NACCO Industries, Inc.

Lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Christina Kometko. Please go ahead.

Thank you. Good morning, everyone, and welcome to our 2023 third quarter earnings call. Thank you for joining us this morning. I'm Christina Kometko, and I'm responsible for investor relations at NACO Industries. Joining me today are J.C. Butler, President and Chief Executive Officer, and Elizabeth Loveman, Senior Vice President and Controller. Yesterday, we published our third quarter 2023 results and filed our 10-Q. This information is available on our website. Today's call is being webcast. The 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 several 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've described in our earnings release, 10-Q, and other SEC filings. We may not update these forward-looking statements until our next quarterly earnings conference call. We'll also be discussing non-GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non-GAAP measures can be found in our earnings release and on our website. I'd also like to note that during today's remarks, we'll provide information about the remainder of 2023, as well as a high-level view of our 2024 expectations. We ask that you remember that the 2024 information is preliminary. We are still in the process of reviewing our annual operating plan. We will provide more definitive 2024 information as part of our fourth quarter 2023 earnings release. With the formalities out of the way, I'll turn the call over to JC for some opening remarks. JC.

Thank you, Christine. Good morning, everyone. Our third quarter 2023 results were much lower than last year, but that was as expected and in line with the outlook we provided last quarter. To understand our results, it's best to discuss the quarter business by business. I'll also talk about our future expectations before turning the call back over to Christy. I'll first address the coal mining segment. Last quarter, I talked about the temporary operational inefficiencies of Mississippi Lignite Mining Company related to transitioning to a new mine area and contending with some short-term adverse mining conditions caused by increased rainfall, both of which reduced our production and increased our costs. This situation continued into the third quarter and for the same reasons. We do expect production costs at MLMC to decline significantly in 2024 from recent levels. However, production costs are expected to remain above historical levels through 2024 when a pit extension in the new mine area is complete. To provide some background, we moved to this new mine area because the coal reserves were largely depleted in mine area one, where we'd been mining since the late 1990s. We had to open a new mine area with additional reserves to meet our contractual coal delivery requirements, which run to 2032. This was not a surprise. We've known that we'd need to move to a new mine area since we started mining over 20 years ago. The move to a new mine area and the related costs are now behind us. We expect to see modest improvement in the fourth quarter, with results improving further in 2024. However, the biggest favorable impact will occur in 2025 and future years as operations in this new mine area normalize. You'll recall that we've invested significant capital to develop this mine area. These capital investments have resulted in increased depreciation expense that will continue over the remainder of the contract term. The added depreciation will affect reported operating profit, but this depreciation is excluded from EBITDA, which we think is a better way to look at this part of our business, because we don't expect Mississippi Lignite Mining Company to open additional mine areas through the remaining contract term. Shifting to minerals management, natural gas and oil prices are significantly lower than the very high prices experienced in 2022. These lower prices have led to a significant decrease in minerals management's third quarter 2023 results, compared with the prior year. Natural gas and oil prices are expected to continue to remain below 2022 levels, resulting in a significant decrease in operating profit in the fourth quarter of 2023 compared with 2022. The team at Catapult Mineral Partners is finalizing a $37 million acquisition anticipated to close during the fourth quarter that will provide additional diversification into the oil-rich Permian Basin. In 2024, minerals management is targeting additional investments of up to $20 million. These investments, as well as the development of new wells on existing owned reserves, beyond those included in our forecast, would be accretive to future results. Our North American mining segment generated a moderate operating profit again this quarter, compared with a small loss in the prior third-year quarter. The aggregates mining part of this segment struggled during 2022, but the changes we implemented to drive improved future financial results are paying off, and that's encouraging. I'm optimistic North American mining can build upon this momentum and continue to show improvements in profitability in the future. A decrease in Caddo Creek reclamation income is partly offsetting the improvements and results at North American mining's aggregates operations. We're no longer recognizing reclamation income at Caddo Creek since we purchased the membership interest in the Marshall Mine in March 2023, where Caddo Creek had been performing mine reclamation work. Wrapping up my North American mining comments, let me mention Sawtooth Mining, which is the exclusive contract miner for Lithium America's Thacker Pass lithium project in northern Nevada. Construction at Thacker Pass commenced in the first quarter. With that, we began acquiring equipment for the project. We've acquired $23.1 million of equipment to date. We expect to continue to recognize moderate income through 2025 with higher levels of income anticipated when our customer commences phase one lithium production, which is currently expected to begin in the second half of 2026. Moving to mitigation resources of North America, This team continues to advance existing mitigation projects and build on the substantial foundation it has established over the past several years. I'm pleased to report that they added an additional mitigation bank during the third quarter. Mitigation Resources is still in what I refer to as the startup phase, but I'm very pleased with the level of growth they've achieved since starting five years ago. And I'm even more excited about their prospects. They continue to look for additional projects and expect to achieve near break-even earnings in 2024 with increasing profitability over the longer term. I said this last quarter, and I'll say it again. We expected 2023 to be a year of unfavorable comparisons for a few very specific temporary reasons. Despite this, I am still very optimistic about our outlook as we look beyond 2023. I have a lot of confidence in our team, and I'm pleased with the way all of these businesses continue to advance their strategies, including efforts to protect our coal mining business. With that, I'll turn the call back over to Christy to cover our results for the quarter and our outlook in more detail. Christy?