Hallador Energy Company Q3 FY2025 earnings call

• Strong third quarter results with revenue up 40%, net income up 14 times, and adjusted EBITDA up 1.6 times.
• Submitted application to MISO expedited resource addition study (ERAS) program to add 525 MW gas generation at Meramec site.
• Favorable summer weather and energy prices boosted Hallador Power's revenue by over 29% year-over-year; both units at Meramec operated well post-maintenance outage.
• Coal operations saw solid production up 18%, increased shipments, and consistent operating costs, demonstrating operating leverage.
• Executed a $20 million prepaid forward power sales contract with delivery through 2027.
• Advanced discussions with data center developers and load-serving entities regarding capacity and energy offerings.
• Evaluating strategic opportunities to acquire additional dispatchable generation assets and infrastructure, and potential natural gas co-firing capabilities at Meramec.

On a segment basis, electric sales for the third quarter increased 29% to $93.2 million compared to $72.1 million in the prior year period, while coal sales increased 42% to $68.8 million for the third quarter compared to $48.3 million in the prior year period. Consolidated total operating revenue increased 40% to $146.8 million for the third quarter compared to $105.2 million in the prior year period. Electric sales in Q3 benefited from traditional summer weather patterns, increased energy demand, and higher natural gas prices. The increase in coal sales was driven by increased shipments to customers, supported by favorable power markets leading to higher dispatch levels at both Meramec and customers' power plants.

• Participating in ERAS program as a first step in growth process, excited about potential organic growth.
• Proceeding with refinancing discussions for credit agreement, making progress towards market-based terms.
• Confident in securing agreements with data centers and load-serving entities, with long-duration opportunities in sight.

• Uncertainty around ERAS program outcome; application is a first step and doesn't guarantee additional generation.
• Uncertainty in financing refinancing timing and final terms and conditions.
• Market and regulatory uncertainties that could impact the realization of growth opportunities and operational plans.

Q: Afternoon, guys. Hey. This is Brent on the potential capacity expansion you guys are looking at now. What are the main milestones or key long lead items we should think about to track over the next, I don't know, couple quarters, six to twelve months, to kind of assess the progression there, the potential?

A: Thanks. Yes. So MISO created this expedited process to help generation that meets the requirements, which basically has the potential or likelihood to actually be built, get through the queue process in a timely fashion versus the traditional process. And so we found an application that we feel complies with those timelines. They will come back later this month and tell us if our application is complete in their eyes and give us the time to cure anything that needs further clarification. Then they are at various times of the year announcing which applications they're picking up to review. The ERAS program only allowed for 50 total applications. And I think back in August, they came out and said they were reviewing, like, nine of those applications. I think here in November, they've come out and said they're doing another 15 or so. And so it could be six months or so before they actually pick ours up. So that's something that we'll keep an eye on and certainly update the market at our quarterly filings. And then in the meantime, we're working on securing the equipment that we filed to build. And so that's what we're working on for now.

Q: Hey. Good afternoon, everyone, and thanks for taking my questions. I was wondering if you could provide any initial color on the economics of the 525 megawatt expansion, just like an initial read on CapEx and any potential impact it could have on operating costs long term.

A: Yeah. So we are still negotiating the equipment for that. And so until we have those economics secure, we're not really releasing any information as far as the overall economics. But you know, we are encouraged by what we see through our long-term negotiations on PPAs about the robustness of volume and pricing and number of bidders. The market is just sending strong signals that it needs more capacity. And so that's ultimately what led us to the decision to file. And so as we progress through this process over the next three years, we'll continue to update all of our investors on what that project's gonna look like. But we're excited about the opportunities. We've told investors it's when you're a smaller company like ourselves as far as being able to grow your production relatively quickly. And we think this project potentially does that with the potential to increase our generation by 50%.

Q: Hey, guys. Thanks for taking the question. Just on the M&A front, you mentioned you're always looking. I'm just curious if you're seeing, you know, plug-and-play type capacity additions out there. Are you more still looking at assets that have been started with capital and in need of investment? And I guess any color if you have a preference between the two.

A: Well, I think, you know, typically, you're probably gonna find us play in the coal space. That seems to be our niche, our expertise. And traditionally, there's been less competition there. So that's typically where we like to focus our attention. That said, those types of transactions are very bespoke. And so they take more time. And I come back to the Meramec purchase. I mean, that took us NDA to closing. Signing the NDA to closing was thirty-three months. So it wasn't a small amount of work, but that said, it ended up being a tremendous value to the company. So those are the type of circumstances that we're looking for. I don't think we'll find a purchase price that low again, but the revenue to offset that has increased. And so we just have to take the opportunities as they come. But we are encouraged by some of the conversations that we're having. We'll see if they develop.

Q: Hey. Thanks, operator. Good evening, everyone. Guys, congrats on a really nice quarter here. Brent, in your prepared remarks, you noted advanced discussions with multiple parties. Would you look to reenter into exclusivity? Would you really be focused on just announcing a definitive agreement at this point? And then, you know, last quarter, spoke to utilities entering the mix. So curious for any updated commentary around that if a utility might be your preference or if you're still, you know, kinda in the mix with hyperscalers as well. Thanks.

A: Well, we're talking to both parties. What's changed is the utility interest has increased. Quite frankly, everybody's interest has increased. And I think that's due in large part, particularly on the developer side, as their projects start to get through permitting. And, you know, once they can get the land permitted and project zoned for data center build-outs, then they start focusing their attention on the next step, which is energy. And so we're seeing several of those projects kinda make it through those stages and now turn their attentions on Hallador because, again, as we've said before, we think we're one of the few places to get accredited capacity in the state of Indiana or MISO Zone 6 in another way. So that's what's transpired, and so it's definitely piqued the interest here in the last several months. And it's far more than interest. I mean, we are negotiating with several parties, and we're trying to get to a definitive agreement with all of those. And they're on probably more of a time constraint than we are. So, you know, they're trying to get to a project to the point where it can be developed as quickly as possible. So I think we're in a good spot. We're very encouraged by the process and how it's going and what we see, so much so that that led us ultimately to the decision to try to grow our generation by 50% through the ERAS process.

Q: Got it. Maybe just one more if I could. Is it fair to assume that this 525 megawatt expansion could be a part of any long-term agreement, or maybe if not initially, could you see that potential customer having a rover on the capacity? Or where does this ultimately fit in, if at all?

A: Well, it'd be interesting to see. I mean, we just went public about the project an hour ago. So it's not something we've discussed with other parties. I mean, we just made the filing a week ago. So this is all relatively new, and, you know, we want to—that's part of the reason we wanted to publicly announce. But when you make a filing like that, you're never really quite sure when that will become public. So we wanted to tell the market at the same time. And then so I think it will be part of our conversations going forward. And we'll see where that leads.