UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 _______________________________________________________________________________________________________________________________________________________________________________________________________ FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ...

NACCO Industries, Inc. (NYSE:NC) Q2 2020 Earnings Conference Call August 6, 2020 8:30 AM ET Company Participants Christina Kmetko - IR Consultant John Butler - President, CEO & Director Conference Call Participants Operator Ladies and gentlemen, thank you for standing by and welcome to the NACCO Industries Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand t ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 _______________________________________________________________________________________________________________________________________________________________________________________________________ FORM 10-Q (Mark One) ☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2020 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT ...

Financial Data and Key Metrics Changes - Consolidated net income for Q1 2020 decreased to $6.2 million or $0.88 per share from $15 million or $2.15 per share in the previous year [14] - The decrease was primarily driven by a significant reduction in earnings from the minerals management segment, which benefited from a large number of new gas wells in 2019 [14] - The Coal segment's operating profit was substantially lower due to increased costs per ton delivered and reduced tons delivered at unconsolidated operations [14] Business Line Data and Key Metrics Changes - The Coal Mining segment's operating profit decreased significantly, particularly at Mississippi Lignite Mining Company, due to increased costs and reduced customer demand [14] - North American Mining saw a significant improvement in operating profit due to new mining contracts and increased tons delivered to existing customers, partially offsetting declines in coal and minerals management [14][18] Market Data and Key Metrics Changes - The evolving COVID-19 pandemic, low natural gas prices, and increased renewable generation could reduce customer demand, negatively impacting the 2020 outlook for the coal business [17] - Limestone deliveries in North American Mining are expected to increase, with operating results improving significantly over 2019 due to new limestone mining contracts [18] Company Strategy and Development Direction - The company is exploring options to keep the Coal Creek Station power plant operational, which is critical for the local economy and its operations [12][13] - The focus remains on maintaining a diverse portfolio of mineral interests and expanding the business through acquisitions, particularly in the oil and gas sector [32][34] Management's Comments on Operating Environment and Future Outlook - Management expressed that customer demand has not been materially affected by the pandemic, and there have been no significant issues with suppliers or vendors [11] - The company anticipates coal deliveries and operating profit to be comparable to 2019, although challenges remain due to external market conditions [16] Other Important Information - The company ended the quarter with consolidated cash of $93.7 million and debt of $34.6 million, and suspended share repurchase activity due to COVID-19 uncertainty [19] - The CARES Act has provided a tax benefit for the first quarter of 2020, despite having pretax income [15] Q&A Session Summary Question: Regarding the economic viability of Coal Creek Station - Management believes Coal Creek Station is an efficient power plant with a high dispatch rate, indicating its competitiveness [23] - There are differing views in the industry regarding the value of dispatchable generation, which could affect perceptions of the plant's worth [24][26] Question: Disclosure of oil and gas interest acreage - The decision to disclose the exact number of acres was made to provide clarity to stakeholders about the size of the reserve base [28] Question: Decision-making process for Catapult Mineral Partners' stock purchases - Decisions are made jointly within a flat organizational structure, with a focus on long-term investments rather than short-term trading [31][33] Question: Details on dragline acquisition costs and lifespan - Dragline costs can range from a few million to over $100 million, with proper maintenance allowing for decades of operation [40][45] Question: Clarification on long-term incentive compensation and payroll liabilities - The majority of the cash flow related to long-term incentive compensation was a one-time payment due to the settlement of deferred compensation plans [50][56]

