Hallador Energy Company

Good afternoon. Thank you for attending Halador Energy's first quarter 2026 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'd now like to turn the conference over to Sean Manzuri, 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 first quarter 2026 results. With me today are President and CEO Brent Bilsland and CFO Todd Tellez. This afternoon, we released our first quarter 2026 financial and operating results in a press release that is now on the Halidor 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 Dothlan.

Thank you, Sean, and thank you, everyone, for joining us this afternoon. Before diving into our first quarter results, I want to begin with what we believe is an important milestone in and a multi-year transformation of Halidor. One that has been in the works for a long time now and reflects the steady, deliberate execution of a strategy our long-term shareholders have been patient with. Subsequent to quarter end, we executed a 12-year capacity agreement with a subsidiary of utility that is expected to generate more than $1 billion of contracted revenue from 2028 through 2040. At pricing levels more than 2x our historical contracted capacity pricing. This agreement is subject to approval by the Indiana Utility Regulatory Commission, which we anticipate will occur in the second half of 2026. The agreement represents one of the most significant commercial achievements in our company's history. It may be helpful to put today's announcement in the context of the path that brought us here. Six years ago, Halador was originally an underground coal mining company. In 2021, we began acquiring a one gigawatt interconnection. In 22, we acquired the one gigawatt power plant that utilizes the interconnection. In 2024, we began marketing long-term output of the plant And in 25, those discussions broadened from data center developers to utilities. In March of this year, we executed a three-year capacity agreement at approximately twice our historical pricing. And today, we are announcing a 12-year, $1 billion plus capacity agreement that follows directly behind it. Each of those steps was deliberate, each built on the one before. And we believe the same pattern of disciplined, sequential execution will continue to define how we create shareholder value from here. Combined with the three-year capacity agreement we announced in March that contracted our accredited capacity for planning years 26, 27, and 28, the agreement we are announcing today contracts the back portion of planning year 2028 and each year thereafter through mid-2040. Together, these two capacity-only sales total approximately $1.1 billion and place Halidor in a substantially sold-forward position on accredited capacity for approximately the next 14 consecutive years. We believe this represents a meaningful structural improvement in the durability of our earnings power and our balance sheet. And importantly, it provides the capital-raising foundation from which to pursue the next set of opportunities in front of us. The agreement initially covers a smaller volume of accredited capacity in planning year 2028, increasing to approximately two-thirds of our accredited capacity beginning in planning year 2029 and continuing through 2040. This structure provides the kind of long duration revenue visibility that is increasingly rare for dispatchable generation in MISO and validates the durable economic value of our dispatchable generation platform. It is worth noting that this agreement is only for our capacity. We are not committing energy under this contract, which enables us to secure durable contracted revenue while preserving full exposure to future upside in energy markets as demand for power continues to rise across MISO. Preserving that energy side optionality is intentional. As we will discuss in a moment, we believe the energy market is on a different timeline than the capacity market, and we are positioning the portfolio to participate in both as they develop. To us, that is the bigger story. Where our first quarter results were generally in line with our expectations due to previously mentioned availability constraints at Merrim, the underlying value of Halidor is increasingly tied to the growing scarcity of reliable, dispatchable generation. The agreement we announced today is one clear data point of that dynamic. And we believe it is one of several you should expect to see emerge from the role our assets can play in meeting this demand. When we look at the market, we view capacity as the critical first step. For large load customers, particularly data centers, access to accredited capacity is often the gating factor. Without it, projects cannot move forward. As a result, we are seeing capacity markets tighten and reprice ahead of the physical demand that these developments will ultimately bring. Energy demand follows on a different timeline. These projects require several years to build, and as they come online and begin to draw power from the grid 24-7, 365, that is when we expect to see more meaningful response in energy pricing. Our portfolio is constructed to participate in both phases. The capacity contracts we have announced this year address the first. The merchant energy position we have intentionally retained is positioned to address the second when it arrives. This dynamic is central to how we are positioning the business. Our strategy is to monetize capacity where we can secure attractive long-term value today while maintaining flexibility to participate in future upside and energy markets. We are being deliberate in how we contract our