NACCO Industries (NYSE:NC) held its first-quarter earnings conference call on Wednesday. Below is the complete transcript from the call.

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Summary

NACCO Industries Inc reported a strong start to 2026 with a 43% increase in operating profit over the previous year and a 28% increase in adjusted EBITDA.

The company's utility coal mining segment, particularly the Mississippi Lignite Mining Company, was a significant contributor to the operating profit increase due to effective pivoting during a power plant outage.

Strategic growth in the contract mining segment was driven by new projects, including a U.S. Army Corps of Engineers project in Florida and an upcoming limestone quarry operation in Arizona.

The minerals and royalties segment saw comparable year-over-year operating profit, but the expectation is a decrease in 2026 due to anticipated production declines in natural gas assets.

Mitigation Resources acquired 958 acres in Tennessee, marking significant expansion, with mitigation credits expected to be available by 2029.

NACCO Industries Inc made capital expenditures of $33 million in the first quarter, primarily for the dragline project in Florida and land acquisition for Mitigation Resources.

The company expects meaningful year-over-year improvements in consolidated operating profit, net income, and adjusted EBITDA for 2026, excluding a 2025 pension settlement charge.

Full Transcript

Christina Kametko (Investor Relations)

Thank you. Good morning everyone and thank you for joining us for our 2026 first quarter earnings call. I'm Christina Kametko 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 first quarter results and filed our 10-Q with the SEC (Securities and Exchange Commission). Both documents are available on our website. During today's call we will reference several 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 (Securities and Exchange Commission) filings. We undertake no obligation to update these statements. With that, I'll turn the call over to JC for his opening remarks.

J.C. Butler (President and CEO)

Thanks, Christina and good morning everyone. I'm pleased to say that we delivered a Strong start to 2026 reporting significant growth and profitability. First quarter operating profit increased 43% over last year and 45% sequentially. Meaningful growth in our utility, coal and contract mining segments drove the year over year improvement while contract mining led the sequential growth primarily due to the commencement of a new construction project in Florida. These operating results contributed to the 28% year over year and 15% sequential increases in adjusted EBITDA. These results reflect the business executing well and delivering as expected. Let me walk through each of our businesses in more detail. Our utility coal mining segment remains the foundation of our business and this quarter Mississippi Lignite Mining Company was one of the main drivers of our operating profit increase. During our year end earnings call, I discussed the customer's power plant outage that began in mid February. During the outage we pivoted effectively and redeployed crews to work on planned reclamation activities. This reduced our asset retirement obligation rather than being recognized as an expense which would have impacted first quarter earnings. Lower cost per ton helped minimize the effect of reduced deliveries in the first quarter. I'm confident that as long as the customer's power plant operates as planned, the team will continue to mine effectively and control costs, driving improvement in year over year results. At Mississippi Lignite Mining Co. Our contract mining segment is our primary growth platform for mining and its strong first quarter operating profit reflects the benefits of our strategic initiatives to expand this business. During the quarter, we commenced activities under a multi year dragline services contract as part of a U.S. Army Corps of Engineers construction project in Palm Beach County, Florida. We're excited about this opportunity because it advances our growth into large scale infrastructure projects and it showcases the efficiency and environmental advantages of our new electric drive M-Tech draglines. We have 2M tech draglines on site and plan to add a third to this project later this year. We're encouraged by the early project on progress on this project. In addition to the Florida project, we expect to commence operations during the second half of 2026 on a limestone quarry in Arizona where we will be operating a dragline for an existing customer. This is a great opportunity that expands our footprint into a new region of the United States. Contract Mining continues to build a growing portfolio of long term contracts through great geographic and mineral expansion which is expected to lead to increasing profitability in this segment. Turning to minerals and royalties, this segment reported comparable year over year operating profit while first quarter results exceeded our forecast. We continue to expect year over year decrease in operating profit and segment adjusted EBITDA in 2026. Despite higher prices, Natural gas remains the primary driver of our near term results, so higher oil prices certainly contribute to our results, but they do not have the same level of impact. That said, there's a lot of uncertainty in the oil and gas market, so we'll have to see how the situation in the Middle east plays out. At Mitigation Resources, we expect increasing profitability over time from the sale of mitigation credits and as reclamation and restoration services expand. While performance is currently variable due to permit and project timing, Mitigation Resources is expected to generate profit in the second half of 2026 and move toward more consistent results as the business expands. In mid April, mitigation resources acquired 958 acres in Wilson County, Tennessee which is east of Nashville. This marks an important step in their growth strategy, representing significant expansion into an area experiencing steady economic growth. The project is expected to deliver a new mitigation bank with high quality stream and wetland mitigation credits with availability anticipated in 2029. These credits will support continued residential, industrial and infrastructural development in a 14 county area around Greater Nashville. We are very excited about this project because it allows us to serve twice the typical service range for similar mitigation projects and we will be serving an area that has experienced steady economic growth across the board. We continue invest in our businesses to drive future growth. We made capital expenditures of $33 million during the first quarter and we anticipate making additional capital investments through the remainder of 2026 primarily in business development opportunities that meet our strict investment criteria. Overall, I continue to believe we are well positioned for meaningful growth. We entered 2026 with clear opportunities to build on our 2025 momentum and we are executing.

