Hallador Energy Company

Good afternoon, and thank you for attending Halidore Energy's second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. Following our prepared remarks, we will conduct a question and answer session, and instructions will follow at that time. As a reminder, this call will be recorded. I would now like to turn the conference over to Sean Mansouri, the company's investor relations advisor with Elevate IR. Please go ahead, Sean.

Thank you, and good afternoon, everyone. We appreciate you joining us to discuss our second quarter 2025 results. With me today are President and CEO, Brent Bilsland, and CFO, Todd Tellez. This afternoon, we released our second quarter 2025 financial and operating results in a press release that is now on the Halador Investor Relations website. Today we will discuss those results as well as our perspective on current market conditions and our outlook. Following prepared remarks, we will open the call to answer your questions. Before we begin, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties, and assumptions contained in our filings from time to time with the SEC and are also reflected in today's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, Alidor has no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, unless required by law to do so. And with the preliminaries out of the way, I'll turn the call over to President and CEO, Brent Billsland.

Thank you, Sean, and thank you, everyone, for joining us this afternoon. We delivered a strong second quarter with year-over-year improvements in revenue, net income, and adjusted EBITDA, along with another period of positive cash flow from operations. Our performance reflects the operational resilience of our platform, particularly as we navigated seasonal spring softness in the energy market and a scheduled outage at one of our generating units at Merrim. The strength of our remaining units and higher than expected market pricing in the end of June helped offset those headwinds, while our coal operation benefited from improved cost efficiency and stronger recovery rates. As a result of these operational enhancements and our planned outage at Merrow, we expected and saw coal inventory levels rise in the quarter. These increased inventory levels should position us for an active second half of the year as both units return to full dispatch and coal customer shipments remain strong. As part of our ongoing strategy to manage the potential impacts of inconsistent weather and fluctuating energy prices, we continue to supplement periods of weaker pricing with select firm energy sales. These sales provide downside protection during periods of mild weather and soft pricing, but still give us the flexibility to capitalize on upside pricing during stronger periods. In late June, we expanded our relationship with an existing counterparty by executing a $35 million prepaid firm energy sale with delivery scheduled throughout 2025 and 2026. In conjunction with this sale, we made minor amendments to our credit agreement, including moving a required principal payment from October of 2025 to January of 2026. and redefining certain covenants to enhance our operating flexibility for the remainder of 2025. We used a portion of the prepaid proceeds to fully cash collateralize our term loan balance of $19 million, with the remaining balance of the proceeds supporting ongoing operations and liquidity. We requested this structure as we believe that it will give us additional optionality as we evaluate refinancing structures related to our current credit facility. We are also seeing increased momentum in our commercial strategy to secure a long-term power purchase agreement. Since concluding exclusive discussions with a global data center developer in May, we've engaged with a broader slate of potential partners, including utilities whose proposals offer compelling scale simpler execution, and faster implementation. The current market backdrop, driven by accelerating demand for accredited capacity and resilient baseload power, presents a meaningfully more attractive landscape than when we initiated our RFP process last year. While we continue to speak with our original counterparty, we're encouraged by the level of engagement from new participants each bringing unique opportunities to monetize our energy and capacity offerings. We're in the process of gathering and evaluating multiple offers from a variety of sources, including utilities and data center developers. The attributes of these offers and discussions have varied in terms of price, execution risk, start date, term length, and structure. Regardless of which direction we ultimately seek to pursue, we remain optimistic that these conversations will culminate in a long-term agreement or agreements that enhance shareholder value. We've long maintained the belief that the industry's shift away from dispatchable generation and favorable of intermittent renewables will create long-term imbalances and greater market volatility. This environment increases the value of reliable baseload assets like our Merum generating station. To build on that position, we continue to evaluate opportunities to acquire additional dispatchable generation, which we believe can diversify our portfolio, expand the scale of strategic transaction, and enhance our financial profile in a rapidly evolving power market. We are continuing to evaluate the potential of adding natural gas capabilities at Merrim, creating a dual-fuel configuration that could enhance reliability, flexibility, and cost control. The ultimate decision of whether to co-fire, when to