Financial Performance - Total revenues for the three months ended March 31, 2020, were $37,644,000, a decrease of 6.4% compared to $40,097,000 for the same period in 2019[10]. - Gross profit for the same period was $5,081,000, down 62.1% from $13,385,000 in the prior year[10]. - Net income for Q1 2020 was $6,166,000, a decline of 58.9% from $15,018,000 in Q1 2019[10]. - Basic earnings per share decreased to $0.88 in Q1 2020 from $2.16 in Q1 2019[10]. - Operating profit for the Company was $7,580 million, down 53.8% from $16,373 million in the prior year[61]. - Comprehensive income for Q1 2020 was $6,321,000, down from $15,119,000 in Q1 2019, reflecting a decline of 58.2%[12]. - The effective income tax rate for Q1 2020 was (1.1)%, a significant decrease from 13.4% in Q1 2019[86]. Segment Performance - Coal Mining segment revenue increased to $20.928 million in Q1 2020 from $16.750 million in Q1 2019, reflecting a growth of about 25.0%[36]. - NAMining segment revenue rose to $11.624 million in Q1 2020, compared to $10.775 million in Q1 2019, marking an increase of approximately 7.9%[36]. - Minerals Management segment revenue decreased to $5.241 million in Q1 2020 from $12.686 million in Q1 2019, a decline of about 58.8%[36]. - Operating profit for the Coal Mining segment was $7,185,000, down 28.0% from $10,007,000 in Q1 2019[61]. - The NAMining segment reported an operating profit of $731,000, compared to $65,000 in the same period last year, indicating significant growth[61]. - The Minerals Management segment's operating profit decreased to $4,267,000 from $11,669,000, reflecting a decline of 63.4% year-over-year[61]. Cash and Assets - Cash and cash equivalents at the end of Q1 2020 were $93,726,000, down from $122,892,000 at the end of 2019[7]. - Total assets decreased to $435,920,000 as of March 31, 2020, from $444,773,000 at the end of 2019[7]. - Total current assets decreased to $188,927,000 as of March 31, 2020, from $200,668,000 at the end of 2019, a decline of 5.8%[7]. - Total liabilities reduced to $142,083,000 from $155,381,000 at the end of 2019[7]. - The balance of trade accounts receivable increased to $21.122 million by March 31, 2020, up from $15.444 million at the beginning of the year, reflecting an increase of about 36.7%[37]. Capital Expenditures and Debt - Capital expenditures for the Company totaled $5,358 million, an increase of 26.0% compared to $4,252 million in the same quarter of 2019[61]. - The company added $6,232,000 to long-term debt during Q1 2020, compared to $1,206,000 in the same period last year[14]. - NACCO's total debt increased to $34.582 million as of March 31, 2020, compared to $24.943 million at the end of 2019[102]. Inventory and Receivables - The Company reported a total inventory of $35.996 million as of March 31, 2020, down from $40.465 million at the end of 2019, indicating a reduction of approximately 11.5%[40]. - The Company has no contract assets recognized from the costs to obtain or fulfill a contract with a customer, indicating a focus on managing liabilities[39]. Dividends and Stock Repurchase - The company declared cash dividends of $0.1900 per share in Q1 2020, totaling $1,339,000[15]. - The Company suspended its stock repurchase program in March 2020 due to uncertainties surrounding the COVID-19 pandemic, having repurchased 32,286 shares for $1.0 million in Q1 2020[46]. Future Outlook - The Company expects to recognize an additional $0.7 million in revenue related to contract liabilities remaining at March 31, 2020, in 2020, with further amounts in subsequent years[38]. - The company anticipates a significant decrease in consolidated net income for 2020 compared to 2019, mainly due to lower results from the Minerals Management segment and the absence of prior income from a venture in India[125]. - The evolving COVID-19 pandemic and low natural gas prices may adversely affect customer demand and the company's overall financial outlook for 2020[115].

