NACCO Industries(US:NC)2024-10-30 20:54Part I: Financial Information Financial Statements The company reported a significant profitability turnaround in Q3 2024, with net income of $15.6 million, driven by insurance recovery, despite a shift to net cash use from operations Consolidated Statement of Operations Highlights (Unaudited) | Financial Metric | Q3 2024 (in thousands) | Q3 2023 (in thousands) | 9 Months 2024 (in thousands) | 9 Months 2023 (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Revenues | $61,656 | $46,546 | $167,290 | $158,037 | | Gross Profit (Loss) | $7,244 | $(2,174) | $21,280 | $7,590 | | Business Interruption Insurance Recoveries | $13,612 | $— | $13,612 | $— | | Operating Profit (Loss) | $19,699 | $(6,267) | $31,822 | $(2,703) | | Net Income (Loss) | $15,635 | $(3,832) | $26,177 | $4,380 | | Diluted EPS | $2.14 | $(0.51) | $3.54 | $0.58 | Consolidated Balance Sheet Highlights (Unaudited) | Account | Sep 30, 2024 (in thousands) | Dec 31, 2023 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $63,052 | $85,109 | | Total current assets | $259,022 | $231,998 | | Total assets | $597,406 | $539,708 | | Total current liabilities | $68,923 | $69,986 | | Total liabilities | $200,096 | $157,368 | | Total stockholders' equity | $397,310 | $382,340 | Consolidated Cash Flow Highlights (Unaudited, 9 Months Ended Sep 30) | Cash Flow Activity | 2024 (in thousands) | 2023 (in thousands) | | :--- | :--- | :--- | | Net cash (used for) provided by operating activities | $(2,879) | $63,020 | | Net cash used for investing activities | $(31,055) | $(37,555) | | Net cash provided by (used for) financing activities | $11,877 | $(8,046) | | Net (Decrease) Increase in Cash | $(22,057) | $17,419 | Management's Discussion and Analysis (MD&A) Management attributes improved operating results primarily to the Coal Mining segment's insurance recovery and enhanced unconsolidated earnings, with a positive outlook for 2024 Business Segments Overview The company operates three primary segments: Coal Mining, NAMining, and Minerals Management, with recent performance impacted by a customer's power plant issue - The company operates three business segments: Coal Mining, North American Mining (NAMining), and Minerals Management81 - The Coal Mining segment's Mississippi Lignite Mining Company (MLMC) is consolidated, while other coal operations (Coteau, Coyote Creek, Falkirk) are accounted for as equity method investments (unconsolidated VIEs)8489 - A mechanical issue at a customer's power plant significantly impacted MLMC's operations in the first nine months of 2024, leading to a $13.6 million business interruption insurance recovery in Q386 - The NAMining segment is positioned as a growth platform, diversifying away from thermal coal by providing mining services for industrial minerals, including for the Thacker Pass lithium project91 Consolidated Financial Performance Consolidated operating profit for Q3 2024 dramatically reversed to $19.7 million, primarily driven by the Coal Mining segment's recovery, despite increased interest expense Consolidated Operating Profit (Loss) by Segment (in thousands) | Segment | Q3 2024 | Q3 2023 | 9 Months 2024 | 9 Months 2023 | | :--- | :--- | :--- | :--- | :--- | | Coal Mining | $19,938 | $(4,697) | $22,288 | $(9,059) | | NAMining | $(474) | $866 | $4,966 | $3,910 | | Minerals Management | $6,188 | $3,610 | $21,709 | $16,943 | | Unallocated & Eliminations | $(5,953) | $(6,046) | $(17,141) | $(14,497) | | Total Operating Profit (Loss) | $19,699 | $(6,267) | $31,822 | $(2,703) | - Interest expense increased in Q3 and the first nine months of 2024 compared to 2023 due to higher average borrowings and interest rates114 - The effective tax rate can be volatile due to the impact of the percentage depletion benefit, which is not directly related to pre-tax income levels117 Segment Performance Analysis The Coal Mining segment's operating profit surged to $19.9 million in Q3 2024 due to insurance recoveries, while NAMining saw a Q3 loss, and Minerals Management profit rose from acquisitions Coal Mining Segment: Operating Profit (Loss) Analysis (Q3 2024 vs Q3 2023, in thousands) | Component | Change Contribution | | :--- | :--- | | 2023 Operating Loss | $(4,697) | | Business interruption insurance recoveries | $13,612 | | Improvement in Gross Loss | $7,806 | | Increase in Earnings of unconsolidated operations | $2,562 | | 2024 Operating Profit | $19,938 | - The NAMining segment's Q3 2024 operating loss was primarily due to a $0.9 million charge to establish an allowance against a customer receivable148 - The Minerals Management segment's revenue and profit growth was driven by higher oil and natural gas production volumes, mainly from an acquisition that closed in Q4 2023; operating profit for the first nine months of 2024 also included a $4.5 million gain on a land sale156 Liquidity and Capital Resources The company experienced a significant shift to net cash use from operations in 2024 due to working capital changes, but enhanced liquidity by expanding its credit facility - Net cash used for operating activities was $2.9 million in the first nine months of 2024, a $65.9 million decrease from the $63.0 million provided in the prior year period, mainly due to unfavorable working capital changes and a $13.6 million business interruption insurance receivable118 - In September 2024, the company amended its secured revolving credit facility, increasing the commitment to $200 million and extending the maturity to September 2028; as of September 30, 2024, borrowings were $37.2 million with $130.9 million of excess availability123 Capital Structure | Metric | Sep 30, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Total debt (in thousands) | $70,222 | $35,956 | | Total equity (in thousands) | $397,310 | $382,340 | | Debt to total capitalization | 15% | 9% | - Capital expenditures for the first nine months of 2024 were $30.7 million; an additional $38 million is planned for the remainder of 2024, and approximately $48 million is planned for 2025129 Business Outlook The company anticipates significant year-over-year increases in consolidated operating profit and net income for Q4 and full-year 2024, primarily driven by Coal Mining, with continued growth expected in 2025 - Consolidated: Full-year 2024 consolidated operating profit and net income are expected to increase significantly over 2023 (excluding prior-year impairments)170 - Coal Mining: Expects significant year-over-year increases in operating profit for Q4 and full-year 2024, driven by higher earnings at unconsolidated mines and improved results at MLMC161 - NAMining: Expects increased operating profit for Q4 and full-year 2024, driven by amended contracts and scope expansions; the Thacker Pass lithium project is expected to begin Phase 1 production in 2027163164 - Minerals Management: Expects operating profit to decrease in Q4 and full-year 2024 compared to 2023 (excluding one-off items), due to market expectations for oil and gas prices166 - 2025 Perspectives: The company anticipates its Mitigation Resources business will achieve profitability in 2025 and plans to terminate its defined benefit pension plan, which will result in a non-cash settlement charge176177 Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of Q3 2024, with no material changes to internal controls - Management concluded that the company's disclosure controls and procedures are effective as of September 30, 2024185 - No material changes to the company's internal control over financial reporting occurred during the third quarter of 2024185 Part II: Other Information Risk Factors and Legal Proceedings The company reported no new legal proceedings and no material changes to previously disclosed risk factors during the quarter - There were no material changes to the company's risk factors during the quarter ended September 30, 2024187 - The company reported no legal proceedings for the period187 Issuer Purchases of Equity Securities During Q3 2024, the company repurchased 68,282 shares for approximately $2.0 million under its $20.0 million stock repurchase program, with $8.9 million remaining Share Repurchases in Q3 2024 | Period | Total Shares Purchased | Average Price Paid per Share | Total Cost (in thousands) | | :--- | :--- | :--- | :--- | | July 2024 | 39,649 | $30.78 | $1,220.6 | | August 2024 | 28,633 | $27.82 | $796.5 | | September 2024 | — | $— | $— | | Total Q3 | 68,282 | $29.54 | $2,017.1 | - As of September 30, 2024, approximately $8.9 million remained available for future repurchases under the company's stock repurchase program, which runs through December 31, 2025188