HALLADOR ENERGY CO 10-Q

ITEM 1. FINANCIAL STATEMENTS Hallador Energy Company Condensed Consolidated Balance Sheets (in thousands, except per share data) (unaudited) March 31, December 31, 2024 2023 ASSETS Current assets: Cash and cash equivalents $ 1,635 $ 2,842 Restricted cash 4,737 4,281 Accounts receivable 14,228 19,937 Inventory 29,688 23,075 Parts and supplies 40,360 38,877 Prepaid expenses 2,614 2,262 Total current assets 93,262 91,274 Property, plant and equipment: Land and mineral rights 115,486 115,486 Buildings and equipment 537,921 537,131 Mine development 161,669 158,642 Finance lease right-of-use assets 16,178 12,346 Total property, plant and equipment 831,254 823,605 Less - accumulated depreciation, depletion and amortization ( 348,783 ) ( 334,971 ) Total property, plant and equipment, net 482,471 488,634 Investment in Sunrise Energy 2,562 2,811 Other assets 7,125 7,061 Total assets $ 585,420 $ 589,780 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of bank debt, net $ 24,438 $ 24,438 Notes payable - related party 5,000 — Accounts payable and accrued liabilities 47,125 62,908 Current portion of lease financing 4,958 3,933 Deferred revenue 41,242 23,062 Contract liability - power purchase agreement and capacity payment reduction 41,662 43,254 Total current liabilities 164,425 157,595 Long-term liabilities: Bank debt, net 49,343 63,453 Convertible notes payable 10,000 10,000 Convertible notes payable - related party 1,000 9,000 Long-term lease financing 9,701 8,157 Deferred revenue 5,434 — Deferred income taxes 8,625 9,235 Asset retirement obligations 14,934 14,538 Contract liability - power purchase agreement 36,229 47,425 Other 1,871 1,789 Total long-term liabilities 137,137 163,597 Total liabilities 301,562 321,192 Commitments and contingencies Stockholders' equity: Preferred stock, $ .10 par value, 10,000 shares authorized; none issued — — Common stock, $ .01 par value, 100,000 shares authorized; 36,534 and 34,052 issued and outstanding, as of March 31, 2024 and December 31, 2023, respectively 365 341 Additional paid-in capital 144,490 127,548 Retained earnings 139,003 140,699 Total stockholders’ equity 283,858 268,588 Total liabilities and stockholders’ equity $ 585,420 $ 589,780 See accompanying notes to the condensed consolidated financial statements. 1 Table of Contents Hallador Energy Company Condensed Consolidated Statements of Operations (in thousands, except per share data) (unaudited) Three Months Ended March 31, 2024 2023 SALES AND OPERATING REVENUES: Electric sales $ 58,755 $ 92,392 Coal sales 49,630 94,602 Other revenues 1,287 1,340 Total sales and operating revenues 109,672 188,334 EXPENSES: Operating expenses 85,083 133,521 Depreciation, depletion and amortization 15,443 17,976 Asset retirement obligations accretion 399 451 Exploration costs 70 206 General and administrative 5,944 6,947 Total operating expenses 106,939 159,101 INCOME FROM OPERATIONS 2,733 29,233 Interest expense (1) ( 3,937 ) ( 3,899 ) Loss on extinguishment of debt ( 853 ) — Equity method investment (loss) income ( 249 ) 69 NET INCOME (LOSS) BEFORE INCOME TAXES ( 2,306 ) 25,403 INCOME TAX EXPENSE (BENEFIT): Current — 432 Deferred ( 610 ) 2,920 Total income tax expense (benefit) ( 610 ) 3,352 NET INCOME (LOSS) $ ( 1,696 ) $ 22,051 NET INCOME (LOSS) PER SHARE: Basic $ ( 0.05 ) $ 0.67 Diluted $ ( 0.05 ) $ 0.61 WEIGHTED AVERAGE SHARES OUTSTANDING Basic 34,816 32,983 Diluted 34,816 36,740 (1) Interest Expense: Interest on bank debt $ 2,805 $ 2,255 Other interest 728 432 Amortization: Amortization of debt issuance costs 404 1,212 Total amortization 404 1,212 Total interest expense $ 3,937 $ 3,899 See accompanying notes to the condensed consolidated financial statements. 