J.C. Butler (President and CEO)

I remain confident in our businesses and our ability to deliver strong 2026 results as we continue to execute our growth strategies and and create long term value for our shareholders through long term relationships, long term contracts and investment in long term assets. With that, I'll turn the call over to Liz to provide a more detailed view of our financial results and outlook.

Elizabeth Loveman (Senior Vice President and Controller)

Thank you, J.C. I'll start with some high level comments about our consolidated first quarter 2026 results. Compared to the 2025 first quarter, we generated consolidated gross profit of $14.3 million, an increase of 48% over year despite first quarter revenues of $62.8 million decreasing 4%. Consolidated operating profit of $11 million increased from $7.7 million in 2025 driven by improvements in both our utility coal mining and contract mining segments.

Elizabeth Loveman (Senior Vice President and Controller)

These favorable results were partly offset by higher unallocated expenses. These strong operating profit results, combined with an improvement in other investment income resulted in net income of $8.8 million or $1.18 per share. This was an 80% increase over first quarter 2025 net income of $4.9 million or 66 cents per share. Consolidated adjusted EBITDA increased 28% to $16.4 million versus $12.8 million for the same period last year. Turning to the segments, the utility coal mining segment reported operating profit of $7.4 million in 2026, a substantial increase over the $3.8 million generated in the 2025 first quarter segment. Adjusted EBITDA increased to $9.7 million from $5.8 million in the prior year. Efficiency actions and reclamation progress at Mississippi Lignite Mining Company during the power plant outage drove a meaningful improvement in gross profit compared with the prior year when results were affected by a $3 million inventory impairment charge. Looking ahead, we expect a meaningful increase in operating profit compared with 2025, primarily in the first half of 2026.

Elizabeth Loveman (Senior Vice President and Controller)

Improvements at Mississippi Lignite Mining Company driven by an increase in the contractually determined per ton sales price and a lower cost per ton delivered are expected to be partly offset by lower earnings at the unconsolidated mining operations. The lower unconsolidated mining earnings in the second half of 2026 are due to reduced income from from the Sabine Mining Company, associated with the wind down of reclamation services in the contract mining segment.

Elizabeth Loveman (Senior Vice President and Controller)

Current quarter results benefited from the commencement of the Army Corps of Engineers Dragline Services contract. JC discussed this contract combined with increased customer requirements and deliveries at the limestone mining operations led to a 32% increase in revenues net of reimbursed costs and substantial year over year increases in both operating profit and segment adjusted ebitda. During the quarter, contract mining changed its depreciation method for draglines and other large mining equipment from straight line to units of production to better align depreciation with asset usage. This change contributed approximately $900,000 to first quarter operating profit. As activity increases, particularly with the dragline services project in Florida and the commencement of operations in Arizona, depreciation expense will increase accordingly and we expect full year depreciation to be generally in line with 2026. Looking forward as a result of earnings contributions from new contracts and continued momentum from 2025 activities, we anticipate a substantial year over year increase in both operating profit and segment adjusted EBITDA at the contract mining segment.

