NACCO Industries, Inc. Price & Performance (NC)

We may not update these forward looking statements until our next quarterly earnings Conference call. We'll also be discussing non GAAP information that we believe is useful in evaluating the company's operating performance. Reconciliations for these non GAAP measures can be found in our earnings release and on our website. With the formalities out of the way, I'll turn the call over to JC for some opening remarks. [indiscernible] Thank you, Christy, and good morning, everyone. We delivered solid fourth quarter results, which represented a strong finish to a successful year. Those who follow us closely, you will recall that last year, I noted that all the unfavorable comparisons we experienced throughout what was a challenging 2023 should turn favorable in 2024. Well, I'm pleased to say that is exactly what happened. Our company delivered robust twenty twenty four fourth quarter net income of $7,600,000 and full year net income of $33,700,000 Fourth quarter adjusted EBITDA of $9,000,000 increased almost 27% over fourth quarter twenty twenty three and full year adjusted EBITDA of $59,400,000 increased 116% year over year. Before I provide more color on the year, I want to I'm extremely proud of the way these talented, dedicated and motivated individuals continue to deliver success These are the folks who produced our significantly improved 2024 results They continue to find new and innovative innovative ways to support our customers while working to implement our grow and diversify strategies.

I want to thank each of them for the hard work and many contributions that they put forth to strengthen us today. To secure new opportunities for our future. I am honored each and every day to work alongside such an amazing team. Our strong 2024 performance was led by our coal mining segment, where segment adjusted EBITDA more than quadrupled from twenty twenty three. North American Mining delivered a 35% increase in segment adjusted [indiscernible] and 21% increase in segment adjusted EBITDA. Much of the coal mining segment's improvement occurred at While this mine dealt with its customers' plant with only one boiler for more than half the year, business interruption insurance income of $13,600,000 received in the third quarter helped offset the reduction in customer demand. Despite lower revenues at Mississippi Lignite Mining Company, due to reduced customer demand, the Red Hills mine operated more efficiently in 2024 than a year ago. When it was finalizing the move to a new mine area and contending with difficult mining conditions, Those challenges are now behind us. Earnings at our unconsolidated mining operations also improved with an increase in earnings at both Coateau and Falkirk. Specifically Falkirk experienced increased customer demand at a higher per ton management fee beginning in June 2024 when the temporary price concessions associated with Rainbow Energy's acquisition [indiscernible] acquisition of Coal Creek Station ended [indiscernible] We're encouraged that evolving policy framework seem to be creating a more favorable regulatory environment for the fossil fuel industry moving forward.

And demand for dependable electricity is projected to outplay pace supply These developments are expected to further support coal as a essential part of the energy mix in The United States for the foreseeable future. Shifting to North American mining, this segment continues to benefit from progress on operational and strategic projects have improved profitability and will continue to do so. In addition to the segment adjusted EBITDA improvement, full year operating profit of $5,800,000 was up 72% compared with 2023, And our North American Mining experienced lower profitability in the second half of twenty twenty four compared with the first half. This decline was due in part to an overall reduction in demand partly attributable to the ongoing effects of three hurricanes in Florida in the second half of the year. We expect North American Mining to generate increasing levels of operating profit and EBITDA over time as benefits from new and extended contracts add to the profitability of existing contracts. During 2024, North American Mining executed two new contracts and amended an existing contract all of which are expected to deliver net present value of after tax cash flows of approximately $20,000,000 over contract terms, which range from six to twenty years.

Wrapping up my North American Mining comments, let me mention sawtooth mining. Which is the exclusive contract mining miner for Lithium Americas Stafford Pass Lithium Project in Northern Nevada. Lithium Americas continues to make progress on the Thacker Pass project and we continue to support the project by assisting with certain construction services as they ramp up work to build the lithium processing plant. In the fourth quarter of twenty twenty four, we and Lithium Americas agreed to expand the scope of our work to include transportation of clay tailings once lithium production commences. This expansion of work comes with an expected increase in our income from this long term project. Phase one production is estimated to begin in late twenty twenty seven. In Minerals Management, the 2024 adjusted EBITDA improvement was primarily due to a $4,500,000 gain on sale of assets, Excluding the gain, Mineral meat Minerals Management's 2024 earnings were comparable to 2023. We are very pleased with the work done by the Catapult mineral partners team, which manages this segment. They have greatly expanded our portfolio of mineral interests so that we are now more diversified in terms of our oil and gas mix We work with a wider range of operators We have a greater geographic footprint and we own interest in stages of mineral development.

