NACCOインダストリーズ (NC) 2026年第3四半期決算説明会：EBITDAは63%増

要点

• NACCOインダストリーズの2026年第3四半期の営業利益は、前年同期比37%増の930万ドルとなった。調整後EBITDAは前年同期比63%増、前四半期比28%増の2,040万ドルに増加した。
• 業績には太陽光プロジェクトの縮小費用340万ドルが含まれている。同社は2026年第1四半期から第3四半期（年初9カ月間）までに、太陽光関連の減損および縮小費用として約1,500万ドルを計上している。
• 請負採掘事業の営業利益は、パームビーチ郡におけるドラグラインサービス契約の拡大に支えられ、前年同期の190万ドルから490万ドルに増加した。立替費用を除く売上高は75%増加した。
• 発電用石炭採掘事業の営業利益は、契約価格の改善とミシシッピ・リグナイト・マイニング・カンパニーでの棚卸資産減損費用の減少を反映し、前年同期の500万ドルから660万ドルに増加した。
• 純利益は、主に法人所得税費用の増加により、前年同期の1,330万ドル（希薄化後1株当たり1.78ドル）から1,090万ドル（同1.44ドル）に減少した。税引前利益は前年同期の600万ドルから1,250万ドルに増加した。
• 経営陣は、請負採掘事業やミティゲーション・リソーシズ事業が牽引するほか、その他の事業の業績改善により、2027年の営業利益、純利益、連結調整後EBITDAが前年比で大幅に改善すると見込んでいる。

主要財務データ

事業および業績の動向

請負採掘事業

営業利益は前年同期の190万ドルから490万ドルに増加し、セグメント調整後EBITDAは470万ドルから760万ドルに増加した。パームビーチ郡におけるドラグラインサービス契約の拡大が続き、一部の石灰石採掘現場における顧客需要の減少を十分に補った。

また、10月には10年以上に及ぶドラグライン採掘サービス契約に基づき、アリゾナ州の石灰石採石場での操業が開始された。経営陣は、パームビーチ郡とアリゾナ州の両契約からの通年の貢献により、2027年に業績への寄与が見込まれるとしている。

サッカーパスでは、リチウム・アメリカズが2027年後半にリチウム処理プラントのフェーズ1の機械的完成を目指しており、2028年にかけて商業生産に向けた立ち上げを行う予定である。NACCOは2027年中に採掘設備へ約1,600万ドルを投資する見通しである。契約に基づき、顧客は翌年から5年間にわたりこれらの投資額を払い戻す義務がある。

発電用石炭採掘事業

営業利益は前年同期の500万ドルから660万ドルに増加し、調整後EBITDAは710万ドルから890万ドルに増加した。契約価格の改善とミシシッピ・リグナイト・マイニング・カンパニーでの棚卸資産減損費用の減少が業績改善を牽引した。

当四半期中は顧客の発電所の稼働がより安定し、未収債権の回収も改善した。支払いはまだ完全には期日通りに行われておらず、経営陣は顧客の流動性が引き続き発電所の稼働状況に連動していると述べている。

サビーン・マイニング・カンパニーの所有者が10月1日に最終的な原状回復作業の責任を引き継いだため、NACCOの原状回復手数料収入は終了した。経営陣は、出荷量の増加と契約に基づく料金改定条項に支えられたコトーおよびフォルカークからの2027年の収益増加が、サビーン関連収益の減少を概ね相殺すると見込んでいる。

鉱物資源・ロイヤルティ事業

営業利益は770万ドル、調整後EBITDAは870万ドルとなり、いずれも前年同期とほぼ同水準となった。天然ガスの生産量減少および価格下落を主因とするロイヤルティ収入の減少を、IGARリソーシズへの投資からの収益増加が相殺した。

ミティゲーション・リソーシズ事業

ミティゲーション・リソーシズは複数の州で13件のミティゲーション・バンキング・プロジェクトを手掛けている。経営陣によると、河川および湿地の環境クレジットは通常10年から12年にわたって売却される見込みであり、長期的な収益機会が創出されるという。

許認可やプロジェクトの進捗時期によって四半期ごとの業績に変動はあるものの、同社はミティゲーション・リソーシズが第4四半期および2027年に利益を計上すると見込んでいる。

太陽光プロジェクト

NACCOは、2026年10月の電力購入契約（PPA）解約に関連し、第3四半期に340万ドルの費用を計上した。この金額は9月30日時点で費用および未払金として計上されており、第4四半期にリボルビング信用枠の借入残高を増加させる見通しである。

