NACCO Industries, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the NACRO industry's fourth quarter and full year earnings conference call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone keypad. If you require further assistance, please press star 0. It is now my pleasure to turn the call over to your speaker today. It's Christina Kometko. Please go ahead.

Good morning, everyone, and welcome to our 2020 fourth quarter earnings call. I am Christina Kometko, and I'm responsible for investor relations at NACO Industries. Thank you for joining us this morning. Joining me today are J.C. Butler, President and Chief Executive Officer of both NACO and North American Coal, and Elizabeth Loveman, NACA's Vice President and Controller. Yesterday, we published our fourth quarter and full year 2020 results and filed our 10-K. Copies of our earnings release and 10-K are available on our website. Anyone who is not able to listen to today's entire call, an archived version of this webcast will be on our website later this afternoon and available for approximately 12 months. Our remarks that follow, including answers to your questions, contain forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements made here today. These risks include, among others, matters that we have described in our earnings release issued last night and in our 10-K and in other filings with the SEC. We disclaim any obligation to update these forward-looking statements, which may not be updated until our next quarterly earnings conference call, if at all. In a moment, I'll discuss our fourth quarter and four-year results But first, let me turn the call over to our president and CEO, J.C. Butler, for some opening remarks. J.C.

Thank you, Christy, and good morning, everyone. As we put 2020 behind us, I'm pleased to be looking forward to the future. That said, I'm a big believer that changes make us stronger, and I definitely believe that the challenges we faced in 2020 made both our team and our business stronger. I have to start today by recognizing our employees for doing an incredible job for our customers and for the company. You know, while a portion of our employees have been working remotely, a vast majority of our team has been coming to work to do their jobs every day since the pandemic started. As essential workers, they needed to come to work and they did. And those working remotely seem to be putting in more hours and producing more output than ever before. I could not be more pleased with how well our entire team has managed through this situation and adapted to these constantly changing work environments. I truly appreciate our employees' commitment to supporting our customers while also working to keep themselves and others safe. I simply cannot thank our team enough for their great work. In addition to managing changes associated with the pandemic, we also dealt with disappointing news from some of our customers in 2020, which affected both our fourth quarter and full-year results. Christy will cover this more in detail in a moment, but it's safe to say that our 2020 financial results were disappointing. In our minerals management segment, we expected lower royalty income due to the natural decline in production of existing natural gas wells in Ohio, but the COVID-related collapse in natural gas prices made this worse than expected. Prices have recovered quite a bit from the lows in early 2020, but the pace of new well development has slowed down quite a lot. We also experienced a significant reduction in earnings in our coal mining segment. Our Camino Real mine in South Texas and our Caddo Creek mine in East Texas ceased production in 2020, and we generally saw modestly lower levels of coal requirements from our customers. Some of the reduced demand for coal was COVID-related, which somehow reduced demand, somewhat reduced demand for electricity, but it was perhaps even more so related to extremely low natural gas prices. Despite the challenges experienced in 2020, we continue to have a positive view of our long-term business prospects given our strategies to grow and diversify, a strong pipeline of business development opportunities, and the quality of our team. We continue to believe that coal is going to be an important part of electric generation capacity in the U.S. I think the recent events in Texas show us how important it is to have generation capacity that is readily dispatchable. We're very actively engaged in helping our coal customers be competitive and will continue to do so, but we are fully aware of the challenges faced by our legacy coal mining business. That's why we continue to push forward on key initiatives to grow and diversify. We're deliberately diversifying into other businesses that leverage our core skills, our capabilities, and our reputation. North American Mining has been growing quite rapidly over the last several years, and I was pleased to see improved operating profits from this business in 2020. We've expanded the scope of North American Mining's business development activities to include a broad range of minerals and materials and by leveraging our core mining skills to expand the range of contract mining services we can provide. We can provide specialized services like operating drag lines or other specialized pieces of equipment, or we can run an entire mine like we would do at the new lithium mine that we are developing for Lithium Americas in Nevada. There's no question that the pandemic slowed the pace of North American mining's business development activities in 2020, but our outlook for growth in 2021, including growth outside Florida, is strong. While North American mining didn't close on many new projects in 2020, their pipeline of potential new projects is bigger and better than ever. Shifting to our minerals management segment, we're growing and diversifying by buying mineral and royalty interests in premier basins in the U.S. While COVID reduced our oil and gas income, Depressed oil and gas prices and the OPEC price war created a buyer's market in 2020, making this a good time to launch our acquisition program. In 2020, we were able to acquire mineral and royalty interest in the Permian Basin in Texas for a total purchase price of about $14 million. These acquisitions align with our strategy to grow and diversify, where we're acquiring mineral and royalty interest in oil-rich basins with a balance of near-term cash flow yields and long-term growth potential. This offers diversification from our legacy mineral interests, which are predominantly in natural gas-rich basins, largely in southern Ohio. Mitigation Resources of North America is making great progress expanding its business model with a number of banks in development in the southeast. We're finding that we can create real value by leveraging our company's strong environmental skills and reputation for doing quality work to preserve and protect streams and wetlands. Mitigation Resources has demonstrated good success in its first few years in business and has a very strong pipeline of potential new projects. We certainly will evaluate new coal mining projects, but I don't see a lot of those coming available. And even if they do, we will be very careful to stick with our management fee business model and think carefully about the risk and opportunities of any new project. I do want to mention the voluntary separation program that took place in the fourth quarter. This was focused on reducing employee costs at the headquarters level, which directly affects our total G&A costs. This came about in response to some of the challenges we faced in our our coal mining segment, but also in recognition of the investments we've made in new information platforms and IT systems over the last several years. Between the VSP program and some voluntary departures, we've reduced our headcount by about 25% at the headquarters level. This wasn't an easy decision. All of our employees are an important part of our team, and many of these were very long-term employees, but it was what we needed to do. We'll end up filling a few of these positions, but overall, our plan is to leverage our new IT tools and modify processes to operate more efficiently. So with that, I'd just say again that while 2020 was not an easy year for us, I'm impressed by the tremendous accomplishments of our incredible team of employees, and I'm proud of the progress we made to advance our goals in spite of the challenges that 2020 threw at us. And of course, all of us are excited about building on this progress in 2021. We're purposefully diversifying into three strong businesses that leverage our core skills, capabilities, and reputation. And I've got a lot of confidence in what these businesses can become in the future. Now, let me turn the call back over to Christy to cover our results for the quarter.