NACCO Industries (NC) 2026 年第三季法說會：EBITDA 成長 63%

重點摘要

• NACCO Industries 2026 年第三季營業利益年增 37% 至 930 萬美元。調整後 EBITDA 年增 63%、季增 28% 至 2,040 萬美元。
• 財報業績包含 340 萬美元的太陽能專案終止成本。該公司在 2026 年前九個月已認列約 1,500 萬美元的太陽能相關減損與終止成本。
• 在棕櫚灘郡拉斗挖掘機服務合約放量的支持下，承包採礦業務的營業利益由 190 萬美元增至 490 萬美元。扣除代墊報銷費用後的營收成長 75%。
• 公用事業煤炭開採業務營業利益由 500 萬美元增至 660 萬美元，反映出合約定價改善以及密西西比褐煤採礦公司（Mississippi Lignite Mining Company）存貨減損費用的降低。
• 淨利由 1,330 萬美元（即稀釋後每股盈餘 1.78 美元）降至 1,090 萬美元（即稀釋後每股盈餘 1.44 美元），主因是所得稅費用增加。稅前淨利則由 600 萬美元增至 1,250 萬美元。
• 管理階層預期，在承包採礦、生態減緩資源（Mitigation Resources）以及其他業務表現改善的帶動下，2027 年的營業利益、淨利與合併調整後 EBITDA 將較前一年顯著成長。

關鍵財務數據

業務與營運表現

承包採礦業務

營業利益由 190 萬美元增至 490 萬美元，部門調整後 EBITDA 則由 470 萬美元增至 760 萬美元。棕櫚灘郡拉斗挖掘機服務合約持續放量，足以彌補部分石灰石開採業務中客戶需求下降的影響。

此外，根據一項為期十多年的拉斗挖掘採礦服務合約，亞利桑那州一處石灰石採石場的營運也於 10 月展開。管理階層預期 2027 年將受惠於棕櫚灘郡與亞利桑那州兩項合約的全年貢獻。

在薩克帕斯（Thacker Pass），美洲鋰業（Lithium Americas）預計於 2027 年底完成其第一期鋰加工廠的機械竣工，並於 2028 年逐步實現商業化生產。NACCO 預計在 2027 年投入約 1,600 萬美元於採礦設備。根據合約，客戶必須從次年開始分五年償還這些投資款項。

公用事業煤炭開採業務

營業利益由 500 萬美元增至 660 萬美元，調整後 EBITDA 由 710 萬美元增至 890 萬美元。合約定價改善以及密西西比褐煤採礦公司存貨減損費用下降，推動了獲利成長。

該客戶的發電廠在本季營運更加穩定，應收帳款回收情況亦有所改善。雖然付款尚未完全跟上進度，但管理階層表示，該客戶的流動性仍與發電廠的營運表現息息相關。

薩賓採礦公司（Sabine Mining Company）的業主於 10 月 1 日承擔了最終土地復育活動的責任，結束了 NACCO 的復育費用。管理階層預期，在出貨量增加與合約費用調升機制的支撐下，Coteau 與 Falkirk 於 2027 年的獲利成長將在很大程度上抵銷薩賓相關獲利的減少。

礦產與權利金業務

營業利益為 770 萬美元，調整後 EBITDA 為 870 萬美元，兩者皆與去年同期大致持平。該公司對 IGAR Resources 的投資收益增加，抵銷了主要因天然氣產量與價格疲軟所導致的權利金收入減少。

生態減緩資源業務

生態減緩資源業務在數個州擁有 13 個生態減緩銀行專案。管理階層表示，河流與濕地信用額度通常預計在 10 至 12 年內售出，進而創造長期收益機會。

該公司預期生態減緩資源業務將在第四季和 2027 年實現獲利，不過各季度的業績可能會因許可證取得及專案進度的時程而有所波動。

太陽能專案

NACCO 因 2026 年 10 月終止一項購售電合約，而在第三季產生了 340 萬美元的費用。該筆金額已於 9 月 30 日列為費用及應付款項，預計將在第四季增加循環信貸未償債務。

管理階層持續評估專案出售、合約修訂及其他交易方式。其明確目標是限制進一步的風險曝險，同時尋求將專案變現，並可能保留被動獲利空間。

管理階層展望

• 2026 全年調整後 EBITDA 預計將較前一年大幅增長。
• 儘管前三季認列了約 1,500 萬美元的太陽能相關減損與終止成本，但全年營業利益預計仍將與 2025 年相當。
• 全年稅前淨利與淨利預計將較前一年成長。
• 第四季淨利預計將年增，主要原因是 2025 年第四季認列的退休金清算費用將不再發生。
• 第四季營業利益與調整後 EBITDA 可能會較去年同期下滑，具體取決於額外太陽能專案終止成本發生的時間點。
• 承包採礦業務預計將在第四季及 2026 全年實現營業利益與調整後 EBITDA 的大幅年增，並於 2027 年進一步迎來營業利益增長。
• 礦產與權利金業務第四季與全年的營業利益及調整後 EBITDA 預計將低於 2025 年同期水準。管理階層亦預期 2027 年營業利益將從 2026 年的水準放緩。
• 管理階層預期 2027 年營業利益、淨利與合併調整後 EBITDA 將較去年同期顯著改善。
• 2026 年剩餘期間的計畫投資額最高達 3,200 萬美元，2027 年最高達 5,600 萬美元。2027 年的金額包括 2,000 萬美元的礦產與權利金成長預算、1,600 萬美元的 Sawtooth 設備支出，以及 2,000 萬美元的現有營運與其他業務拓展機會投資。
• 由於既定的投資計畫，2026 年融資前現金流預計仍為淨流出，但管理階層預估 2026 年與 2027 年皆會有所改善。

風險與關注焦點

• 未來可能還會產生額外的太陽能專案成本，其金額與時程取決於談判進度及潛在的變現交易。
• 密西西比褐煤採礦公司的客戶付款仍落後於進度，而收款情況與客戶流動性則取決於發電廠是否能持續穩定運轉。
• 柴油費用上漲會在反映至合約銷售定價之前先推升採礦成本，從而產生時間落差。
• 佛羅里達州的部分石灰石業務正面臨客戶去化庫存與活動放緩的情況。管理階層表示，客戶並未透露出現重大經濟衰退的跡象。
• 礦產與權利金業務仍持續受到大宗商品價格波動以及石油與天然氣產量結構變化的影響。
• 生態減緩資源業務的獲利表現可能會因許可證發放、專案開發進度以及信用額度出售時程而出現波動。

分析師問答精華

管理階層表示，薩賓土地復育費用的損失，在 2027 年應可大致由 Coteau 與 Falkirk 出貨量增加及合約費率調升機制所抵銷。

在太陽能業務方面，管理階層表示該處理過程可能會持續數季甚至超過一年。該公司未對潛在收益進行量化，但表示目前的 2026 年與 2027 年展望已納入對未來成本的最佳估算。

在資本配置方面，NACCO 計劃維持股利發放、強化資產負債表，並選擇性投資長期成長機會。管理階層亦表示，正評估如何讓投入的每一美元產生更多成長。股票回購仍是潛在的資金用途之一，但並未提供具體承諾。

管理階層亦強調了生態減緩資源業務潛在的隱含土地價值。該公司在高成長地區附近的水域購買土地，開發為生態減緩銀行，並可能在日後出售未受保育地役權限制的土地。公司未透露具體面積或估計的市場價值。

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管理層陳述

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.

分析師問答

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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