経営陣はプロジェクトの売却、契約変更、その他の取引の検討を継続している。その方針として、これ以上のエクスポージャーを抑制しつつ、プロジェクトの収益化を図り、潜在的なアップサイドを維持することを目指している。

経営陣の見通し（ガイダンス）

• 2026年通期の調整後EBITDAは、前年比で大幅に増加する見通しである。
• 第3四半期までに計上された約1,500万ドルの太陽光関連減損および縮小費用にもかかわらず、通期の営業利益は2025年と同水準になる見込みである。
• 通期の税引前利益および純利益は、前年比で増加する見通しである。
• 第4四半期の純利益は、主に2025年第4四半期に計上された年金清算費用の一巡により、前年同期比で増加する見込みである。
• 追加的な太陽光プロジェクト縮小費用の発生時期によっては、第4四半期の営業利益および調整後EBITDAは前年同期比で減少する可能性がある。
• 請負採掘事業は、第4四半期および2026年通期の営業利益と調整後EBITDAで前年比大幅な成長を達成し、2027年もさらなる営業増益が見込まれている。
• 鉱物資源・ロイヤルティ事業の第4四半期および通期の営業利益と調整後EBITDAは、2025年の前年同期水準を下回る見込みである。経営陣はまた、2027年の営業利益が2026年の水準から鈍化すると見込んでいる。
• 経営陣は、2027年の営業利益、純利益、連結調整後EBITDAが前年比で大幅に改善すると見込んでいる。
• 計画されている投資額は、2026年の残りの期間で最大3,200万ドル、2027年は最大5,600万ドルである。2027年の金額には、鉱物資源・ロイヤルティ事業の成長予算2,000万ドル、ソートゥースの設備向け1,600万ドル、既存事業およびその他の事業開発機会向け2,000万ドルが含まれている。
• 計画投資のため、財務活動前キャッシュフローは2026年も資金流出（キャッシュのアウトフロー）が続く見込みだが、経営陣は2026年と2027年の両年で改善すると予測している。

リスク要因と注視点

• 太陽光プロジェクトの追加費用が発生する可能性があり、その金額と時期は交渉および潜在的な収益化取引の進捗に左右される。
• ミシシッピ・リグナイト・マイニング・カンパニーの顧客による支払いは依然として遅延しており、代金回収および顧客の流動性は発電所の継続的な稼働に依存している。
• ディーゼル燃料費の上昇は契約上の販売価格に反映される前に採掘コストを押し上げるため、時期的なミスマッチが生じる。
• フロリダ州の一部の石灰石事業では、顧客の在庫削減や需要の軟化が見られる。ただし経営陣によると、顧客から深刻な景気後退を示すシグナルは出ていないという。
• 鉱物資源・ロイヤルティ事業は、引き続き商品価格の変動や石油・天然ガスの生産構成比の影響を受けやすい。
• ミティゲーション・リソーシズの業績は、許認可の取得、プロジェクト開発、クレジット売却のタイミングによって変動する可能性がある。

アナリスト質疑応答の要点

経営陣は、サビーンの原状回復手数料の消失は、コトーおよびフォルカークでの出荷増と契約上の料金改定条項により、2027年には概ね相殺されるはずだと述べた。

太陽光事業について経営陣は、このプロセスが数四半期または1年以上にわたって続く可能性があると述べた。潜在的な上振れ余地の数値化は控えたものの、現在の2026年および2027年の見通しには将来のコストに関する最善の見積もりが織り込まれているとした。

資本配分に関して、NACCOは配当を維持し、バランスシートを強化するとともに、長期的な成長機会に選択的に資金を充当する計画である。経営陣はまた、投下資本1ドル当たりからより多くの成長を生み出す方法を検討していると述べた。自社株買いは資本使途の選択肢の一つであり続けているが、具体的な確約は行われなかった。

経営陣はまた、ミティゲーション・リソーシズに内在する潜在的な土地価値を強調した。同社は高成長地域近郊の流域で土地を取得してミティゲーション・バンクを開発しており、将来的に環境保全地役権の対象とならない土地を売却する可能性がある。ただし、面積や推定市場価値の数値は明らかにしなかった。

決算説明会トランスクリプト全文

決算説明会の完全なトランスクリプト

経営陣による説明

Operator

Thank you for standing by. My name is Tina and I will be your conference operator today. At this time, I would like to welcome everyone to the NACO Industries Third Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. a question press star then one on your touch tone phone it is now my pleasure to turn the call over to Christina Kmetko investor relations please go ahead.