portfolio, locking in value where scarcity is already evident, and preserving exposure where we believe demand has yet to be fully reflected. Capacity remains a critical requirement for large load development, and we continue to see strong interest from counterparties seeking reliable supply over longer periods. The agreement we signed is an important anchor in our forward sales book, but it is, by design, not the last commercial step we expect to take. We continue to evaluate additional ways to monetize our remaining capacity and optimize our forward energy position. We will maintain a disciplined approach and we will be deliberate about the timing and structure of any future commercial agreements. That said, the level of inbound interest we are seeing today is meaningfully higher than it was even six months ago across multiple counterparty types and contract structures. The contracted high conversion cash flows from these agreements also support a broader transformation we are pushing. building at Halidor over time into a multi-fuel independent power producer with a more diversified generating fleet. We have spoken previously about the proposed 515 megawatt combustion turbine project at our Mirim generating station site under the MISO ERAS program. Additionally, we are continuing to evaluate dual fuel initiatives for our existing generations. We will work towards making progress on these work streams in the same disciplined sequential way as the contracting strategy has unfolded under the past year. Now turning to our first quarter 2026 results, as we discussed on our last call, we experienced availability constraints at Merham in Q4 that continued into the first quarter and reduced generation from the plant. First quarter results reflected those constraints as lower generation at Merham pressured electric sales and intercompany coal sales, which ultimately impacted our profitability for the quarter. We also incurred outage-related replacement power costs during Q1, which created an additional headwind. While these results were generally in line with the expectations we provided in March, They are below the level of performance that we expect from our Merrim power plant over time. Maintaining high levels of reliability remains a top priority for our team, particularly as MISO increasingly depends on dispatchable resources during periods of peak demand. As such, the generating unit in question is currently in a planned maintenance outage, and we are using this period to make reliability-related investments, that we believe should improve performance as we move through the balance of the year. As we have discussed previously, Halidor operates as a vertically integrated platform, and Merum sits at the center of that system. When the plan is running efficiently, it drives performance across the business, supporting electric sales, creating consistent internal demand for coal, improving mine productivity, and enhancing overall operating efficiency. When performance at Merrim falls below planned levels, those impacts extend throughout the platform. Coal inventories increase, production at Sunrise becomes less efficient, and it becomes more difficult to optimize our cost structure. That is why our focus on improving reliability at Merrim is so important. The outage currently underway is a key part of that effort. We are making targeted capital investments in the unit, and we believe that that is the right decision given both the value of Mirum today and the increasing importance of reliable, dispatchable generation going forward. Historically, similar investments have led to meaningful improvement in operating performance, and we expect the work being completed now to position the plant for higher availability as we move into the summer and upcoming peak demand periods. We are also in a much stronger financial position to support these investments. At quarter end, we had no outstanding bank debt and meaningfully improved liquidity compared to year end. That improved capital position gives us greater financial flexibility to invest in the asset, support our ongoing operation, and pursue the strategic opportunities we are seeing across the power market. Looking ahead, our second quarter results will reflect the planned outage currently underway, which we expect will temporarily reduce generation as we complete the necessary maintenance. As we move into the second half of the year, the underlying setup begins to shift, with the plant returning from outage and availability improving. We expect to be better positioned heading into the peak summer demand period, As I mentioned earlier, more consistent performance at Merrim supports not only electric sales, but also internal cold demand, mine productivity, and overall operating efficiency across the platform. This is important because the opportunity in front of us ultimately depends on execution. While the agreement we discussed earlier reinforces the value of accredited capacity and dispatchable generation, Realizing that value over time requires consistent performance at Merum. We're focused on improving reliability, driving efficiency across our coal operations, and translating the market opportunity we see into durable cash flow. Although the first quarter was operationally challenging, it does not change our view of the long-term earnings potential of the platform. The fundamental signals across our markets remain constructive, and we believe Halador is well-positioned to compound shareholder value over a multi-year horizon as the strategy we have been describing continues to unfold milestone by milestone.