implement the change, and the associated cost and funding in connection with such a change is inherently dependent on the type of long-term PPA transaction, if any, that we ultimately reach. The multitude of potential PPA options and structures has resulted in us pushing forward with base level planning, or in other words, planning those things that are consistent regardless of the ultimate deal structure. But delaying implementation on more bespoke elements until we have additional clarity on the customer desires and regulatory requirements. We continue to invest in the long term value of Mirum through disciplined maintenance and capital planning. One of our units was offline for scheduled maintenance for most of the second quarter and into early Q3, a process we intentionally timed during the spring shoulder months when power demand and pricing are typically lower. We also limit firm power sales during these periods to avoid potential exposure to the spot market in the event of an unplanned outage with our other units. That said, pricing in late June exceeded expectations, and we were able to capitalize on those conditions with our remaining online units. As we've stated in the past, we believe Merrim has the capacity to produce up to 6 million megawatt hours annually. Beginning in 2026, our average contracted sales prices across both Halidor and Sunrise Coal step up meaningfully compared to current levels. With respect to energy sales, our largest PPA contract will see an increase of more than $20 per megawatt hour in 2026 as compared to 2025 on expected volumes of approximately 1.6 million megawatt hours. On the coal side of the business, our average contracted sales price across all contracts in 2026 is approximately $4 per ton higher than the average contracted sales price in 2025. As discussed in our recent earnings call, We are actively evaluating strategic transactions that could expand our scale, diversity of our generation footprint, and support the growing demand of large load users. By targeting the repurposing of retiring or underutilized assets to serve industrial and AI-related demand, we believe Haldor can deliver capacity that is additive to the grid rather than cannibalizing existing reliability, positioning us to create long-term value for customers, shareholders, and the grid at large. Encouragingly, we are also seeing growing policy support at both the state and federal levels that we believe could further bolster this strategy moving forward. Turning to our coal operations, We continue to realize the benefits of the restructuring efforts we implemented last year within our Sunrise Coal Division. That initiative was focused on aligning production, headcount, and operations to better support both our internal generation needs and existing third-party contracts. As a result, we've seen improved cost performance and more efficient recoveries. We did see increasing inventory levels due to the slowed internal shipments while we completed our planned maintenance at Mero, but expect these levels to normalize as we move through the shorter season into the warm summer months. We believe Sunrise is well positioned to quickly scale if market conditions shift, particularly if pricing strengthens to levels that justify restarting production at higher cost units. This structure provides us with the flexibility to meet increased demand while maintaining a disciplined operational profile. With growing support for coal and coal-fired generation at both the federal and state level, we believe Haldor, through our mining subsidiary, Sunrise Coal, is positioned to quickly capitalize on opportunities for expanding production. Market conditions have strengthened relative to last year, and we continue to assess whether it makes economic sense to bring additional production online in the second half of 2025 or into 2026. For now, we expect to produce approximately 3.7 million tons in 2025, with roughly 2.1 million tons already produced during the first half of the year from our Oaktown mining complex. To supplement internal production, We continue to source coal from third-party suppliers, typically at favorable pricing, to diversify supply risk and provide added flexibility in the event of spot market strength. This optionality enables us to optimize fuel costs at Merrim while positioning us to capture margin upside in a rising coal market. Looking ahead, we remain focused on unlocking the full value of our dispatchable generating assets while continuing to evaluate strategic acquisitions and enhancements. The momentum we're seeing across federal and state policy combined with growing interest from potential partners for long-term PPAs reinforces our confidence in the path ahead. We believe Halidor is uniquely positioned to capitalize on the trends that are reshaping the energy sector. To support this next phase of growth, in June we announced the appointment of Todd Tellez as our new chief financial officer. Todd brings deep experience across the power and utility sectors, most recently serving as CFO of Tri-State Generation and Transmissions. a cooperative serving 40 systems across four states. Prior to that, he was CEO of Basin Electric, one of the nation's largest G&T cooperatives, and previously held senior leadership roles at CoBank, where he supported energy and utility clients for approximately 17 years. Todd's background in finance, generation, and cooperative power favorably positions him to efficiently support Halador's continued growth plan. I will now publicly welcome Todd to Halador and hand the call over to him to take you through our financial results.