Ranging from producing wells to undeveloped mineral interests. This expansion continued in the fourth quarter of twenty twenty four when Minerals Management invested an additional $15,700,000 in a company that holds non operated working interests in oil and natural gas assets in the Kansas and Oklahoma portions of the Huggattan Basin. This investment is expected to be accretive to future earnings. While we continue to budget up to $20,000,000 annually to expand our portfolio, and provide long term stable cash flow generation our business model allows flexibility regarding the cadence and type of investment based on available opportunities that we believe will result in significant long term value and increasing profitability. We believe that this expansion and diversification program has us well positioned to generate increasing levels of operating profit and EBITDA well into the future. Finally, moving to mitigation resources of North America, I'm pleased to note that this the business contributed positively to operating profit and EBITDA the twenty twenty four fourth quarter and is expected to achieve full year operating profit in 2025 based on current expectations for the business. Our expectations were bolstered in January when the teams secured a restoration project in Kentucky is expected to be accretive to earnings beginning in 2026.

We believe that mitigation resources is on track to increase profitability over [indiscernible] Overall, I'm excited about our business trajectory. I'm optimistic about the future and I'm pleased with the way all of these businesses continue to advance their strategies. I believe 2025 is a pivotal year for our company as our legacy businesses stabilize and our new businesses gain traction. We are proud of what we have accomplished thus far and have confidence in our journey. We love our story and intend to increase our level of shareholder engagement in the coming year. With that, I'll turn the call back over to Christy to cover our quarterly results and outlook. Thank you, JC.

I'll start with some high level comments about our consolidated fourth quarter financial results and have discussed the results at our individual segments. And our 2025 outlook. We reported consolidated operating profit of $3,900,000 and net income of $7,600,000 or $1.02 per share. Last year, we reported a fourth quarter operating loss of $67,400,000 and a net loss of $44,000,000 or a loss of $5.88 per share. Adjusted EBITDA increased to $9,000,000 from $7,100,000 in 2023. The 2023 financial results included a $65,900,000 pre tax asset impairment charge, I'd note that $60,800,000 of the impairment was in the 2020 coal mining segment results, and $5,100,000 was in mineral management's results. Home mining segment reported operating profit of $2,000,000 and generated segment adjusted EBITDA of $4,200,000 in the twenty twenty four fourth quarter. This compares to an operating loss of $62,300,000 segment adjusted EBITDA of $3,200,000 in 2023. Segment adjusted EBITDA increased 32.6% primarily due to higher earnings at the unconsolidated operations, as a result of increased pricing at Falkirk and improved earnings at Coateau. As well as increased customer requirements at both mines. Lower operating expenses also contributed to the higher coal mining results. North American Mining reported the fourth quarter twenty twenty four operating profit of $800,000 compared with a $600,000 operating loss in the prior year.

The improvements in operating results in segment adjusted EBITDA, were mainly due to reduced operating expenses, particularly outside services. The prior year results also included a $500,000 loss on sale of the dragline sold in connection with the extension of a customer contract. Minerals Management's fourth quarter twenty twenty four operating profit improved to $7,200,000 up from $2,500,000 in 2023 primarily because the prior year quarter included a $5,100,000 impairment charge. Revenues and segment adjusted EBITDA which excludes the 2023 impairment charge, were generally comparable to the prior year. Looking forward, our businesses provide critical inputs for electricity generation, construction and development, and the production of industrial minerals and chemicals, increasing demand for electricity, onshoring and current federal policies are creating favorable macro and economic trends within these industries. As JC mentioned, we are confident in our trajectory and business prospects as we enter 2025 and prepare for longer term growth opportunities. Specifically in 2025, we expect to generate a modest year over year increase in consolidated operating profit. In 2025, the coal mining segment anticipates solid customer demand with deliveries expected to increase modestly from twenty twenty four. In addition, the coal mining segment expects to benefit from the absence of temporary price concessions [indiscernible] At our Mississippi Lignite Mining Company.

