NACCO Industries, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023; filed March 6, 2024. NACCO operates Coal Mining, North American Mining (NAMining), and Minerals Management, with additional developing businesses including Mitigation Resources.
Financial performance
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $214.8 million | $241.7 million |
| Gross profit | $14.6 million | $67.8 million |
| Operating profit (loss) | $(70.1) million | $70.0 million |
| Net income (loss) | $(39.6) million | $74.2 million |
| Basic earnings (loss) per share | $(5.29) | $10.14 |
| Cash from operations | $54.5 million | $67.7 million |
| Cash and cash equivalents, year-end | $85.1 million | $110.7 million |
| Total debt, year-end | $36.0 million | $19.7 million |
Investing activities used $81.6 million, including $45.4 million of property and equipment spending and $36.7 million to acquire mineral interests. Cash flow before financing activities was a $27.1 million use of cash. Year-end cash exceeded reported debt by approximately $49.2 million.
- Coal Mining: Revenue was $85.4 million, down from $95.2 million; segment operating loss was $71.3 million versus $38.3 million operating profit. Results included a $60.8 million share of the MLMC impairment and a $7.5 million inventory write-down.
- NAMining: Revenue was $90.5 million, up from $85.7 million; operating profit increased to $3.3 million from $2.2 million.
- Minerals Management: Revenue fell to $33.0 million from $60.2 million and operating profit to $19.4 million from $52.2 million, mainly reflecting lower oil and gas prices and lower settlement income. The segment also recorded $5.1 million of the MLMC-related impairment.
The company recorded a $24.6 million income tax benefit in 2023, including $4.0 million of discrete benefits; the effective tax rate was 38.3%. The 2022 results included a $16.9 million other contract-termination settlement and a $30.9 million gain associated with the GRE transaction, making the year-on-year comparison less representative of recurring performance.
Material changes and notable items
- A Red Hills Power Plant boiler serving MLMC has been unavailable since December 2023 and remained out of service as of March 6, 2024. The expected demand reduction triggered a $65.9 million non-cash long-lived asset impairment and is expected to significantly affect 2024 results.
- Coal deliveries declined to 23.7 million tons from 28.5 million. Sabine stopped coal deliveries in 2023 following the Pirkey Plant’s early retirement; reclamation services are expected to continue through September 2026.
- Oil and gas benchmark prices were lower: average WTI was $77.64/barrel versus $94.79, and Henry Hub gas averaged $2.54/MMBtu versus $6.42. Minerals Management’s standardized measure of discounted future net cash flows declined to $48.4 million from $92.1 million.
- Catapult acquired $36.7 million of Permian Basin mineral and royalty interests. NAMining signed a 15-year phosphate mining contract, with production expected to begin in the first half of 2024, and expanded or extended other contracts.
- NACCO entered a power purchase agreement for a proposed 67.5 MW solar facility on reclaimed Red Hills Mine land. Development remains subject to environmental review and an interconnection agreement; commercial operation is estimated for 2027.
- The company recognized a $1.8 million non-cash pension settlement charge after approving termination of its Combined Defined Benefit Plan.
Liquidity, debt, and capital commitments
NACCO had a $150 million secured revolving facility expiring in November 2025, with $10.0 million drawn and $105.1 million of excess availability at year-end after letters of credit. Outstanding letters of credit totaled $34.9 million. The company reported compliance with financial covenants. Management believes cash, operating cash flow, and facility availability will cover operating needs and commitments for the next 12 months and through facility expiry.
Planned 2024 capital expenditures are approximately $69 million: $32 million for NAMining, $20 million for Minerals Management, $13 million for Coal Mining, and $4 million for unallocated items. Management expects 2024 cash flow before financing activities to be a moderate use of cash. The 2023 dividend was $0.86 per share. A $20 million share repurchase authorization runs through December 31, 2025.
Outlook, commentary, and risks
- Management expects consolidated net income in 2024, compared with the substantial 2023 net loss, and significantly higher Adjusted EBITDA. No specific consolidated earnings or Adjusted EBITDA amount is provided in the filing text.
- Coal Mining expects modestly higher deliveries and a return to segment operating profit, mainly from improved MLMC results and higher earnings at Falkirk and Coteau. MLMC is nevertheless expected to incur a smaller loss in 2024; prolonged boiler repair delays could materially worsen the outlook.
- NAMining expects consecutive quarterly growth in operating profit and significantly improved full-year results, supported by new and amended contracts. Thacker Pass lithium production is targeted for late 2026; Sawtooth expects equipment reimbursement and construction-related income before production.
- Minerals Management expects moderately lower 2024 operating profit and Segment Adjusted EBITDA, excluding the MLMC impairment, due mainly to commodity-price assumptions and limited expected new well development. Management is targeting up to $20 million of additional mineral-interest investment in 2024.
- Mitigation Resources is expanding its projects and aims for a modest operating profit by 2025, with sustainable profitability as the business matures.
- Key risks include the Red Hills boiler outage and customer demand, coal plant dispatch and possible early retirements, environmental and emissions regulation, natural gas and oil price volatility, third-party development and production decisions, reclamation obligations, customer concentration, and NAMining’s geographic concentration in Florida. Two customers represented 40% and 22% of consolidated 2023 revenue.
Most important facts for investors to verify
- Red Hills Power Plant repair status, force majeure terms, customer coal requirements, and the resulting MLMC cash-flow outlook.
- Whether the $65.9 million impairment and $7.5 million inventory write-down fully reflect MLMC’s revised operating outlook and asset values.
- Execution and economics of the new phosphate contract, Thacker Pass project, and planned 2024 capital expenditures and mineral acquisitions.
- Liquidity and covenant headroom as debt rises, including the availability and terms of the revolving facility and required reclamation financial assurance.
- Commodity prices, third-party well development, and actual production and royalty receipts relative to management’s Minerals Management forecast.