Christina Kmetko

Good morning, everyone, and thank you for joining us for NACO's 2026 Third Quarter Earnings Call. I'm Christina Kmetko, and I'm responsible for investor relations at NACO. Joining me today are J.C. Butler, NACO's President and CEO, and Elizabeth Loveman, our Senior Vice President and Yesterday, we released our third quarter results and filed our 10-Q with the SEC. Both documents are available on our website. During today's call, we will reference 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 filings. We undertake no obligation to update these statements. turn the call over to JC for his opening remarks. JC.

John Butler

Thanks, Christine. And good morning, everyone. Our third quarter. performance represents another quarter of solid progress across our businesses. Operating profit increased 37% to 9.3 million, and consolidated EBITDA increased 63% to 1.3 percent year over year and 28 percent sequentially to $20.4 million. These results include $3.4 million in costs associated with the curtailment of certain solar development activities as expected and mentioned last quarter. Reportable segments delivered strong results, each contributing over $7 million to our third quarter consolidated adjusted EBITDA. Utility coal mining and contract mining generated substantial year-over-year operating profit gains, while minerals royalties delivered comparable results. Newer contracts and investments made over the past several years are increasingly contributing to our results, demonstrating real progress in our value creation strategy. This is important because our strategy is centered on building a strong base of long-term earnings and cash flow.

We are creating value by adding new long-term contracts and investments to the contributions from our established businesses and long-term customer relationships. As those newer contracts and investments ramp up, we expect them to contribute increasingly to earnings and cash flow. Returning to our individual businesses, utility coal mining operating profit continued to improve. As we've discussed in prior quarters, challenges at our customers' power plant have affected Mississippi Lignite Mining Company's operations and resulted in delayed payments. I'm pleased to report that the customer's power plant operated more consistently during the third quarter, and I'm encouraged that we've seen improvement in collections of outstanding receivables. The payments are not yet fully current, but the situation has improved from last quarter. We continue to monitor plant performance closely since that directly affects customer liquidity.

Looking ahead, we see potential for improved results in 2027 if the customer's power plant operates more consistently. At our unconsolidated coal operations, results remain stable, which is what we like to see. Beginning October 1st, the owner of Sabine Mining Company assumed responsibility for the final stages of reclamation activities, so we will no longer receive the reclamation fees that Sabine has earned in the past. We currently expect higher earnings from Coteau and Falkirk to largely offset the absence of Sabine-related earnings in 2027. Turning to contract mining, I continue to be very pleased with the progress the business is making to expand its business model and profitability. This segment remains our primary growth platform for mining, and we continue to see significant opportunity for growth. During the quarter, our new dragline services contract in Palm Beach County, Florida, continued to ramp up and contributed to the improved segment operating profit.

This growth more than offset lower customer requirements at certain limestone operations. We continue to monitor customer activity and broader construction market conditions closely. Looking beyond the quarter, we reached another important milestone in October when our contract mining team began operations at a limestone quarry in Arizona under a new dragline mining services contract that extends for more than a decade. This contract expands our geographic footprint and further adds to our portfolio of long-term agreements within contract mining. At Thacker Pass, our customer, Lithium Americas, is targeting mechanical completion of phase one of the lithium processing plant in late 2027, followed by ramp up to commercial production through 2028. As our Sawtooth mining team prepares for production of lithium-rich clay, we expect to invest approximately $16 million in mining equipment during 2027. As a reminder, under our contract, the customer is obligated to reimburse us for these capital equipment investments over five years, beginning the year after investments are made.

The Arizona and Lithium Americas contracts are great examples of how we are growing contract mining. We are taking capabilities we have developed over decades and applying them across different minerals, customers and geographies under long-term agreements. Our success with that approach gives us confidence that contract mining can continue to be an important driver of earnings growth. At Minerals & Royalties, third quarter operating profit was comparable to last year. The current commodity environment is a good reminder that our results are influenced not only by commodity prices, but also by the mix of production across our portfolio. While our recent investments have increased our oil exposure, natural gas is still a significant part of the portfolio. The strong results for our investment in Antero Resources offset the effect of lower natural gas production and pricing in the third quarter.

We continue to manage this business with a long-term view. Our portfolio of mineral and royalty interests and our investment in Iger Resources provide multiple sources of earnings, and we remain focused on building the portfolio thoughtfully over time. At Mitigation Resources, we continue to build the business through expansion of our reclamation and restoration services and development of mitigation banks. Mitigation Resources now has 13 mitigation banking projects spread across several states. These projects are expected to generate stream and wetland credits that can be sold over an extended period, generally 10 to 12 years, providing a long-term revenue stream. We've already realized credit sales from some of our earlier banks with future sales occurring as the portfolio develops. We expect Mitigation Resources to generate a profit in the fourth quarter and in 2027.

