utilized you know I can tell you it's we're paying a lot of attention to it we're keenly focused on it and we're as we have we will continue to you enforce and pursue the clear rights to remedy that we've got in our contract. Mm-hmm. Okay. Contract. Which? Contract was in 1995. It runs until 2032. It's been the same contract throughout, so we're pretty familiar with the terms.

Right, right. Okay. Let's see. You know, I had a kind of bigger picture or I a longer term question on power production in North Dakota. I was reading about proposals to extend a pipeline from the Bakken across North Dakota. I'm just curious how likely you think those projects are to go forward or that project is to go forward. And... If that would have, you know, potentially introduce new gas fired competition into the region over the next I guess, over the next decade? Well, so the pipeline.

I mean, there's multiple pipeline projects being discussed up there. in North Dakota. We're not a party to that, so it's hard for me to really comment on the likelihood or any of that. I can tell you that it's an incredibly energy rich state with tremendous coal and oil reserves and then the associated natural gas that comes with the oil. The state is an energy exporter. And, you know, I think there's lots of opportunities for the the North Dakota generation industry to support more generation. You know, there's a lot of data, there's a lot of other demand in the upper Midwest that can be served. And, you know, I don't know, I don't think that we really view many of those projects as real competition for us.

Mm-hmm. Okay. At the same time, there's also a lot of transmission being developed. just as there's various stages of pipelines being built. There's a lot of transmission work underway in the upper Midwest, North Dakota and beyond. which, you know, you can, I think of transmission like a highway system. If you didn't keep expanding your highway system, you'd end up with congestion. But if you keep expanding your highway system, which in this case is transmission, you don't really have the congestion problems and the electrons can get to the markets they need.

Okay. As you continue your reinvestment program, I'm curious, and I've asked you this before, time to time, but I'm curious if you are seeing better returns in contract mining or oil and gas or mitigation resources. If you have one of those segments where you are beginning to feel like is the most... you know, fruitful place for you to reinvest your capital? Well...

I mean, it's an interesting question. It's one where you think about... a lot. We, I would say is, you know, we've been on this reinvestment journey for about over 10 years now with most emphasis coming in the last five. And I would say is each of our core businesses, as we've been working on, you know, investment thesis and business model, We keep refining those models, and we keep finding ways where we can capture efficiencies in our own operations, which enhance margins, We have modified contract structures. We've evolved our contracts. customer engagement and our customer relationships in ways that are mutually beneficial for them and for us. If we can deliver more value to them, that's a good thing for us. I kind of think of that across all of our core businesses.

And over time, we are seeing new ways to enhance each of those. So that's, I mean, that's one part of the answer. The other part of the answer is I'm a big believer, we're big believers that each each of these businesses, these core businesses, has its own its own attributes, the attributes that make it attractive to us on its own, but it's also useful to us as part of the collective whole. Our mining business and our mitigation business very clearly benefits from the work that's done in our coal mining business. Honestly, our core mining business and our mitigation business are benefiting from things that we're doing on the North American mining side. And, you know, they're all helping each other. We call it a one-team approach.

So, you know, there's synergies in all of these. And then I guess the third way I think about this is about the importance of diversification. We're seeing an energy renaissance in the United States around fossil fuels. But I want to make sure that we're doing things that are complementary to that, to those businesses, so that we've got strength if, you know, for whatever reason, you know, the political forces really turn back against us. I think that, basically, that consumer demands and industrial demand for electrons are going to help. us in that way there's been a big shift in sentiment the last several years around more generation not less But I think, you know, the improving business models, the synergies between the businesses and the desire for diversification to create a more stable, very long-term platform for us, looks... lead us to believe that it's really in the best interest of the company and its shareholders to take a diversified approach. So that's really how we think about the balanced approach to investing that we've been making.

Right. Yes, it makes sense. You know, looking at your customers on the contract mining side, it does skew towards Chemex at the moment. How much of a priority is it for you to broaden... the customer mix over the next few years? Yes, that's a great question.