Elizabeth Loveman (Senior Vice President and Controller)

In the minerals and royalty segment, higher first quarter 2026 earnings from our Eagle equity investment mostly offset lower natural gas revenues reflecting the benefits of our diversified portfolio and resulting in comparable year over year operating profit. For full year 2026, we expect the increases in income from our equity holding combined with higher oil prices will be more than offset will be more than offset by anticipated production declines in our natural gas assets and a changing mix of production and development activity resulting in an overall year over year decrease in minerals and royalties operating profit and segment adjusted

Elizabeth Loveman (Senior Vice President and Controller)

ebitda. At the consolidated level, we anticipate meaningful year over year improvements in consolidated operating profit, net income and adjusted EBITDA in 2026 excluding the effect of a $6 million after tax pension settlement charge in 2025. We expect year over year growth to moderate in the second half of the year as anticipated. Results are compared against stronger prior year operational performance. Looking at our liquidity at March 31 we had outstanding outstanding debt of $126.4 million, up from $100.9 million at December 31, 2025.

Elizabeth Loveman (Senior Vice President and Controller)

Our total liquidity was $102.7 million, consisting of $53.2 million of cash and $49.5 million of availability under our revolving credit facility. As a result of the anticipated capital investments, we expect a greater use of cash before financing in 2026 compared with 2025. With that, I'll turn the call back to JC for closing remarks.

J.C. Butler (President and CEO)

Thanks, Liz. To wrap up our first quarter, 2026 results reflect continued execution of our business model and the strength of our operations. As we move forward, we plan to build on this momentum through additional investments in our growth platforms that are expected to deliver improvements in profitability and cash generation. I am encouraged by our performance and remain confident in our ability to generate long term value for shareholders.

J.C. Butler (President and CEO)

We'll now turn to any questions you may have

OPERATOR

as a reminder. To ask a question, simply press star 1 on your telephone keypad. Again, that is star 1 to ask a question. And our first question comes from the line of Doug Weiss with DSW Investment. Please go ahead.

Doug Weiss (Equity Analyst)

Hey, Good morning. So congrats on a good quarter, I guess, starting with Mississippi Lignite. It sounds like the plant maintenance has been completed and it's back to business as usual.

J.C. Butler (President and CEO)

Yeah. Yep. The outage that occurred, you know, the plant outage that occurred earlier in the year has been completed. And the plan, the plant is actually running pretty well, which, you know, helps us because the best situation for us is to, you know, be mining at a steady rate so we can operate most efficiently. So that's a nice positive.

Doug Weiss (Equity Analyst)

Right. Is that plan. Are you able to say whether that plant is now providing attractive returns to its owners given the evolution of electricity markets?

J.C. Butler (President and CEO)

You know, we don't have a lot of exposure to the electricity side of that equation. So it would be, I think it would be reckless for me to speculate on, you know, how exactly that's playing out right now. I mean, generally there's, you know, high demand for electrons that's supportive of prices. But you know, you gotta, you'd have to work through the mechanics of the PPA that they have to. Sorry. The power purchase agreements they have with TVA. In order to really figure out how that works, I, I just, I'm not privy to those details.

Doug Weiss (Equity Analyst)

Right. Okay. On the contract in the North American mining, so you've had a contract to start this quarter and then you have a couple more starting through the year. You know, last year, I guess there was a big drop off in the second half, and I think that was partly weather related. Would you anticipate a more steady sort of cadence through this year and even growth through the year?

J.C. Butler (President and CEO)

Yeah, I mean, I, you know,, it's always subject to, you know,, what could happen in the interim that would, that would cause something to go, you know,, directions we don't anticipate. But as we added, you know,, we're ramping up production at the new project in Palm Beach county, the U.S. army Corps of Engineers project. We've got one dragline operating. Another one is just on the, It's either just been commissioned or it will be shortly. A third dragline is going to be in there later in the year, So we're going to see increasing levels of production there in support of that project, which is great. Then in the second half of the year, we're going to start, you know,, operating the dragline in Arizona, which, is great. Those are the, those are the main two new contracts that we're layering on to our existing contracts this year.

Doug Weiss (Equity Analyst)

Right, right. Okay. And then. You had a large Oh, sorry, one other question on North American Mining. In terms of how you account for capital expenditure on that or on that division, what is the sort of decision point on whether something gets expensed in the quarter as opposed to allocated to capital?