Results could vary from quarter to quarter because of permit and project timing, all although we expect the business to become a more consistent contributor to NACO's results as the portfolio matures. Before turning the call over to Liz, I want to provide an update on solar. As we discussed last quarter, changing market conditions, regulatory developments, and project specific challenges caused us to reassess certain solar development investments. We continue to evaluate strategic alternatives, including potential project sales, contract amendments, and other transactions. Our overriding objective is to minimize our exposure while advancing strategies to monetize these projects. During the third quarter, we incurred approximately $3.4 million in additional costs and may incur further costs associated with these projects in future years. However, the amount and timing of such costs will depend on ongoing discussions with counterparties on our efforts to transfer ownership of or otherwise monetize the projects.

More broadly, this experience reinforces the importance of a disciplined investment approach focused on opportunities with clear strategic advantages, attractive potential returns, and strong long-term cash generation. This approach has led us to actively pursue strategic alternatives for the solar projects with a focus on limiting future exposure and preserving value where possible. From a capital standpoint, we expect to invest up to $32 million during the remainder of 2026 and up to $56 million in 2027. Both amounts include our $20 million annual budget for minerals royalty growth investments. The 2027 estimate also includes the $16 million of saw-tooth capital expenditures discussed earlier, with the remaining $20 million budgeted for ongoing operations and other business development opportunities. Growth investments will only be made when opportunities meet our investment goals. criteria. Overall, I am very encouraged by our year-to-date results.

Our businesses are delivering strong performance, more recent contracts and investments are starting to deliver meaningful contributions, and we expect our recent investments to support improving earnings and stronger cash flows as they mature. With that, I'll turn the call over to Liz to walk through the financial results and outlook in more detail. Liz.

Elizabeth Loveman

Thank you, JC. Building on JC's operational discussion, I'll review our consolidated third quarter results and then provide some additional information on our segments, Outlook and Liquidity. Overall, our third quarter operating results were very strong year over year. Specifically, consolidated gross profit increased 18% to $11.8 million and operating profit increased 37% to $3 million, even after recognizing the $3.4 million of solar curtailment costs. Consolidated adjusted EBITDA, which is one of our key metrics for evaluating the operating performance of our businesses, increased 63% year-over-year and 28% sequentially to $20.4 million. We also had some significant non-operating activity this quarter. We recognized a $4.5 million gain related to the settlement of an excess pension funding liability with Sabine Mining Company's former customer. This combined with higher operating profits led to income before income taxes of $12.5 million compared with $6 million before income taxes.

We also had a substantial increase in our income tax expense year over year, primarily due to a change in our estimated annual effective income tax rate and the resulting year-to-date adjustment recognized in the third quarter. As a result, we reported net income of $10.9 million or $1.44 per diluted share, compared with 13.3 million in net income. million or $1.78 per diluted share last year. Turning to the segments, utility coal mining operating profit increased to $6.6 million from $5 million in the prior year quarter, while segment adjusted EBITDA increased to $8.9 million from $7.1 million. The improvement was the result of better contractual pricing and lower inventory impairment charges at Mississippi Lignite Mining Company. For the 2026 full year, we continue to expect utility coal mining operating profit to improve over last year. Fourth quarter operating results are expected to be lower than the prior year period because of an anticipated reduction in customer demand and higher diesel fuel costs at Mississippi Lignite Mining Company, along with lower contributions from the unconsolidated operating following the transition of Sabine's reclamation activities effective October 1st. Looking ahead to 2027, we expect overall coal demand to remain consistent with 2026 and profitability to improve.

At Mississippi Lignite Mining Company, more consistent operation of the customer's power plant would support improved results. The unconsolidated operations, higher anticipated results at Coteau and Falkirk, are expected to largely offset the absence of Sabine Reclamation income. Moving to contract mining, operating profit increased to $4.9 million from $1.9 million last year, and segment-adjusted EBITDA increased to $7.6 million from $4.7 million. Revenues, excluding reimbursable costs, increased 75%, reflecting the continued ramp-up of the Palm Beach County Drag Line Services contract. Contributions from that contract more than offset lower customer requirements at our limestone mining operations. We expect substantial year-over-year growth in contract mining, operating profit, and segment-adjusted EBITDA in both the fourth quarter and full year 2026. We also anticipate continued operating profit growth in 2027, including a full year of contributions from the Palm Beach County and Arizona contracts.