2 Table of Contents Hallador Energy Company Condensed Consolidated Statements of Cash Flows (in thousands) (unaudited) Three Months Ended March 31, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ ( 1,696 ) $ 22,051 Adjustments to reconcile net income to net cash provided by operating activities: Deferred income taxes ( 610 ) 2,920 Equity loss (income) – Sunrise Energy 249 ( 69 ) Cash distribution - Sunrise Energy — 625 Depreciation, depletion, and amortization 15,443 17,976 Loss on extinguishment of debt 853 — Loss (gain) on sale of assets ( 24 ) 21 Amortization of debt issuance costs 404 1,212 Asset retirement obligations accretion 399 451 Cash paid on asset retirement obligation reclamation ( 639 ) ( 365 ) Stock-based compensation 666 1,220 Amortization of contract asset and contract liabilities ( 12,788 ) ( 15,569 ) Other 937 451 Change in operating assets and liabilities: Accounts receivable 5,709 ( 3,269 ) Inventory ( 6,613 ) ( 4,004 ) Parts and supplies ( 1,483 ) ( 2,926 ) Prepaid expenses ( 37 ) 389 Accounts payable and accrued liabilities ( 8,015 ) 2,009 Deferred revenue 23,614 2,989 Net cash provided by operating activities 16,369 26,112 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ( 14,874 ) ( 13,482 ) Proceeds from sale of equipment 24 15 Net cash used in investing activities ( 14,850 ) ( 13,467 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on bank debt ( 26,500 ) ( 27,013 ) Payments on lease financing ( 1,238 ) — Borrowings of bank debt 12,000 17,000 Proceeds from sale and leaseback arrangement 1,927 — Issuance of related party notes payable 5,000 — Debt issuance costs ( 38 ) ( 1,600 ) ATM offering 6,580 — Taxes paid on vesting of RSUs ( 1 ) ( 1,109 ) Net cash used in financing activities ( 2,270 ) ( 12,722 ) Decrease in cash, cash equivalents, and restricted cash ( 751 ) ( 77 ) Cash, cash equivalents, and restricted cash, beginning of period 7,123 6,426 Cash, cash equivalents, and restricted cash, end of period $ 6,372 $ 6,349 CASH, CASH EQUIVALENTS, AND RESTRICTED CASH: Cash and cash equivalents $ 1,635 $ 2,441 Restricted cash 4,737 3,908 $ 6,372 $ 6,349 SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid for interest $ 3,083 $ 3,116 SUPPLEMENTAL NON-CASH FLOW INFORMATION: Change in capital expenditures included in accounts payable and prepaid expense $ ( 5,290 ) $ 120 Stock issued on redemption of convertible notes and interest $ 9,721 $ — See accompanying notes to the condensed consolidated financial statements. 3 Table of Contents Hallador Energy Company Condensed Consolidated Statements of Stockholders’ Equity (in thousands) (unaudited) Additional Total Common Stock Issued Paid-in Retained Stockholders' Shares Amount Capital Earnings Equity Balance, December 31, 2023 34,052 $ 341 $ 127,548 $ 140,699 $ 268,588 Stock-based compensation — — 666 — 666 Stock issued on vesting of RSUs 321 3 ( 3 ) — — Taxes paid on vesting of RSUs ( 132 ) ( 1 ) — — ( 1 ) Stock issued on redemption of convertible notes 1,582 15 9,706 — 9,721 Stock issued in ATM offering 711 7 6,573 — 6,580 Net loss — — — ( 1,696 ) ( 1,696 ) Balance, March 31, 2024 36,534 $ 365 $ 144,490 $ 139,003 $ 283,858 Additional Total Common Stock Issued Paid-in Retained Stockholders' Shares Amount Capital Earnings Equity Balance, December 31, 2022 32,983 $ 330 $ 118,788 $ 95,906 $ 215,024 Stock-based compensation — — 1,220 — 1,220 Stock issued on vesting of RSUs 275 3 ( 3 ) — — Taxes paid on vesting of RSUs ( 121 ) ( 1 ) ( 1,108 ) — ( 1,109 ) Net income — — — 22,051 22,051 Balance, March 31, 2023 33,137 $ 332 $ 118,897 $ 117,957 $ 237,186 See accompanying notes to the condensed consolidated financial statements. 4 Table of Contents Hallador Energy Company Notes to Condensed Consolidated Financial Statements (unaudited) ( 1 ) GENERAL BUSINESS The interim financial data is unaudited; however, in our opinion, it includes all adjustments, consisting only of normal recurring adjustments necessary for a fair statement of the results for the interim periods. The condensed consolidated financial statements included herein have been prepared pursuant to the Securities and Exchange Commission’s (the "SEC") rules and regulations; accordingly, certain information and footnote disclosures normally included in generally accepted accounting principles ("GAAP") financial statements have been condensed or omitted. The results of operations and cash flows for the three months ended March 31, 2024 , are not necessarily indicative of the results to be expected for future quarters or for the year ending December 31, 2024 . Our organization and business, the accounting policies we follow, and other information are contained in the notes to our consolidated financial statements filed as part of our 2023 Annual Report on Form 10 -K . This quarterly report should be read in conjunction with such Annual Report on Form 10 -K. The condensed consolidated financial statements include the accounts of Hallador Energy Company (hereinafter known as “we, us, or our”) and its wholly owned subsidiaries Sunrise Coal, LLC ("Sunrise"), Hallador Power Company, LLC ("Hallador Power"), as well as Sunrise and Hallador Power's wholly owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. We strategically view and manage our operations through two reportable segments: Electric Operations and Coal Operations. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other and Eliminations" and primarily are comprised of unallocated corporate costs and activities, the elimination of coal sales from coal operations to electric operations, a 50 % interest in Sunrise Energy, LLC, a private gas exploration company with operations in Indiana, which we account for using the equity method, and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River. The Electric Operations reportable segment includes electric power generation facilities of the Merom Power Plant. The Coal Operations reportable segment includes current operating mining complexes Oaktown 1 and 2 underground mines, Prosperity surface mine, Freelandville surface mine, and Carlisle wash plant. On February 23, 2024, our Coal Operations Segment committed to a reorganization effort designed to strengthen its financial and operational efficiency and create significant operational savings and higher margins. For further information, see “Note 16 – Organizational Restructuring” below. ( 2 ) RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In November 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023 - 07, Segment Reporting (Topic 280 ): Improvements to Reportable Segment Disclosures ("ASU 2023 - 07" ). ASU 2023 - 07 primarily requires enhanced disclosures about significant segment expenses regularly provided to the chief operating decision maker ("CODM"), the amount and composition of other segment items, and the title and position of the CODM. ASU 2023 - 07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023 - 07, but do not expect it to have a material effect on our consolidated financial statements. In December 2023, the FASB issued ASU 2023 - 09, Income Taxes (Topic 740 ): Improvements to Income Tax Disclosures ("ASU 2023 - 09" ). ASU 2023 - 09 primarily requires enhanced disclosures to ( 1 ) disclose specific categories in the rate reconciliation, ( 2 ) disclose the amount of income taxes paid and expensed disaggregated by federal, state, and foreign taxes, with further disaggregation by individual jurisdictions if certain criteria are met, and ( 3 ) disclose income (loss) from continuing operations before income tax (benefit) disaggregated between domestic and foreign. ASU 2023 - 09 is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. We are currently evaluating the impact of adopting ASU 2023 - 09, but do not expect it to have a material effect on our consolidated financial statements. 5 Table of Contents ( 3 ) LONG-LIVED ASSET IMPAIRMENTS Long-lived assets are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of the assets may not be recoverable. For the three -month periods ended March 31, 2024 and March 31, 2023, there were no impairment charges recorded for long-lived assets. ( 4 ) INVENTORY Inventory is valued at a lower of cost or net realizable value (NRV). As of March 31, 2024 , and December 31, 2023 , coal inventory includes NRV adjustments of $ 1.3 million and $ 2.0 million, respectively. ( 5 ) BANK DEBT On March 13, 2023, we executed an amendment to our credit agreement with PNC Bank, National Association (in its capacity as administrative agent, "PNC"), administrative agent for our lenders under our credit agreement, which was accounted for as a debt modification. The primary purpose of the amendment was to convert $ 35.0 million of the outstanding balance on the revolver into a new term loan with a maturity of March 31, 2024, and extend the maturity date of the revolver to May 31, 2024. The amendment reduced the total capacity under the revolver to $ 85.0 million from $ 120.0 million, waived the maximum annual capital expenditure covenant for 2022, and increased the covenant for 2023 to $ 75.0 million. On August 2, 2023, we executed an additional amendment to our credit agreement with PNC, which was accounted for as a debt extinguishment. The primary purpose of the amendment was to convert $ 65.0 million of the outstanding funded debt into a new term loan with a maturity of March 31, 2026, and enter into a revolver