They continue to recover from inefficiencies experienced while the customers Red Hills power plant operated on one of two generation units for more than half of 2024. With the power plant now anticipated to operate a level consistent with historical averages, coal deliveries are expected to return to more normal levels. Resulting in modestly improved cost efficiencies. However, an anticipated reduction in the 2025 contractually determined per ton sales price compared with $24 is expected to offset these improvements leading to lower results at Mississippi Lignite Mining Company. This combined with an anticipated increase in operating expenses in the coal segment Overall, it's expected to result in a modest year over year decrease in coal mining segment operating profit. North American mining is expected to deliver improved results in 2025 for comparable year over year customer demand. Minerals Management's high quality diversified portfolio of oil and gas mineral interest provides a strong foundation of well positioned assets that are expected to continue to deliver solid financial results. Minerals Management's recent investment in the Huguetan Basin is expected to be accretive to earnings in 2025. Overall, Mineral Management's 2025 operating profit is anticipated to be comparable to '24. Lower first half earnings are expected to be offset by an improvement in the second half given forecasted trends in oil and natural gas prices and projected volumes.

We started the process to terminate our defined benefit pension plan in 2024 and expect that process to be completed in 2025. This will eliminate future volatility from changes in our pension obligation. Once complete, obligations under the terminated plan will be transferred to a third party insurance provider. Although the plan is currently overfunded, a significant non cash settlement charge is anticipated upon termination. Excluding that anticipated charge, net income is expected to decrease moderately compared with 2024. Before I turn the call over to questions, let me close with some information about our liquidity and cash flow. We ended the year with consolidated cash of approximately $73,000,000 and debt of $99,500,000 Availability under our revolver was approximately $99,000,000 In 2024, we paid $6,600,000 in dividends and repurchased approximately 317,000 shares of our Class A common stock at prevailing market prices for an aggregate purchase price of $9,900,000 As of 12/31/2024, we had $8,500,000 remaining under our $20,000,000 share repurchase program that expires at the end of this year twenty twenty five. We expect significant annual cash flow generation in 2025 and future years based on our current business plan. We will now turn to any questions you may have.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Your first question comes from Doug Weiss with DS Investments. Your line is now open. [indiscernible] Yes. Well, my guess is that was an accident. Doug's going to die in.

Okay. While we wait, I would like to provide a few reminders. A replay of our call will be available online later this morning. We'll also post a transcript on the Investor Relations website when it becomes available If you have any questions, please reach out to me. You can reach me at the phone number on press release and we don't still have Doug. I'm not certain what happened.

I mean, it could.

I don't know where it is. Could be power outage, could be Internet outage, could be Yes.

We have no other questions. Now did you want to wait a moment longer? [indiscernible] [indiscernible] Did you okay, there we go. Your line is open, Doug.

Hi. Yes. Sorry about that. My phone dropped just as the Q and A started. So on the coal business, I think the results are a little better than they looked at first, if I'm right. Because you had a $6,000,000 inventory write down in that division. Is that Accurate We have taken inventory right now, that's correct.

I mean, yes, so I think a lot of companies would add that back to EBITDA. And if I do that, the divisions at about $10,000,000 of EBITDA is Would you argue that that's not a reasonable adjustment? I guess, in other words, is that a reasonable if I add that back and start with the $10,000,000 is that a reasonable baseline for next year on a kind of run rate basis?

I mean, we gave some information on the whole segment, which specifically is our Red Hills mine that we think the sales price is going to be lower next year compared to this year and it's really contractually determine sales price. So I don't know. I'd look at what we said about MLMC Mississippi Lake Mine Mining Company and the outlook.

Right. Okay.

We haven't added it back, Doug, because it has been recurring. Over the past year. Each quarter, we have taken a write down. So that is why we have included it within our numbers as opposed to excluding it.

Right. So it's not look, it's called out as an individual number. I mean, everybody can do their own analysis if they want to add that back.

Right. Right. Right.