So there's a number of factors at play in this industry. One is we've already got relationships with a number of the large the big players. If you think about aggregate production in the United States or cement production, we're doing business with some of the various largest names. we are finding that we are getting more opportunities to do business with them because they see the work that we do at one quarry or a couple quarries, and they ask us if we would come take a look at another place where they're operating and give them our thoughts. on what we can do to help them. And, you know, not in every instance, but in a number of instances, that turns into additional projects. We're about to start operating a drag line later this year in Phoenix, Arizona. for an existing customer. That relationship, that contract, and operating at that quarry came about exactly in that way. Because we were already doing business with one of the big players.

That said, we're also, we find that there's geographic relationships. We started in South Florida with one very successful long-term agri-roots producer. And over time, we ended up doing business with a number of people in South Florida, As we went up into central Florida, which was our first foray about 10 years ago, with one or two, to quarry relationships that's now expanded and, you know, we're pushing into other areas across the United States as it seems appropriate. And most of the data expansions happen through our dragline services where we're providing the mining services for their operations. But for the last few years, we've also been using Vertcon surface miners in test cases with other operators in other parts of the state. And we're seeing some success. You know, in some instances, it's done what we thought it would do with the customer, but we all approached it as an experiment. And sometimes it's like, OK, well, we all learned something.

But another instance is like, OK, well, that was really interesting here, because you guys take that piece of equipment to a different quarry and try it there, because we think it's got real potential. So we're seeing lots of opportunities to grow because of the relationships and contracts we got, as well as just being in the neighborhood. It's one of the reasons I'm so enthusiastic about being in the Western part of the United States with this Phoenix quarry, as well as our Lybrock quarry, business, sorry, lithium, we have too many minerals that started with L, or lithium operation in Northern Nevada. And I guess the other way that we expand is by finding new ways to apply our skills. Palm Beach County, Florida project, where we've got a couple drag lines up and running now. We're in the process of commissioning a third drag line, and we've got a fourth drag line that'll be up and running later this year. Putting four drag lines on one project is a really big deal.

We're very excited about that. It's going well. We're still ramping up our operations as we go along, but we feel very good about the trajectory we're on. To me, one of the really exciting things about this is we're not mining the aggregates, the lime rock here, for sale as construction materials by an aggregates producer. This is being used by our customer. in a big infrastructure project related to Lake Okeechobee and the Everglades. in really infrastructure development. Well, that's kind of opened up a new market for us ways that we didn't, you know, we really hadn't figured out how to tap into this market. And this relationship, I think, is going to give us at least opportunities to explore other ways to apply our skills. to help other people that might be in a different part of the work that we do, we can help them with the same kind of services, but in a different way. We're not mining aggregates for sale.

We're mining aggregates to support the development of the infrastructure directly. So, you know, I talk about this as investment horizon as we touch more places in this business. gives us more opportunities for growth, but I think there's going to turn into, we're already seeing turn into expanded opportunities for growth in the future. Very long-winded answer, but it's one I'm really excited about.

Yes, no, that's great. You know, I just just circling quickly on on Mississippi Lignite and maybe you don't want to comment too much on. um, you know, legal issues, but I'm, I'm just curious if, if, um, if you're able to articulate what recourse you have a little bit more more granularly? Do you have more recourse than a typical unsecured creditor?.

I mean, you're right, I'm not going to comment on legal strategies. But we have, you know, I think a pretty clear understanding of our contractual rights and other points of leverage in this relationship. And we are very active in understanding those and knowing what those levers are and, you know, how those can be deployed. But I really don't think it'd be appropriate for me to comment further than that.

Okay, fair enough. I think that's all I have. Congrats again on the good quarter and I look forward to speaking in three months.

Great. Doug, we appreciate your ongoing interest. Thanks for your questions.

Again, to ask a question, simply press star 1 on your telephone keypad. With no further questions in queue, I will now turn the call back over to Christy Kumiko for closing remarks.

Okay, thank you. We'll end the Q&A session there. Before we wrap up, I'd just like to provide a few reminders. A replay of our call will be available later this morning. We'll We 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 earnings release. I hope you enjoy the rest of your day, and I'll turn it back to Tina to conclude the call.

Thank you so much.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

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.