Financial Data and Key Metrics Changes - For the full year 2019, consolidated net income increased to $39.6 million from $34.8 million in 2018, while fourth quarter net income decreased to $6.4 million or $0.91 per share from $11 million or $1.57 per share in the prior year [5][6] - The effective income tax rate for 2019 was 8.7%, down from 17.5% in 2018, influenced by a $2.5 million tax benefit in 2019 [7][8] Business Segment Data and Key Metrics Changes - In the Coal Mining segment, operating profit decreased significantly due to unfavorable adjustments and fewer deliveries, with a notable $2 million unfavorable adjustment to mine reclamation liabilities in Q4 2019 [6] - The Minerals Management segment saw a significant increase in royalty income in 2019 compared to 2018, but a decrease in 2020 is expected due to natural gas price expectations and fewer new wells [13] - North American Mining is anticipated to see increased limestone deliveries and improved operating results in 2020, although operating expenses are expected to rise due to higher employee-related costs [11] Market Data and Key Metrics Changes - The company expects overall coal deliveries to increase modestly in 2020 due to reduced planned power plant outage days and increased dispatch days [9] - Royalty income in 2020 is expected to decrease significantly, particularly in the first half, compared to the historically high revenue levels in early 2019 [13] Company Strategy and Development Direction - The company is focusing on diversifying its mining operations beyond coal, with plans to expand into lithium and limestone mining, leveraging existing skills in surface mining [27][26] - There is an emphasis on maintaining a conservative balance sheet while pursuing growth and diversification, particularly in the minerals segment [35] Management's Comments on Operating Environment and Future Outlook - Management anticipates a decrease in consolidated net income for 2020 compared to 2019, primarily due to reduced operating profit in the Minerals Management segment and the absence of prior year tax benefits [14] - The company is committed to maintaining a conservative cash position to support long-term growth and manage risks associated with the coal industry [35] Other Important Information - The company ended 2019 with consolidated cash of $122.9 million and debt of $24.9 million, with expectations of significantly decreased cash flow in 2020 due to increased capital expenditures [15] Q&A Session Summary Question: North American Mining's revenue growth and profitability - The management discussed the evaluation of projects based on internal rate of return and return on total capital employed, emphasizing a disciplined approach to growth [18][19][20] Question: Comparison of lithium and lignite mining - Management highlighted the similarities in operational skills required for both types of mining and noted the positive market dynamics for lithium compared to coal [24][27] Question: Future acquisitions in the minerals segment - The company is considering acquiring mineral interests that can be leased out for royalties, similar to existing operations in Ohio [28][31] Question: Cash management and share buybacks - Management confirmed a conservative approach to cash management, balancing growth ambitions with the need to maintain liquidity for potential risks in the coal industry [35][36]

Customer Concentration and Revenue Dependence - The principal customer, Choctaw Generation Limited Partnership, accounted for 48% of consolidated revenue in 2019, down from 60% in 2018 and 2017, indicating a significant reliance on key customers[40] - The Coal Mining segment derived approximately 60% of the Earnings of Unconsolidated Operations from two customers in 2019, highlighting the risk associated with customer concentration[42] - The Company derives approximately 60% of earnings from two major customers, Basin Electric Power Cooperative and Great River Energy, indicating a high customer concentration risk[150] Coal Reserves and Production - The Coal Mining segment operates surface coal mines under long-term contracts, with total coal reserves approximating 2.0 billion tons, of which approximately 1.1 billion tons are committed to customers under long-term contracts[32] - The total developed reserves amount to 1,061.7 million tons, while undeveloped reserves total 695.6 million tons, leading to a combined total of 1,999.0 million tons[55] - The Falkirk Mine has proven and probable reserves of 375.7 million tons, with 99% of the reserves committed under long-term contracts[55] - The Freedom Mine produces between 13.5 million and 14.5 million tons of lignite coal annually, with all production delivered to Dakota Coal Company[63] - The Eagle Pass Mine has a total of 15.6 million tons of reserves, with 11.8 million tons committed and a contract expiration in 2021[55] - The Red Hills Mine has a total of 240.0 million tons of reserves, with 44% committed and 56% uncommitted[55] Market Competition and Industry Challenges - The coal