Okay. And then I guess on the MLMC volumes, despite having that check-in boiler come back online, they're still a little bit light. But I guess your guidance suggests you see that strengthening next year.

Well, the plant was down One boiler was down for half the year. They also had an outage later in the year. [indiscernible] there's a significant outage, which this was, They get inside and decide what else might they need to do that they could schedule at the same time. And I think some of that took a little longer than than we had expected. [indiscernible] [indiscernible] the volumes from last year compared to going forward.

Okay. Okay. I guess I'm still struggling to kind of and maybe I just have to wait for next quarter, but to get handle on what normal MLMC gross profit looks like I guess last quarter at least kind of breakevenish and I gross profit basis this quarter. It was a loss, but then that includes that inventory write down. [indiscernible] know if there's anything more you could say about and then you have stronger volume come in, but then you have a price reduction So let's If you don't mind, we'll just do the pieces of that, right? Of course, you've got volume. When we know that there's going to be any kind of significant outage that's going to affect the volume. I think we've generally, although not always try to signal that so that investors know what to expect. So that's the volume side. I mean, I will say in general, as we all know, know, there's increasing demand for electricity across the country. And it will vary plant by plant, power plant by power plant. We think generally that's going to be helpful with respect to electron sales, which is directly related to coal deliveries at all of our plants.

Or in all of our minds with respect to all of our utility customers. So then you go to price, right? At Red Hills price is determined by a contractual formula that's based on some indices that reflect general costs involved in mining. I will tell you that throughout the history of this mine, which is now twenty five years, generally the price has gone up with inflation month after month, quarter after quarter, year after year. There's a the way the formula works, there's it's right now producing a decrease in price, which I would view as I view that as an aberration rather The norm I think that will readjust itself into a normal more normal pattern. Going forward. Although we all know it's impossible to predict exactly where inflation is headed generally as well as with respect to specific indices. Right? So you get volume, you've got price, then the other part is our cost. And I would tell you when you look at our costs, we've spent the last couple of years and I know you know we spent the last couple of years opening a new mine area, and spending quite a bit of capital in getting all that up and running.

That's now done. But what that's done is put a significant amount of depreciation into our cost structure. And the life of the mine goes to 02/1932, We don't see significant additional capital requirements. There will be some that they're not anywhere near the extent that we've had over the last few years. So your depreciation, in a typical manufacturing business, you would think of depreciation and maintenance CapEx offsetting each other. In our businesses, that's not really true. In particular here, you see you're going to see gross profit as you mentioned operating profit as we think about it including an elevated level of depreciation that really is to me is an add back. Because we're not in a position where we're going to have to replace that depreciation with more [indiscernible] So So those are just some things to think about as you're looking at MLMC in particular. That helpful?

That is helpful.

The I think you said $13,000,000 of CapEx for that for the coal segment. Is some of that going to the unconsolidated entities?

So our customers fund all of the CapEx of the M and Consolidated entities. We don't fund any of that CapEx. Customers pay all the costs. They provide all the capital.

Okay. So So that I mean, push back a little bit, isn't that That level of CapEx above your depreciation level for MLMC?

Well, remember, some of that CapEx is money from prior years that just didn't get spent.

If you look back I don't know, let's say a year ago, although I can't be you guys can be specific. But if you look back, we were saying 2025 was going to be lower CapEx level, which we didn't spend things in 2024. And that's pushed over into 2025. So sure, CapEx looks like it's bumped up a little bit, But anytime you can delay spending capital that of course is a good thing.

Right. This isn't This capital expenditure isn't a surprise increase. It's just money that didn't get spent that's that's tailing into this year. [indiscernible] Got it. And then on the just quickly on the price reset, are you able to take sort of what Inflation is still I mean, inflation is still going up. Are you able to say what created that aberration that brought [indiscernible] It's an incredibly complex formula. That looks at period versus period changes in a basket of specific indices that are related to mining inputs. One of those is an index with respect to labor costs. One of those is related to diesel costs. There's a number of other indices that are in there. And because there's period versus period comparison, so it's really looking at the change over time, not a specific individual level. That's what can cause some of these some of these swings. I will tell you that this contract was And it is not a pricing formula that any of us would sign up today. But it's what we live with. Also ties to the contract between the power plant and TBA with respect to the electron sales. So it kind of is what it is.