In minerals and royalties, operating profit was $7.7 million and segment adjusted EBITDA was $8.7 million, both generally comparable with the prior year quarter. Higher earnings from our IGAR investment largely offset lower royalty revenues, primarily from lower natural gas production and pricing. Looking ahead, minerals and royalties fourth quarter and full year operating profit and segment adjusted EBITDA are expected to be below the comparable 2025 periods, primarily because of lower anticipated royalty income, partly offset by higher expected income from IGAR Resources. In 2027, we expect minerals and royalties to continue generating meaningful earnings and cash flow, although operating profit is expected to moderate from 2026 levels. At the consolidated level, our performance through the first nine months has positioned us for a substantial year-over-year increase in full-year adjusted EBITDA. We currently expect full-year operating profit to be comparable with 2025, even with approximately $15 million of solar-related impairment and curtailment costs recognized through the first three quarters. Income before income taxes and net income are also expected to increase year over year.

For fourth quarter 2026, we expect net income to increase year over year, primarily because the pension settlement charge recorded in the fourth quarter of 2025 will not repeat. Consolidated operating profit and adjusted EBITDA could be lower than the prior year quarter, depending on the timing of additional solar project curtailment costs. We expect meaningful year over year improvements in operating profit, net income, and consolidated EBITDA in 2027. Continued expansion in contract mining and mitigation resources, along with improved operating performance across our other businesses, is expected to contribute to this growth. Turning to liquidity, we ended the quarter with $124.8 million of debt and total liquidity of $115.2 million, consisting of $56.5 million of cash and $58.7 million of availability under our revolving credit facility. We expect cash generated from operations to increase moderately in 2026. Because of our planned investment activity, cash flow before financing is still projected to be a use of cash for the year, although we expect that to improve modestly from 2025.

In 2027, cash flow before financing is projected to improve as well recent investments contribute to earnings. With that, I'll turn the call back to JC for some closing remarks.

John Butler

Thanks, Liz. Overall, I believe our third quarter performance provides strong evidence of the progress we are making across NACCO. Our established businesses generated solid results. Contract mining continues to build momentum as newer contracts ramp up, and we're beginning to see the benefits of new contracts signed and new investments made over the past several years. We believe the contributions of our established businesses and the expected contributions of our growing portfolio of long-term contracts and newer investments provide a strong foundation for continued earnings and cash flow growth. As these investments mature, we expect meaningful improvements in operating profit, net income, and consolidated. We remain focused on execution, improving liquidity, reducing debt over time, and investing selectively in opportunities that can generate attractive long-term returns. Overall, our objective remains straightforward. Build a strong, durable portfolio of high-quality, sustainable investments. businesses that generate increasing cash flow and create long-term value for our shareholders.

I think our third quarter results show that we are delivering on those goals. We'll now turn to any questions you may have.

Operator

At this time, I would like to remind everyone, in order to ask a question, simply press star, then 1 on your touchtone phone. Again, that is star 1 to ask a question. And we'll pause for just a moment to compile the Q&A roster. And our first question comes from the line of Douglas Weiss with DSW Investment. Please go ahead.

質疑応答

Douglas Weiss

Hey, good morning. On the coal segment, are you able to say or give some sense of how large the Sabine contract was and how much you lose when that goes off?.

John Butler

So, you know, when we were still mining, actively mining, it was, you know, a decent contributor to earnings as it went into reclamation, which we've now been doing for two or three years. It has been a much reduced amount. That's the way our contracts work. When you're operating the mine, it's a higher fee. And when you get into reclamation in our management fee contracts, it goes to a smaller, more modest fee. So as we said, you know, we expect growth at Falkirk and Coteau to offset any decline we get from the of the reclamation fees that we were getting in Sabine.

Douglas Weiss

Okay. And what drives the growth at Coteau and Falkirk at the time?.

John Butler

at the present time? Well, I mean, it's a combination. So the way those contracts work, right, it's a combination of volume and fee, and the fees generally increase with, you know, CPI, PPI inflators. and we're also looking at increased deliveries at those operations. And as you've watched us for a long time, you know that annual delivery schedules, particularly at the larger management fee mines, largely the biggest effect in there is do they plan a big outage in a given year or not and 2027 is going to be is a year when we're expecting you know pretty strong deliveries at both of those operations.

