NACCO Industries, Inc. 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone, and thank you for joining us for our 2026 second 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 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 filings. We undertake no obligation to update these statements.

Now I'll turn the call over to J.C. for his opening remarks.

J.C. Thanks, Christine, and good morning, everyone.

I want to start by saying that from an operating standpoint, the second quarter showed meaningful progress across NACCO'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 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 intense 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 NACCO 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 as situations require. 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 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 geographic and mineral expansion and a growing portfolio of long-term contracts with strong customers. We are improving profitability, enhancing earnings visibility, and creating long-term value. That kind of growth fits NACCO 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 leveraging our core skills and assets to generate meaningful ongoing cash flows across a broad range of natural resource businesses. The team 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. While 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. Sometimes that means investing for growth. Sometimes it means adjusting course as 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 positions 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.