industry faces competition from natural gas, wind, and solar energy, with sustained low natural gas prices leading to increased electricity generation from natural gas[45] - The company estimates that wind capacity in North Dakota has increased over 60% since 2015, reflecting the growing competition from renewable energy sources[45] - Changes in coal consumption patterns and competition from natural gas and renewables could materially reduce MLMC's profitability[159] Regulatory and Environmental Factors - The Clean Air Act and related regulations may reduce demand for coal due to stricter emission controls and requirements for coal-fired power plants[117] - The Company’s power generation customers face substantial costs to comply with emissions regulations, which may lead to reduced demand for coal[124] - Global climate change legislation aimed at reducing greenhouse gas emissions could result in electric generators switching from coal to alternative fuel sources[125] - The Company believes it has obtained all necessary permits under the Clean Air Act (CAA) and is in compliance with such permits, which is crucial for its operations[133] - The Company has also secured all required permits under the Clean Water Act (CWA) and is compliant, which may affect operational costs related to water treatment[135] Operational and Financial Risks - The Company faces significant uncertainty regarding the impact of future laws and regulations on its business, which could materially affect its financial condition[132] - The Company is subject to environmental liabilities and costs that could materially affect its results of operations and financial condition due to compliance with various environmental laws[143] - Mining operations are vulnerable to weather and other uncontrollable conditions that could decrease coal delivery and profitability[169] - The company conducts a significant portion of its operations on leased properties, which may be subject to title defects that could limit mining capabilities[176] Workforce and Employment - The company has approximately 2,400 employees as of December 31, 2019, with 282 represented by a union at Bisti, indicating a stable workforce[50] Financial Performance and Profitability - The company believes that third-party mine permit holders have all necessary permits for operations at Caddo Creek, Demery, Bisti, and Camino Real, although it cannot guarantee future maintenance of these permits[103] - The Company operates 31 draglines at 20 quarries, with 5 owned by the Company and 26 owned by customers[99] - The board of directors has discretion over dividend payments, which may change based on various financial factors[188] - The stock repurchase program may increase volatility and does not guarantee enhanced long-term shareholder value[190] Strategic Initiatives and Growth - The NAMining segment is focused on expanding outside of Florida and into other minerals, with a mining agreement for the Thacker Pass lithium project in northern Nevada[36] - The company has experienced growth in its NAMining business but faces challenges in managing future growth effectively[165] Insurance and Risk Management - Property and casualty insurance costs are increasing, which could adversely affect MLMC's financial condition[166] - The company is vulnerable to cybersecurity threats, which could disrupt operations and compromise sensitive information[179] Corporate Governance and Control - Certain family members control a significant portion of voting power, which could affect corporate governance and attractiveness for takeovers[200]

Financial Data and Key Metrics Changes - Consolidated revenues increased to $32.6 million from $31.4 million in the prior year third quarter, while operating profit decreased to $8.7 million from $10.5 million [6] - Consolidated net income increased to $10.3 million or $1.47 per share, up from $9.2 million or $1.33 per share last year, primarily due to a $2.7 million pre-tax payment associated with a prior venture [7] - The effective income tax rate for the year-to-date period was 14.1%, compared to 12.7% in 2018 [8] Business Segment Data and Key Metrics Changes - In the Coal Mining segment, operating profit decreased due to reduced earnings from unconsolidated operations and higher employee-related costs, including a $700,000 increase in non-cash equity compensation [9] - The North American Mining segment reported an operating loss this quarter compared to a modest profit in the prior year, driven by higher employee-related and business development costs [10] - The Minerals Management segment saw an increase in operating profit during the first nine months of the year, but a decrease is expected in the fourth quarter and full-year due to natural gas price expectations and production declines [24][25] Market Data and Key Metrics Changes - Coal deliveries are expected to decrease in the fourth quarter and for the full year compared to the prior year due to anticipated changes in customer requirements [12] - For 2020, coal deliveries are