Douglas Weiss

Okay, because they're not planning a big outage. Can you say that again? They're not planning a big outage. You said the biggest factor.

John Butler

Can you say that again? You said the biggest factor.

Douglas Weiss

Okay. Um, okay. And then on diesel, is diesel a net neutral over time as your pricing contract, um, as MLMC incorporates those costs, or does it remain a net headwind, or does it even become a tailwind?.

Elizabeth Loveman

Yes, so I missed the first part. How does diesel affect MLMC? Oh, CESL, yes. Is it net neutral?.

John Butler

You know, it's a combination of, it's really based on electron demand in from TVA. So there is some seasonality, but across the United States, as we've seen increasing demand for electrons, regardless of the season, it's no longer just driven by heating and cooling needs being the swing. You know, I think we're seeing smaller effects of seasonality in demand for electrons, which ultimately translates into what do we think TVA will be looking for from this power plant with respect to dispatch?.

Douglas Weiss

Right. And then to diesel specifically, because you mentioned that was a bit of a headwind, but I know that that figures into your reimbursement payments, is there a time lag there or Yes, do you sort of catch up once the formula picks up those higher diesel prices?.

Elizabeth Loveman

So diesel impacts our expenses right away, but it goes into the calculation of our sales price over a different time period. So there is a mismatch between when diesel impacts the sales price versus when it impacts our actual expenses.

John Butler

Yes, sorry, Doug. I thought you said seasonal, not diesel, obviously.

Douglas Weiss

Yes, that's okay. Good to get even more background. I have a question, kind of a big picture question on your SG&A. The people working on utility coal, are they also working on contract mining? do you make somewhat of a qualitative assessment of how to assign that SG&A to the two segments or are they totally different?

John Butler

Yes, it's a combination, there is a team of people that work in the office at the mine site, you know, at MLMC. And so, you know, they're obviously, you know, charged towards that business. We also, you know, have people in Dallas that provide some support services that gets billed into the utility coal mining segment. They also have expenses, there's SG&A expenses in contract mining as well. The other side of the story is we very much operate the company with a one team approach. And so if anybody needs help with anything, everybody's willing to jump in and help. Um, And we've got a system for allocating costs for that.

But we find that we can be more efficient and more effective if we're really using leveraging all the talents we've got across the company in each of the businesses, as opposed to having people really siloed into any part of the business.

Douglas Weiss

Right. In a scenario where MLMC didn't renew after 2032, How much flexibility would you have to reduce associated SG&A to reassign those people? In other words, how much of the SG&A is specific to MLMC and how much of it is going to be necessary for the unconsolidated operations.

John Butler

Yes, so, you know, the folks that are at the, obviously, the work at the mine site, Some of them would be needed during a reclamation period, but it would be, you know, it would reduce over time as the mine was reclaimed. and eventually you know wouldn't be needed the other uh people You know, we now have a very diverse business. So if you look at people in Cleveland, people in Dallas, more supporting a whole collection of businesses. And as those businesses grow, I mean, they've grown a lot in the last 10 years, they're going to grow a lot more between now and 2032. You know, they will have plenty to do. But we do operate a pretty lean operation. So to the extent that we've got excess that isn't deployed somewhere, we will certainly address that.

Douglas Weiss

Yes, okay. On the solar operation, in terms of the costs you've called out, is that just a write-off of previous investment? Is that non-cash?.

John Butler

You know the impairment that we took in the second quarter was largely non cash. The charges we took this quarter were of both. I'm going to hand this over to Liz here in a second to get into the details of that. But, you know, at the end of the second quarter, we believed that the best path forward at that time was really to unwind the projects and exit, you know, the agreements that we had. And our $7 million estimate at that time was based on that. 7 million estimate of future costs. Since then, you know, as we've studied this more over the last few months, we found that there's, multiple paths forward for these that, you know, allow us to work on strategies where we limit our exposure to, we advance strategies that could monetize the projects as opposed to just straight up exit them and perhaps keep some passive upside in those. So as we've been going down that path, in some instances that's led us to a decision to make some additional expenditures.

So, you know, that's how that's been evolving. I'd say it's a more dynamic situation now than it was at the end of the second quarter. We thought it was a pretty clear break and we now see more opportunity there. to improve on our situation through alternative paths forward. Liz?.

Elizabeth Loveman

And the 3.4 million expense was specifically related to the termination of a power purchase agreement, PPA, that we had in place. And so that was terminated in October of 2026. have that amount recognized as an expense and a payable at the September 30th balance sheet date and then subsequent to that increases our outstanding debt. So you'll see an additional 3.4 million, you know, on our revolving credit agreement in Q4.

