NC

• Core Operating Performance

  • All core businesses (Utility Coal Mining, Contract Mining, Minerals and Royalties) delivered strong year-over-year improvements in gross profit and adjusted EBITDA. Consolidated revenue grew 6% YoY to $72.3 million, and consolidated adjusted EBITDA grew 72% YoY to $15.9 million.
  • A $12 million impairment charge on two underperforming solar development projects in Regen Resources offset operating gains, resulting in a consolidated operating loss of $2.3 million and net loss of $1 million for the quarter.

• Capital Allocation Discipline

  • Impairment was driven by post-tax law change timing/procurement challenges from the One Big Beautiful Bill Act, high equipment/construction demand, grid connection delays, and broad cost increases.
  • Management is pursuing alternatives to monetize remaining solar investments and limit future capital exposure, including potential asset sales and contract amendments. The company will apply heightened scrutiny to investments outside its established core operating businesses going forward.

• Segment Operational Progress

  • Utility Coal Mining: Mississippi Lignite Mining Company shifted resources to planned reclamation activities during customer power plant outages, reducing the company's asset retirement obligation instead of impacting quarterly earnings. Management is actively addressing delayed customer payments and enforcing contractual rights.
  • Contract Mining: New dragline services in Palm Beach County, Florida are ramping up successfully; limestone operations are meeting growing customer demand, and a new Arizona limestone quarry is on track to launch operations in late 2026. This segment remains the company's primary mining growth platform, with long-term contracts that improve earnings visibility.
  • Minerals and Royalties: The diversified portfolio of oil and gas assets generates steady cash flow, with management taking a data-driven, long-term approach to portfolio management.
  • Mitigation Resources: The natural resource restoration and reclamation business is on track toward profitability as it scales, leveraging the company's existing environmental and land management expertise.

• Balance Sheet Strategy

  • Management remains focused on strengthening the balance sheet, prioritizing free cash flow for liquidity improvement and debt reduction while only pursuing high-return, disciplined investment opportunities. Total planned capital expenditure for the remainder of 2026 is capped at $35 million.

• Utility Coal Mining: Full-year 2026 operating profit is expected to increase year-over-year on strong first half performance. Second half 2026 results will decline from first half levels due to lower customer demand, higher diesel costs, a planned inventory impairment charge, and the completion of reclamation services at Sabine Mining Company. Segment profitability is projected to improve in 2027 from increased contributions from both consolidated and unconsolidated operations.
• Contract Mining: Substantial year-over-year growth in operating profit and adjusted EBITDA is expected for full-year 2026. Second half 2026 results will moderate from the strong first half due to lower anticipated demand. 2027 will see significant operating profit improvements from a full year of contributions from the Palm Beach Dragline contract and potential new deals in the pipeline.
• Minerals and Royalties: Operating profit and adjusted EBITDA for the second half of 2026 and full-year 2026 are projected to decline relative to both the first half of 2026 and the prior year period, driven by normal production declines and a continued moderate pace of domestic development activity. The segment will continue to generate meaningful earnings and cash flow in 2027, though operating profit is expected to moderate further due to the same production and development headwinds.
• Consolidated: Full-year 2026 consolidated adjusted EBITDA (which excludes the 2026 solar impairment and 2025 pension settlement charge) will increase year-over-year on strong first half performance. Second half and full-year 2026 operating profit and net income are expected to be lower than 2025 due to the solar impairment and potential additional curtailment/impairment charges in the second half. Second half 2026 adjusted EBITDA will remain strong but growth will moderate relative to the first half of 2026 and 2025. Cash flow from operations will see a moderate year-over-year increase in 2026, with cash flow before financing still a use of cash that improves modestly from 2025, with further improvement expected in 2027.

1. Utility Coal Mining: Revenues decreased due to lower customer demand from customer power plant outages. Operating profit increased to $6.3 million from $1.2 million year-over-year, and segment-adjusted EBITDA increased to $8.7 million from $3.4 million YoY. Contributed 41% of total Q2 2026 operating profit across segments.
2. Contract Mining: Revenues (net of reimbursement costs) increased 34% YoY. Operating profit increased to $3.8 million from $1 million YoY, and segment-adjusted EBITDA increased to $6.3 million from $3.9 million YoY. Contributed 25% of total Q2 2026 operating profit across segments.
3. Minerals and Royalties: Operating profit increased to $6.7 million from $5.2 million YoY, and segment-adjusted EBITDA increased to $7.7 million from $6.1 million YoY. Improved results were driven by a 46% increase in royalty revenues from higher oil prices, partially offset by lower IGRE investment earnings. Contributed 44% of total Q2 2026 operating profit across segments.

• Renewable development projects: Existing solar development projects face significant regulatory (tax law change), cost, and grid connection headwinds, with potential for additional impairment/curtailment charges on remaining solar investments. Investments outside core established businesses carry higher risk that requires heightened scrutiny.
• Utility Coal Mining: Unplanned and planned outages at customer power plants, variable dispatch decisions by grid operators (distorted by renewable energy tax credits), unpredictable customer demand, customer payment delays, and rising diesel costs all create uncertainty for segment results. The completion of reclamation activities at Sabine Mining Company will also reduce segment earnings in the second half of 2026.
• Minerals and Royalties: Segment results are sensitive to commodity price volatility, production timing, and the pace of domestic energy development. Normal production declines on existing wells will pressure near-term and medium-term profitability.
• Contract Mining: Growth depends on successfully expanding the customer base and geographic footprint, and ramping up new projects such as the Palm Beach dragline operation and Arizona limestone quarry.

Q: What is driving lower demand for Mississippi Lignite Mining Company (MLMC) coal despite growing overall electricity demand, and what is the company's approach to the delayed customer receivable from MLMC? / A: Lower Q2 demand stemmed from a combination of a significant unplanned outage at the customer's power plant, standard planned outages during moderate weather seasons, and occasional excess grid supply that leads grid operator TVA to not dispatch the coal-fired plant (partially distorted by tax credits that prioritize renewable dispatch). The company stands ready to fulfill contractual supply obligations. On delayed payments, management is actively enforcing its clear contractual rights under the long-term existing contract, but declined to comment on specific legal strategies.

Q: Which of NACO's core business segments offers the best return on reinvested capital currently, and will the company shift capital allocation to focus on one priority segment? / A: Management has refined operating models, improved contract structures, and enhanced margins across all three core segments, and each segment offers unique complementary attributes that create synergies (for example, mining and mitigation work benefits from the company's existing coal operating expertise). A diversified approach balances exposure to shifting policy and market conditions for long-term stability, so the company will maintain a balanced capital allocation across segments rather than concentrating investment in one area.

Q: What is NACO's strategy to broaden the customer base for contract mining, which is currently skewed toward a small number of large customers? / A: The company is already expanding organically through existing customer relationships: large customers that see successful NACO work at one site offer additional opportunities at other sites, and geographic expansion into new regions (like the new Arizona quarry) opens new local customer pools. The Palm Beach County infrastructure project also opened a new, previously untapped market for contract mining services for public infrastructure development, which creates additional future growth opportunities beyond traditional aggregate and limestone mining. NACO is also testing new equipment with third-party operators to expand its service offerings to attract new customers.