I see. Okay, got it. On the Mineral Management division, obviously gas prices have come up a lot. Over the last month or two. And I wondered if your guidance reflected some conservatism on prices or is it that given the low prices last year drilling has come down or well expansion has come down and it's going to take some time to get that going again assuming prices hold at these higher levels? Well, I'll tell you generally Culturally, we don't see a lot of upside in being overly optimistic. I know there's lots of companies out there that do that. But that to me leads to over promising and under delivering. We would rather be more on the conservative side of things because I don't there's just a little upside in us getting out on the edge of our projections. So there's definitely some differences in there, both with respect to pricing, I would say, as well as with respect to volume production and the timing of new development. We tend to be pretty conservative how we think about those things. And if we end up with some nice upsides from that, that's great for all of us.

Okay. Great. Makes sense. On North American Mining, So I guess first, you had the weather effects at the end of last year and you had mentioned on the last call that sometimes you see a pickup as there's some rebuilding after hurricanes. Is that are you seeing that at this point? Maybe in a small way, But there's the the damage was pretty severe. Especially through Central Florida. And I think we're yet to see how this really plays out with respect to [indiscernible] over and above what would be a normal level of production related So it's sort of back to normal, but you're not seeing elevated demand. I'm sorry, can you say that again? So trends are kind of back to where they were before the hurricane Yes. I'd say they're headed that direction. Are we seeing a post hurricane bump [indiscernible] I don't think we are to any significant extent But I can't promise it's going to I can't promise how it plays out in this in this particular situation, but generally you do see a bump six to twelve months later following the hurricanes. This is a little different because you got three in a row.

Right. Right. Yeah. [indiscernible] And I spent some time on the North American Mining website and going through your Ks. And I guess what I've concluded and let me know if I'm wrong on this, is that That business is differentiated versus a lot of mining operations in both the dragline expertise and the ability to do the mine quarries that are submerged But I've noticed that I think the language changed a little bit in the K you released yesterday and also the website. Seems to be changing a little bit. And it so my impression is that as you expand that business, you're going to be doing less of that work. So I guess, A, is that correct? And if that's true, is that an implications for the economics of the business and your ability to add customers? I wonder if you could kind of talk to that a little bit. [indiscernible] So North American Mining I apologize, but we're going to do a little bit of history here, right? North American Mining came back in 1995 was the origin of this working with a customer that we still work for in Southern Florida. And we were they were looking for somebody that had dragline operating [indiscernible] started helping them.

That grew somewhat until 2015, that twenty years. And then in 2015, we really started focusing on how do we grow this business pretty substantially. That led us to really take a deep dive into what is our what are our unique skills and give us a competitive advantage in this [indiscernible] Well, one of those competitive advantages is we are told by one of the largest equipment manufacturers in the world They believe that we operate more drag lines than any other company in the world. Let's say there may be some countries, who operate more, but they think we operate more than anybody else. So you start fundamentally with a unique piece of equipment that requires some specialized skills in order to get the full productivity capabilities out of that piece of equipment. Now you take that to Florida and it's even more specialized because in Florida primarily we're mining under in quarries where the aggregates are underwater. So it's a further specialization of the skill. And we're really the only people that are doing that at any scale at all in The United States. There are some small players out there, but they tend to have smaller equipment.

They're sort of It's much smaller businesses than we are. They don't have the resources to really approach this business like we do.

Now Florida is not the only place that has quarries where you're mining underwater. I will tell you one of the contracts that we have signed with an existing customer We will be mining starting in 2026. Starting in 2026, we're going to be mining underwater in in Arizona. But I will tell you, when we first heard about this, I said there's no way that they're mining underwater in Arizona because the water table must be so low. That's not actually the case. So this is an opportunity for us to do the same thing in Arizona and and it can be done other places in the country as well.