Douglas Weiss

Okay. So you had a commitment to deliver that power. Is that the issue? And so now you have to make good on the absence of the power?.

John Butler

we did have because there was a power purchase agreement tied to one of these solar projects. We mentioned that it was in our best interest to end the PPA. Right. So the PPA has gone away. However, you know, there's still other aspects of that project that we think could be attractive to a potential buyer.

Douglas Weiss

Any thoughts on the timing of when you'll have clarity on the upside scenarios there?

John Butler

Well, I can tell you, we'd all love to know that. Yes. But you know, this, to be honest, this is something that's going to play out over the coming quarters. could expand a year or more, but we're trying to get these things buttoned up. in an orderly as way as possible, but we're not going to rush it. I mean, we've all watched companies over the years that decide they're going to exit something and they just blow it up and spend a whole bunch of money. And we tend to be more cautious and opportunistic than that. So, you know, the path we're down is how do we limit our exposure and try to get as much upside as we can.

Elizabeth Loveman

And our outlook that we provided for remainder of 26 and 27 includes our best estimate of how that plays out today. Yes, good point. We've included our estimated cost in our outlook in our forecast, which is reflected in our outlook.

Douglas Weiss

Okay. But you haven't... you haven't really figured in it i mean how um you probably don't want to say that but is there any way to sort of give a range of what you think the upside opportunity is.

John Butler

I would love to, but I don't think I should. You know, look, this is... If we thought this was going to be really bad, our outlook would be worse. And if we thought that there was a total bonanza on the back side of this, our outlook would have been really high. So, you know, we think this is something that's, you know, not a big number either direction, but it's just really where we are right now, it's really hard to predict that. OK, we dedicated over the last week trying to figure out how to give our audience a number or a range, and we ultimately decided we can't.

Douglas Weiss

Yes. Okay. Fair enough. On the contract mining, I think your guidance implies somewhat of a step down in the fourth quarter, but you do have the Arizona work coming online. So is that conservatism or do you see a pretty more substantial seasonal step down in Florida? What's behind those numbers?.

John Butler

So the background story, I mean, obviously we've got Palm Beach coming online. We right now have three drag lines operating there, two smaller ones and one larger one. These are the electric M-TEC drag lines. We're bringing a fourth drag line on site. that should be up and running, you know, in the next few months. And so, you know, we get into 2027, we're going to have that dragline running in 2027 is going to have the benefit of all of our full year of operation in Arizona, which would be great. The other part that's going on is there's some one-off that I really I can tell you they are one-off temporary things happening at various customer quarries, primarily in Florida, most of our operations in Florida. So that's not surprising. We've got a customer that's reducing inventory on site.

Once they get their inventory reduced to the level they want, obviously we'll be producing again to match consumption. And there's some one-off things that are sort of slowing down production right now. which is not reflective of any overall macroeconomic changes. However, you know, there is a little bit of softness, particularly in Florida, well, there's softness. I'll say we see it mostly in Florida because that's mostly where we operate. I think it's probably some uncertainty around the election. I think it's some interest rates. None of our customers are telling us that they see any major economic downturn happening.

Florida is still growing, it's not growing as fast as it was. But that's kind of what the, those are the dynamics that are driving the contract mining business. business right now as we see it in the future. So just to add some clarity to that, we did say in the third quarter that.

Elizabeth Loveman

you know, the new Palm Beach contract kind of offset some softness in the remaining limestone operations. But for overall Q4 and 2027, we did say we expect substantial year-over-year growth. in the overall segment.

Douglas Weiss

Right. Okay. And I guess you didn't address the sequential growth in your most recent update.

Elizabeth Loveman

Sequential from Q2 or from...

Douglas Weiss

No, so Q3 to Q4.

Elizabeth Loveman

Outlook, we said we anticipate a substantial year over year, but we did not compare to Q3. That's correct. Yes.

Douglas Weiss

Okay. Let's see. So next year, I think you've mentioned the cash outlook is getting better. been generating sorry you've been allocating your free cash flow to investment i'm just curious you The stock's pulled back quite a bit. I'm just curious how you think about capital allocation and share buybacks versus investment at this juncture, especially as you begin inflecting to more positive free cash flow.