expected to increase compared to 2019, primarily at unconsolidated operations due to a reduction in planned power plant outage days [15] Company Strategy and Development Direction - The company is focusing on capital expenditures, expecting $30 million in 2020, primarily due to spending at Mississippi Lignite Mining Company for new mine area development [17] - North American Mining has entered into an agreement to serve as the exclusive contract miner for the Thacker Pass Lithium project, which is believed to be the largest known lithium deposit in the U.S. [20][21] Management's Comments on Operating Environment and Future Outlook - Management expects overall deliveries in the Coal Mining segment to decrease in the fourth quarter and for the full year, but anticipates a modest increase in operating profit due to reduced operating expenses [13] - For 2020, management expects substantial increases in coal mining operating profit, particularly in the first half of the year, driven by improved earnings at consolidated operations [16] - The company forecasts a decrease in consolidated net income for 2020 compared to 2019, primarily in the first half [29] Other Important Information - The company ended the third quarter with consolidated cash on hand of $115.1 million and debt of $7.7 million [30] - Full-year 2019 cash flow before financing activities is expected to increase over 2018, but a modest use of cash is anticipated in 2020 due to increased capital expenditures [31] Q&A Session Summary Question: What does a normal CapEx year look like? - Management indicated that CapEx is driven by consolidated coal mining operations and North American Mining, with higher CapEx expected in 2020 and 2021 due to moving into a new mine area [36] Question: Why is MLMC's adjusted return on tangible capital employed important for shareholders? - Management explained that it measures the cash flow generated compared to the capital employed, ensuring responsible stewardship of capital [44][46] Question: Will the management fee per ton for lithium be significantly higher than for lignite? - Management clarified that the service provided for lithium mining is similar to coal mining, and the fees will be calculated in a similar way, regardless of the product's value [48][49]

Financial Performance - Total revenues for the three months ended September 30, 2019, were $32,603,000, an increase of 3.7% compared to $31,440,000 for the same period in 2018[10] - Gross profit for the nine months ended September 30, 2019, was $28,240,000, up from $16,365,000 in 2018, representing a significant increase of 72.6%[10] - Net income for the three months ended September 30, 2019, was $10,264,000, compared to $9,200,000 in 2018, reflecting an increase of 11.6%[12] - Basic earnings per share for the nine months ended September 30, 2019, were $4.77, compared to $3.43 for the same period in 2018, marking an increase of 39.0%[10] - Net income for the first nine months of 2019 was $33.3 million, up 40% from $23.8 million in the same period of 2018[90] - The company reported a comprehensive income of $10,334,000 for the three months ended September 30, 2019, compared to $9,303,000 in 2018, reflecting an increase of 11.1%[12] Cash and Assets - Cash and cash equivalents increased to $115,061,000 as of September 30, 2019, from $85,257,000 at the end of 2018, representing a growth of 35.0%[7] - Total assets as of September 30, 2019, were $412,770,000, an increase of 9.5% from $376,991,000 at the end of 2018[7] - Total stockholders' equity increased to $283,255,000 as of September 30, 2019, from $250,704,000 at the end of 2018, representing a growth of 12.9%[10] - The balance of trade accounts receivable, net, decreased to $13.5 million as of September 30, 2019, from $20.8 million at the beginning of the year[45] - Total inventories increased to $33.1 million as of September 30, 2019, compared to $31.2 million as of December 31, 2018, representing a 6% increase[49] Liabilities and Equity - Total liabilities as of September 30, 2019, were $129,515,000, slightly up from $126,287,000 at the end of 2018[7] - The Company’s contract liability decreased by $28,000 from the beginning of the year to $726,000 as of September 30, 2019[45] - The Company reported a decrease in asset retirement obligations to $35.2 million as of September 30, 2019, down from $37.7 million at the end of 2018[65] Segment Performance - Coal Mining segment revenue for the nine months ended September 30, 2019, was $58.1 million, compared to $57.0 million in 2018, reflecting a year-over-year increase of 1.9%[44] - Revenue from the NAMining segment for the nine months ended September 30, 2019, was $30.5 million, up from $28.4 million in 2018, indicating a growth of 7.5%[44] - The Minerals Management segment's revenues increased to $5.0 million for the three months ended September 30, 2019, compared to $3.9 million in the same period of 2018, a growth of 29%[64] Operational Highlights - Operating profit for the three months ended September 30, 2019, was $8,663,000, down