of $ 75.0 million with a maturity of July 31, 2026. The amendment increased the maximum annual capital expenditure limit to $ 100.0 million. Bank debt was reduced by $ 14.5 million during the three months ended March 31, 2024. Under the terms of the August 2, 2023 amendment, bank debt is comprised of term debt ($ 58.5 million as of March 31, 2024) and a $ 75.0 million revolver ($ 18.5 million borrowed as of March 31, 2024). The term debt requires quarterly payments of $ 6.5 million in April 2024 through maturity. Our debt is recorded at amortized cost, which approximates fair value due to the variable interest rates in the agreement and is collateralized primarily by our assets. Liquidity As of March 31, 2024 , we had an additional borrowing capacity of $ 37.9 million and total liquidity of $ 39.5 million. Our additional borrowing capacity is net of $ 18.6 million in outstanding letters of credit as of March 31, 2024 , that were required to maintain surety bonds. Liquidity consists of our additional borrowing capacity and cash and cash equivalents. Fees Unamortized bank fees and other costs incurred in connection with the initial facility and subsequent amendments totaled $ 2.5 million as of December 31, 2022. During 2023, we recognized a loss on extinguishment of debt of $ 1.5 million for the write-off of unamortized loan fees related to the August 2, 2023 amendment to our credit agreement, which was accounted for as a debt extinguishment. Unamortized bank fees incurred with the March 13, 2023 and August 2, 2023 amendments totaled $ 1.6 million and $ 4.3 million, respectively. The remaining costs were deferred and are being amortized over the term of the loan. Unamortized costs as of March 31, 2024 , and December 31, 2023 , were $ 3.2 million and $ 3.6 million, respectively. 6 Table of Contents Bank debt, less debt issuance costs, is presented below (in thousands): March 31, December 31, 2024 2023 Current bank debt $ 26,000 $ 26,000 Less unamortized debt issuance cost ( 1,562 ) ( 1,562 ) Net current portion $ 24,438 $ 24,438 Long-term bank debt $ 51,000 $ 65,500 Less unamortized debt issuance cost ( 1,657 ) ( 2,047 ) Net long-term portion $ 49,343 $ 63,453 Total bank debt $ 77,000 $ 91,500 Less total unamortized debt issuance cost ( 3,219 ) ( 3,609 ) Net bank debt $ 73,781 $ 87,891 Covenants The credit facility includes a Maximum Leverage Ratio (consolidated funded debt/trailing twelve months adjusted EBITDA), calculated as of the end of each fiscal quarter for the trailing twelve months, not to exceed 2.25 to 1.00. As of March 31, 2024 , our Leverage Ratio of 1.58 was in compliance with the requirements of the credit agreement. The credit facility requires a Minimum Debt Service Coverage Ratio (consolidated adjusted EBITDA/annual debt service) calculated as of the end of each fiscal quarter for the trailing twelve months of 1.25 to 1.00 through the credit facility's maturity. As of March 31, 2024, our Debt Service Coverage Ratio of 2.88 was in compliance with the requirements of the credit agreement. As of March 31, 2024, we were in compliance with all other covenants defined in the credit agreement. Interest Rate The interest rate on the facility ranges from SOFR plus 4.00 % to SOFR plus 5.00 %, depending on our Leverage Ratio. As of March 31, 2024 , we were paying SOFR plus 4.50 % on the outstanding bank debt which equates to an all in rate of 10.0 %. ( 6 ) ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (IN THOUSANDS) March 31, December 31, 2024 2023 Accounts payable $ 28,947 $ 43,636 Accrued property taxes 3,458 2,987 Accrued payroll 4,620 6,575 Workers' compensation reserve 4,306 3,629 Group health insurance 2,200 2,300 Asset retirement obligation - current portion 1,514 2,150 Other 2,080 1,631 Total accounts payable and accrued liabilities $ 47,125 $ 62,908 7 Table of Contents ( 7 ) REVENUE Revenue from Contracts with Customers We account for a contract with a customer when the parties have approved the contract and are committed to performing their respective obligations, the rights of each party are identified, payment terms are identified, the contract has commercial substance, and it is probable substantially all the consideration will be collected. We recognize revenue when we satisfy a performance obligation by transferring control of a good or service to a customer. Electric operations