John Butler

Yes. So if you, you know, I wish there was a line in the cash flow that was somewhere between cash flow from operations and cash flow before financing. The growth investments, and it's one of the reasons we expanded our CapEx. explanation. If you look at cash flow from operations, less capital that we're really committed to spend, and that would be the 16 million that's going to Sawtooth and, you know, sort of the maintenance CapEx piece of 2027. We said maintenance plus growth was 20 million. out of the $56 million total, part of that's maintenance. So, you know, we need to spend 16 at Sawtooth, and we will spend that. We've got, you know, the other portion of that 20. So if you did cash flow from operations less, Those two things, we generate a lot of cash.

It really then turns into what do you do after that? Obviously, we've been paying a dividend since 1961, and we're going to continue to do so. We've stated our intentions to strengthen our balance sheet. I think that's a really important thing for us to do. We're doing a lot of things that I think are going to help that over the course of next year. So then you start to think about what's left, right? You've got share repurchases and you've got opportunities for growth. Both of those contribute to shareholder value. I think our primary focus as we've been growing the company is, you know, let's go after new business opportunities that really give us what we're looking for, long-term earnings growth, long-term cash flow growth with strong, stable customers.

It's the, you know, it's the flywheel that really has built this business to where we are today, and we want to continue doing that. So that's kind of how we think about that. I will say we're looking at ways that we can get more growth out of each dollar of investment in growth. Or how do we get... How do we get the same growth with less investment? So in other words, saying how do we how are we more capital efficient with our growth dollars? That's something that all the leaders of our businesses are thinking about and looking at. And, you know, I think we've got some opportunities there.

Douglas Weiss

Right. And when you say you're taking some steps next year you think will be helpful to the balance sheet, are you you indicating a focus on receivables or inventory? What are you referring to there?.

John Butler

I mean, it's really just a whole range of things. I mean, it's all the stuff anybody would look at, right? It's some working capital. It's, you know... the capital intensity of each of our businesses? How do we think about best know what should we have on our balance sheet what should we not how do we think about that it's a study that we're in the middle of right now so i don't I don't really want to provide much more color on it, but I think we've got some interesting opportunities ahead of us.

Douglas Weiss

Right, okay. Last question is just, I think in your slide deck you, indicate that your book value understates the market value of the land associated with mitigation resources. Are you able to frame that in terms of what you think the market value is and what the timeline is for realizing that land value?.

John Butler

Well, the short answer is no, but I'm not going to give you that, but I will tell you our logic. So when we identify an area to build a mitigation bank, you want to be in a high growth area because that's where there's going to be a lot of demand for real estate development. You know, people, Department of Transportation, building roads and expanding roads, people put building apartments, putting in schools, it's all the sort of development that comes in a high growth area. So we want to buy a piece of land that's in the same watershed as the high growth area. but we need to buy it at a price that makes it economically attractive for us to develop a mitigation bank. So generally we're finding a piece of property that's got an opportunistic price for us, an attractive price for us, Because we're going to go in and improve the streams, wetlands if there are any, put a conservation easement on the part of the land that is relevant for that work. And the rest of the land is available for sale. Actually all the land is available for sale, but the land that's most attractive is that.

It doesn't have a conservation easement on it. So if you think about the fact that you've got growth and development coming in the direction of your mitigation bank and you bought it early and you bought it at a good price, the investment thesis there is this the value of that land should go up um possibly in a very meaningful way as development advances, as growth advances in that area. So that's why we feel pretty strongly that we've got some underlying hidden value in the land that we've acquired for these mitigation banks.

Douglas Weiss

Right. Are you able to put any numbers in terms of acreage, anything that would help size the asset?.

John Butler

We haven't disclosed any of that yet, but Doug, it's an interesting question that we'll talk about. That's something we should think about. It's a good question.

Douglas Weiss

Okay, great. Uh, thanks, as always, and congrats on another dek.

John Butler

Once I give you the interest, you're going to ask me for the price too. Maybe I can Google it. I can ask ChatGPT, too.

Douglas Weiss

Okay. Thanks, as always, for the time, and congrats on another good quarter.

John Butler

Yes, thanks, Doug, for calling in.

We appreciate your ongoing interest.

Operator

And with no further questions in queue, I will hand the call back over to Christy for closing remarks.

Christina Kmetko

Okay, great. We'll conclude our Q&A session. And before we wrap up the call, I'd like to provide a few reminders. A replay of today's call will be available online later this morning. We'll also post a transcript on our website when it becomes available. And if you have any questions, please reach out to me. My phone number is included in the earnings release. Thanks for joining us today. I hope you enjoy the rest of your day, and I'll turn it back to Tina to conclude the call.

Thank you.

Operator

Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.

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