So So there's probably plenty of opportunities for us to continue to expand this business, which we view as operating a very specialized piece of mining equipment in a unique way. [indiscernible] You'll note that we've also been using surface miners both in our coal operation, which we've been doing for a long time, for sort of surgical extraction of coal But we've been operating a surface miner, which is like when you're driving down the road and you see those milling machines that are chewing up the pavement and putting them in putting it into a truck. It's the same kind of machine that we use except much, much larger than obviously with much stronger extraction capability. So we have been using a piece of equipment like that to help a customer extract extract limestone And the advantages of that are you don't have to the customer doesn't have to crush it to the same because the machine already brightens it up. And you don't have to incur blasting. So you think about quarries in fast growing areas, We don't operate in this area, but I'm just going to say, there's quarries around San Antonio. When you think how San Antonio has grown tremendously in the last several years, they now have businesses and housing closer to the quarries and they have trouble with blasting.

These are dry quarries. We think that this is a piece of equipment where again we've got very specific expertise where we think that we can go provide this service to others in a way that will be good for their business. Now in every instance, our main competition for the work that we do is the quarry operator themselves. I would say a majority of quarry operators do their own mining. Well, as we work with more and more of these guys, We see that there are lots of opportunities to bring our expertise to the table and let them they want to focus on what they're good at, which is reading their market, securing their reserves, processing it in the proper way, selling it and all that. Their expertise doesn't necessarily lie in mining. So this is where we come in and we think that we can provide the mining services for them in a way that is more economical and effective than they can do themselves And we can do so, so we can save them money and we can make enough of margin that is attractive to us. So that's really the framework around this business.

Now with respect to the aggregates, that's an aggregate Corey, is a pretty simple thing where you're extracting the aggregate impression you're selling it.

We're doing the same thing at Sawtooth in Northern Nevada for the lithium mine. Except there instead of just running the extraction equipment, we're actually running the whole mine. It's much more like a coal mining operation where you've got to split the topsoil and do permitting and do all this all this work ultimately extract the resource. So it's the same kind of very specialized mining, but in a very traditional mine. It's a long answer, but I hope that's helpful. That is helpful. Are the economics or the margins similar on the Drag line work versus the surface mining work?

I would say generally, yes. Because again, you're you're competing our margins are tempered by how somebody could do it themselves. And the trick to make expansion in this business and we I guess we allude to this in the earnings release is when when we land a new project, Yes. It's purely services, we're operating equipment that's the dragliner, surface miner that's owned by the customer. Then there's very little cash out on our part And for the term of the contract, we're going to earn fees based on the work that we do. If we have to put in capital, we will put in capital upfront. So there's a capital outlay at the beginning but that's the capital outlays beginning. We're going to depreciate the equipment, but that's a non cash charge. And over the life of the contract, we're going to generate very nice returns These things have nice NPVs, they have attractive IRRs, And if you think of an annual measurement of return on capital, obviously that's lower in the beginning when you've got undepreciated capital and it's much higher later in the contract when you have lower depreciated capital. But our business overall, not just at North American Mining is that we seek out long term contracts or long term investments with respect to mitigation resources And every year when we sign new contracts we get new customers, we invest in minerals.

We're making a single year investment that really I'm going to use the word annuity, but obviously, you don't just give a brisk and a straight up annuity. But we sign these things up and then know that we're building in our revenue and profit streams for years to come. And that's what we've been doing the last ten years in this business is adding more businesses, adding more projects, adding more opportunities, and building, building, building and where 2025 is kind of the point when all this is starting to reach a tipping point. When as we mentioned 2025, we think it's going to be cash positive. And we think that's going to continue to the future as we add more and more layers of contracts and investments and projects on top of each And then on Tucker Pass, lithium prices have really come down over the last couple of years. And I'm just curious if you have any visibility or any thoughts on the timing of I think it's moved out a little bit, but do you think that that's going to be somewhat dependent on a recovery in lithium prices? Or do you think it's going to go ahead regardless?

Well, mean, I think this project got a lot going for it. If you look at the Lithium Americas website, they've got a tremendous amount of information with respect to their project and their reserve and why they believe this is compelling investment for them. Their disclosures include discussion of their [indiscernible] And Amongst the ways that you can get lithium, through whether it's bound up in rock or it's a brine process or whatever, The extraction process and the mining process here is is comparatively low cost and the processing the process that their facility will go through in order to extract the lithium from the clay is pretty standard stuff. There's no magic in this. It's a It's all standard processes that have been used in other applications. So they actually have a pretty low cost approach to here to their product that I think withstands a lot of price decrease and still leads them very significant profits. I would also add they recently have issued a release where they've proved out, we actually did some of this this work with them. They proved out that they are now the largest proved lithium reserve in the world. And it's domestic, right, just in The United States.

