Hallador Energy Co (HNRG) 10-Q Quarterly Report Mon May 23 2022

Brent Bilsland, President and Chief Executive Officer, stated, "The announcement of the acquisition of the Merom Generation Station is an absolute game changer for Hallador Energy Company. This transaction is an example of how Hallador can help its customers transition to renewables. Providing critical capacity to them in the near term, to maintain grid reliability, while creating a path to renewables through a PPA in the future.”

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On February 15^th, 2022, Hallador Energy announced its new wholly owned subsidiary, Hallador Power Company, LLC, will acquire Hoosier Energy’s 1-Gigawatt Merom Generating Station (“Merom”), located in Sullivan County, Indiana, in return for assuming certain decommissioning costs and environmental responsibilities.

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The transaction, which includes a 3.5-year power purchase agreement (PPA), is scheduled to close in mid-July 2022 upon obtaining required governmental and financial approvals.

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We expect Hallador Power to contribute little to Hallador Energy profits in 2022. However, this acquisition is significant starting next year as we believe Hallador Power will double Hallador Energy's adjusted EBITDA starting in 2023.

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At the end of the plant's useful life, Hallador and Hoosier expect to finalize a PPA to allow for renewable energy.

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In 2021, we generated $48.0 million in operating cash flow which we utilized to pay down our bank debt by $26.0 million.

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As of December 31, 2021, our bank debt was $111.7 million, bringing our liquidity to $35.9 million and our leverage ratio to 2.34X, within our covenant of 3.0X.

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On March 25, 2022, we executed an amendment to our credit facility to maintain our leverage covenant at 3.0X.

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We anticipate adding even more liquidity to our balance sheet to facilitate the acquisition of the Merom Generating Station in mid-July of this year.

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Success in executing 5.8 million tons of new coal sales contracts were made in 2021:

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Increasing 2022 volumes to 6.8 million tons.

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Increasing 2023 volumes to 7.0 million tons (assumes completion of Merom acquisition)

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Improvement of 2023 average sales price by $3.29 over 2022.

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Solid Sales Position Through 2023 and Beyond:

	Contracted	Estimated
	tons	price
Year	(millions)*	per ton
2022 (annual)	6.8	$ 39.81
2023 (annual)	5.3	$ 43.10

2024 - 2027 (total)	6.3	**
Total	18.4

* Contracted tons are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce tonnage if such option exists in the customer contract

** Unpriced or partially priced tons

The table below represents some of our critical metrics (in thousands except for per ton data):

	December 31,
	2021			2020
Net loss	$	(3,754	)	$	(6,220	)
Total revenues	$	247,666		$	244,241
Tons sold	$	6,173		$	5,968
Average price per ton	$	39.51		$	40.56
Bank debt	$	111,738		$	137,738
Operating cash flow	$	47,974		$	52,576
Adjusted EBITDA	$	50,285		$	53,501

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_{*Defined as operating cash flows plus gain on extinguishment of our PPP loan debt, plus current income tax expense, less effects of certain subsidiary and equity method investment activity, plus bank interest, less effects of working capital period changes, plus other amortization}

Adjusted EBITDA should not be considered an alternative to net income, income from operations, cash flows from operating activities or any other measure of financial performance presented in accordance with GAAP. Our method of computing Adjusted EBITDA may not be the same method used to compute similar measures reported by other companies.

Management believes the non-GAAP financial measure, Adjusted EBITDA, is an important measure in analyzing our liquidity and is a key component of certain material covenants contained within our Credit Agreement, specifically a maximum leverage ratio and a debt service coverage ratio. Noncompliance with the leverage ratio or debt service coverage ratio covenants could result in our lenders requiring the Company to immediately repay all amounts borrowed. If we cannot satisfy these financial covenants, we would be prohibited under our Credit Agreement from engaging in certain activities, such as incurring additional indebtedness, making certain payments, and acquiring and disposing of assets. Consequently, Adjusted EBITDA is critical to the assessment of our liquidity. The required amount of Adjusted EBITDA is a variable based on our debt outstanding and/or required debt payments at the time of the quarterly calculation based on a rolling prior 12-month period.

Reconciliation of the non-GAAP financial measure, Adjusted EBITDA, to cash provided by operating activities, the most comparable GAAP measure, is as follows (in thousands) for the years ended December 31, 2021 and 2020, respectively.

The following information was filed by Hallador Energy Co (HNRG) on Tuesday, March 29, 2022 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-Q Quarterly Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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Inside Hallador Energy Co's 10-Q Quarterly Report:

Financial - Expense Highlight
General and administrative expense increased $0.3 million during the quarter as a result of legal and due diligence costs related to the acquisition of Merom.

Financial - Expense Highlight
Interest expense decreased approximately $0.1 million during the quarter due to our lower bank debt balance compared to the same period in 2021.
Other - Other Highlight
In 2023, we expect our adjusted EBITDA to grow to over $150 million.
Revenue - Product Highlight
In Q1, Hallador was in the unfortunate position of having its sales price hedged, so we could not take advantage of significantly higher market prices, while our input costs increased significantly year over year due to supply disruption and inflationary pressure.
Financial - Expense Highlight
16 Table of Contents c. Production i We expect the production cost improvements we have experienced that started in the second quarter 2022, coupled with our anticipated sales price increases, to increase our margins from Q1 and return them to our historical >$10 per margins in June.
Revenue - Product
No assurance can be given...Read more
Revenue - Product
Other revenues increased $1.1 million...Read more
Revenue - Product
Our current 2023 average sales...Read more
Financial - Earnings
i. Operating margins from coal...Read more
Revenue - Product
We modified existing sales contracts,...Read more
Financial - Earnings
Our operating margins were $1.86...Read more
Other - Other
Depreciation, depletion and amortization decreased...Read more
Other - Other
Our effective tax rate (ETR)...Read more
Financial - Expense
After applying the provisions of...Read more
Other - Other
20 Table of Contents We...Read more

Financial Statements, Disclosures and Schedules

Inside this 10-Q Quarterly Report

Material Contracts, Statements, Certifications & more

Hallador Energy Co provided additional information to their SEC Filing as exhibits

Exhibit 10.1: Material Contract

Exhibit 10.2: Material Contract

Exhibit 10.3: Material Contract

Exhibit 10.4: Material Contract

Exhibit 10.5: Material Contract

Exhibit 31.1: Rule 13A-14(A)/15D-14(A) Certification

Exhibit 31.2: Rule 13A-14(A)/15D-14(A) Certification

Exhibit 31.3: Rule 13A-14(A)/15D-14(A) Certification

Exhibit 32: Section 1350 Certification

Exhibit 95.1: Exhibit 95.1 - Mine Safety

Ticker: HNRG
CIK: 788965
Form Type: 10-Q Quarterly Report
Accession Number: 0001437749-22-013322
Submitted to the SEC: Mon May 23 2022 4:59:41 PM EST
Accepted by the SEC: Mon May 23 2022
Period: Thursday, March 31, 2022
Industry: Bituminous Coal And Lignite Mining