Elizabeth Loveman (Senior Vice President and Controller)

Liz, that's a you question. Yeah, I mean, you know,, normal repairs and maintenance are expensed. If it's something that, you know,, is going to benefit us over the long term, such as, you know,, a dragline, you know,, rebuild on a dragline tub,, those kinds of things that are, you know,, expected to generate, you know,, we're going to be able to use those over a longer period, and they meet our capitalization criteria. We would capitalize those. So just run general repairs and maintenance is expensed. Other things are capitalized. It's kind of a major component, I guess is the way you could think of it, the tub. For a large dragline,, the tub is the base that the drag line sits on. You know, these, these machines, the big ones walk, which is, you know, fascinating technology, but, it sits and rotates on top. Others, you know, are on very large tracks. Kind of like you'd see on a, on a, you know, mobile crane or a bulldozer kind of thing,. It operates on track. So large components get capitalized. Everything else gets expensed. If it's going to extend the useful life, it gets capitalized, I guess is another way to say it. Yeah, like if you, you know, take a boom down and do a complete boom Rebuild that probably gets capitalized.

J.C. Butler (President and CEO)

Okay, that's helpful then. You had a large. Doug, just on that point, Yeah. You know, we talk about the fact that we pursue contracts that may not all contracts have capital up front, but we do contracts that have initial capital up front when we may put a dragline in place or in mitigation resources, we're buying mineral interest or. Sorry. And minerals and royalties, we're buying mineral interests, mitigation resources, we might buy land, but generally the maintenance capex that we have in our projects going forward is a low number as a percentage of the original. So. But, you know,, I don't want you to think that any of these things that Liz was describing, you know,, tub repairs, boom rebuilds, I mean, they come up every so often, but they're a small portion of the, you know,, depreciation expense that we incur over the life of a contract.

Doug Weiss (Equity Analyst)

Right, right. Makes sense. Let's see. Oh, and in terms of Thacker Pass, you know, I believe that's supposed to ramp next year. Any, you know, I think lithium prices have come up quite a bit. Anything you're seeing there that's worth updating on?

J.C. Butler (President and CEO)

I'm actually headed out there next week. The, you know, the plant is progressing very nicely. We're doing initial work on mine development. We've got our, you know, our office trailers established where the mine site will be, which is directly adjacent to the processing plant. That. I mean, that project's moving along nicely. I look forward to being out there next week to see it. You're right. Later this year, early next year is when we anticipate. It's really late next year. I'm off a year. It's late 20, 27 is when we anticipate, you know, making lithium deliveries to them, which which will then be processed. But everything seems to be on track. And they do a very nice job of updating their website with what's going on. So if you wanted to look there, they have that update. They do a great job giving the project updates. And I think they just filed their annual report today, so probably good information out there.

Doug Weiss (Equity Analyst)

Okay, good. Yeah, I'll check that out. Let's see. You had a large expenditure this quarter for mitigation resources. I think that's independent of your comments on buying land in Tennessee. What was the 32 million? What did that relate to?

J.C. Butler (President and CEO)

So our total capex for the quarter was $33 million, right, Liz? Yes, Christy, you're nodding. That was made up of the purchase of land in Tennessee and expenditures on the draglines for the project in Florida that we just discussed, the Army Corps of Engineers project, that's really what makes up that $33 million.

Elizabeth Loveman (Senior Vice President and Controller)

Got it. And some solar expenses too. So there's other things, there's other things in there too. That's not 100% of it, but it's certainly a majority of those expenditures are related to the land purchase for mitigation resources and the drag lines for contract mining.

Doug Weiss (Equity Analyst)

I see. And when you make a large land purchase like that, what's the payoff in terms of time? When do you start to see cash realizations from that?

J.C. Butler (President and CEO)

Oh, I mean, you know,, the nature of our projects. Typically there's always exceptions, but typically we expect to get assets deployed pretty quickly and start generating cash returns. You know, if you look at, I'll give you one example. In our minerals business, we for the most part look at projects that have payback, complete payback within five years, and then, you know,, these assets deliver for decades after that. So, you know,, we, we always look at, as we're measuring, you know,, Net Present Value (NPV) and Internal Rate of Return (IRR) on these projects, you know,, the speed with which you get your capital back is a big factor in, in all of this. And of course, you know,, as we discuss internally all the time, the faster we can get our capital back means we have capital. We can then redeploy and redeploy into other assets, other contracts, other opportunities on this long term business model that we've described in our investor deck. Right. And if you were asked about the Tennessee land, we issued a press release when we acquired the land and we noted that credits we anticipate will be available in 2029. You know, there's just permitting that has to happen before the credits are available.