from $10,547,000 in 2018, indicating a decrease of 17.9%[10] - Operating profit for the Coal Mining segment decreased to $7.3 million for the three months ended September 30, 2019, compared to $9.8 million in the same period of 2018, a decline of 25%[64] - The NAMining segment reported a loss of $0.4 million for the three months ended September 30, 2019, compared to a profit of $0.3 million in the same period of 2018[64] Future Outlook - The Thacker Pass lithium project is expected to commence production in 2023, with Sawtooth serving as the exclusive contract miner[144] - The company expects capital expenditures to rise to approximately $41 million in 2020, primarily for the Coal Mining segment[107] - Coal deliveries are expected to increase in 2020 compared to 2019, driven by higher customer requirements and reduced planned power plant outage days[138] - Consolidated net income for 2019 is expected to increase significantly compared to 2018, driven by higher earnings in the Minerals Management segment[151] Dividends and Shareholder Returns - Cash dividends for Class A and Class B common stock were $0.1900 per share, totaling $1,328,000 for the quarter[19] - The company declared cash dividends of $0.1900 per share for Class A and Class B common stock during the second and third quarters of 2019, totaling $1,327,000 and $1,328,000 respectively[19] Mining Agreements and Projects - The company entered into a mining agreement for the Thacker Pass lithium project, with a total commitment of $3.5 million for project development[26] - The Thacker Pass project will involve a management fee per metric ton of lithium delivered, with an initial cash assistance of $3.5 million provided to Lithium Nevada Corp.[26] - NACCO's NAMining segment is expanding operations beyond Florida, focusing on mining materials other than limestone[23]

Financial Data and Key Metrics Changes - Consolidated operating profit increased by 17.4% to $9.2 million from $7.8 million in the prior year second quarter [7] - Consolidated net income rose to $8 million or $1.14 per share, up from $6.4 million or $0.92 per share last year [7] - Effective income tax rate for the year-to-date period was 15.2%, compared to 12% in 2018 [7] Business Segment Data and Key Metrics Changes - Minerals Management segment saw a significant increase in operating profit due to more wells operated in Ohio, leading to higher royalty income [8] - Coal Mining segment experienced a decrease in operating profit primarily due to higher employee-related costs and reduced earnings from unconsolidated operations [9] - North American Mining segment reported an operating loss this quarter, influenced by higher costs and modest earnings from a new customer contract [11] Market Data and Key Metrics Changes - Anticipated overall deliveries in the Coal Mining segment are expected to decrease in the second half of the year due to changes in customer requirements [12] - Operating profit in the Coal Mining segment is expected to decrease modestly for the full year, with lower income from unconsolidated operations [14] - North American Mining expects operating profit in the second half of the year to improve over the first half, benefiting from new contracts [15] Company Strategy and Development Direction - The company aims to maintain a conservative balance sheet to support long-term contracts and growth initiatives [29] - Investments are being made in business development and infrastructure to support growth in North American Mining [30] - The Minerals Management segment is expected to see substantial increases in royalty income, although at a lower rate than the first half of 2019 [17] Management's Comments on Operating Environment and Future Outlook - Management expects consolidated net income to increase significantly compared to last year, driven by improvements in the first half and anticipated performance in the remainder of the year [18] - The company forecasts capital expenditures to be approximately $28 million for the full year [19] - Consolidated cash on hand at the end of the second quarter was $98.4 million, with debt of $12 million [19] Other Important Information - The company reported a $400,000 loss from transferring certain mine permits, which allowed for a reduction in reclamation liability by $5.4 million [10] - New contracts in North American Mining include a three-year and a 20-year contract, both with new customers [28] Q&A Session Summary Question: Are the new contracts in Florida or other states? - Answer: They are in Florida [24] Question: Do the contracts pertain to limestone or other minerals? - Answer: They are related to aggregates, with a majority being limestone [25][27] Question: What are the plans for the cash on the balance sheet? - Answer: The company aims to maintain a conservative balance sheet, support growth initiatives, fund capital expenditures, and continue paying dividends [29][31] Question: How many acres does the company have in the Utica? - Answer: The company has not disclosed that information [32]