So you think about a number of ways that this thing is highly competitive. It's low cost, even at current prices, it's in The United States, it's even all the output of this of this Factor Pass project in Phase one is a tiny brick drop in the bucket with respect [indiscernible] demand. So I feel pretty good about this project overall and our position as the as the contract miner for them. But I wouldn't encourage you to go look site because they've got a tremendous amount of information. It's a really really thoughtful website with a lot of a lot of information. You can get way in the weeds in some of their details.

Okay. Okay. I'll do that. You had the you took the reserve last quarter on the phosphate customer. Is that still non operating that that phosphate work or is that going to start?

That is not operating. At the current time.

We're monitoring the situation and trying to see how that plays out.

Okay. And then just on the the cash flow, Working capital was a significant use of cash and I guess that was receivables and inventory. I guess a couple of questions there. I guess, A, do you think working capital be a source of cash you think in 2025?

Then on the inventory itself, you give a little detail on its it's primarily mining supplies. Is that just is that something that's going to fluctuate or is that sort of an upward trend as you grow North American mining? Like what are those mining supplies?

Yes. So let me share some thoughts on working capital and then I'll give it to Liz for more detail. Working capital for our business operates very different than a typical business that's making things and selling them and they're looking at how does all that work. For us, if you look at our North American mining business, we will stock parts in advance of significant outages, well, in advance of any outage, regular maintenance, for the many drag lines that we operate. Some of these, we own the drag lines and in other instances, our customers So as we see outages coming, we will increase our level of inventory because there may be specific parts that are very long lead time in their nature. And that will show up as an increase in inventory. For a period of time, even though we know that we're ultimately going to We're going to put those into an outage at a drag line and inventory will come down. So that's kind of a normal ebb and flow that goes through North American by based on what it sees coming with respect to outages. The other thing I'd add is that mitigation resources the thing there is as we develop mitigation banking credits, whether they're spring credits or wetland credits, those show up as inventory.

And then over the life of the mitigation bank, those will be the Army Corps of Engineers and we have agreed on a schedule under which those can be sold over a period of time. So you'll see inventory build up in that business as well. [indiscernible] create a product, which is a Dreamer wetland credit goes on the balance sheet as inventory and then as we sell at comes off inventory.

Liz, you go ahead to that? As JC mentioned, we do expect 2025 to be cash flow positive Part of that is some favorable changes in working capital.

We had some timing differences in trade receivables that should kind of come back in 2025. And as J. C. Mentioned, we're building up inventory [indiscernible] related to as we continue to increase the contracts at North American Mining, we have a larger pool of drag lines. So if you need Okay. So when you talk about cash flow positive, you're talking free cash flow sort of operating cash from operations less CapEx.

Cash from the foreclining, yes.

Sorry, I didn't hear you. What was that?

Yes. Cash flow flow before financing.

So Right. Okay. [indiscernible] Yes, okay.

All right. Well, I think that's all I have. I really as always really appreciate the time and congrats on this you're clearly making progress on all your initiatives. So thanks again and look forward to talking next quarter.

Yes. Well, thank you for your question. Sorry you had a little technical glitch in the beginning, but glad we stuck around with your questions. [indiscernible] we love our story and we're going to engage in a more fulsome way. Later this year in investor outreach. So we look forward to sharing information with everybody about that. In months to come.

Great.

Thanks. Thank you. There are no further questions. Questions at this time. I will now turn the call over to Christina for closing remarks. Okay. Thank you so much.

I believe as I mentioned earlier, if you do have any questions, please reach out to me. My number is on the release. I hope you enjoy the rest of your day and I'll turn it back to Joel to conclude the call. Ladies and gentlemen, replay information for this call is 88345 passcode 300-0795 6345. Passcode 37905 This concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.