Doug Weiss (Equity Analyst)

I see, I see. When you, when you buy an asset like, does that improve the utilization of your, you know, heavy equipment that you're using to improve that land?

J.C. Butler (President and CEO)

Yes. So within the mitigation resources business, you know, when we started we were just really doing the credits and contracting the dirt work. Very quickly we realized that we should be doing our own dirt work because we can better control our costs and our schedule. And honestly, we're pretty good at what we do. So we established a business inside Mitigation Resources that we call Mitigation Resources Services that does dirt work not only for mitigation resources own projects, but from time to time we go identify that team, identifies other restoration and reclamation projects that can be done for third parties. So we're able to utilize the equipment. And this is, this is Smaller equipment. This is not like stuff that we would operate at a big coal mine. This is smaller kind of things that you can haul into the road. But so we do not only our own dirt work, we do dirt work for third parties as well, which has turned out to be a really interesting business with a huge addressable market and I think a lot of opportunity.

Doug Weiss (Equity Analyst)

Okay, great. I guess last question on the minerals business. So given the increase in oil prices and appreciating that there's a lot of volatility in those prices, are you getting any indications on whether that's going to lead to more wells over the rest of the year in terms of your partners or, you know.

J.C. Butler (President and CEO)

Yeah, you know, I mean they're, they like everybody else are watching what's going on with caution. You know, several years ago we went through the period where all the producers, not all, many of the producers were. It's almost like, you know, an internet business where it's all about the clicks. It was about how many rigs did they have going and how many wells that were drilling and not what was going on with their cash flows. And they all, a bunch of them got burned by that. So the, you know, the, amongst the more sophisticated producers, which are primarily the folks that we work with, they're being cautious not to get out over their skis by taking on too much debt or bringing in private equity money that they need in order to fund a huge drilling program. Now do I think that sustained. And look, I mean I read the same stuff you probably read in the Wall Street Journal and other places. But you know, as if we have continued higher oil prices, they don't necessarily have to be at the level they are. Would that probably lead to future increases in development? It probably would, but I think they're all waiting to see how this plays out and what really happens to oil prices over the long term. My own view is, you know, if, if all of a sudden somebody waved a magic wand to the Middle east and everything was settled, which I don't think is going to happen. Oil prices are going to drop because the immediate stress will come out of the system. Oil will begin flowing through the Strait of Hormuz more regularly. But I think there's going to be a, there's going to be a risk premium added to global oil prices for quite a while. And you know, that's going to affect how people think about drilling in the Permian and other oil producing regions in the United States. Purely my opinion, based on what I've been reading, but I just, it feels like how it plays out. Yeah. And ultimately, ultimately, you know, that should, that should be good for the oil reserves that we own. I think ultimately that spills over into natural gas to some extent, although we really haven't seen much movement in natural gas prices thus far, even though, you know, what's going on in the Middle East has just disrupted LNG shipments. But my own opinion is over time, this is, this is a positive for us LNG exports and we, you know, we're heavily weighted toward, we're less heavily than we used to be, but we're still significantly weighted towards natural gas. So ultimately that should play into a really nice long term benefit for our natural gas asset.

Doug Weiss (Equity Analyst)

Yep. Right. Okay. All right. Well, thanks as always for the time and congrats on the good quarter, and talk to you next quarter.

J.C. Butler (President and CEO)

We'll talk to you next quarter. We appreciate your interest and your questions. Thanks, Doug. Thanks, Doug.

OPERATOR

again. As a reminder to ask a question, simply press star one on your telephone keypad. And with no further questions in queue, I'll now hand the call back over to Kristi for closing remarks.

Christina Kametko (Investor Relations)

Okay, thank you. We'll conclude our Q&A session before we wrap up the call. I'd like to provide a few reminders. A replay of our call will be available online later this morning. We will also post a transcript on our website when it becomes available. If you have any questions, please reach out to me. My phone number is on the press release. I hope you have enjoyed the rest of your day. And I'll turn it back to Tina to conclude the call. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.