We concluded that for a Power Purchase Agreement (“PPA”) that is not determined to be a lease or derivative, the definition of a contract and the criteria in ASC 606, Revenue from Contracts with Customers ("ASC 606" ), is met at the time a PPA is executed by the parties, as this is the point at which enforceable rights and obligations are established. Accordingly, we concluded that a PPA that is not determined to be a lease or derivative constitutes a valid contract under ASC 606. We recognize revenue daily, based on an output method of capacity made available as part of any stand-ready obligations for contract capacity performance obligations and daily, based on an output method of MWh of electricity delivered. For the delivered energy performance obligation in the PPA with Hoosier, we recognize revenue daily for actual delivered electricity plus the amortization of the contract liability as a result of the Asset Purchase Agreement with Hoosier. For delivered energy to all other customers, we recognize revenue daily for the actual delivered electricity. Coal operations Our coal revenue is derived from sales to customers of coal produced at our facilities. Our customers typically purchase coal directly from our mine sites where the sale occurs and where title, risk of loss, and control pass to the customer at that point. Our customers arrange for and bear the costs of transporting their coal from our mines to their plants or other specified discharge points. Our customers are typically domestic utility companies. Our coal sales agreements with our customers are fixed-priced, fixed-volume supply contracts, or include a pre-determined escalation in price for each year. Price re-opener and index provisions may allow either party to commence a renegotiation of the contract price at a pre-determined time. Price re-opener provisions may automatically set a new price based on the prevailing market price or, in some instances, require us to negotiate a new price, sometimes within specified ranges of prices. The terms of our coal sales agreements result from competitive bidding and extensive negotiations with customers. Consequently, the terms of these contracts vary by customer. Coal sales agreements will typically contain coal quality specifications. With coal quality specifications in place, the raw coal sold by us to the customer at the delivery point must be substantially free of magnetic material and other foreign material impurities and crushed to a maximum size as set forth in the respective coal sales agreement. Price adjustments are made and billed in the month the coal sale was recognized based on quality standards that are specified in the coal sales agreement, such as Btu factor, moisture, ash, and sulfur content, and can result in either increases or decreases in the value of the coal shipped. Disaggregation of Revenue Revenue is disaggregated by revenue source for our electric operations and by primary geographic markets for our coal operations, as we believe this best depicts how the nature, amount, timing, and uncertainty of our revenue and cash flows are affected by economic factors. Electric operations For the three months ended March 31, 2024, electric sales revenue from delivered energy generation and capacity sales revenue was $ 47.0 million and $ 11.8 million, respectively. For the three months ended March 31, 2023, electric sales revenue from delivered energy generation and capacity sales revenue was $ 76.4 million and $ 16.0 million, respectively. Coal operations For the three months ended March 31, 2024 and 2023, 36 % and 52 %, respectively, of our coal revenue was sold to outside third -party customers in the State of Indiana with the remainder sold to customers in Florida, North Carolina, Georgia, and Alabama. 8 Table of Contents Performance Obligations Electric operations We concluded that each megawatt-hour ("MWh") of delivered energy is capable of being distinct as a customer could benefit from each on its own by using/consuming it as a part of its operations. We also concluded that the stand-ready obligation to be available to provide electricity is capable of being distinct as each unit of capacity provides an economic benefit to the holder and could be sold by the customer. During 2022, we entered into an Asset Purchase Agreement (“APA”) with Hoosier (“Hoosier APA”) in which Hallador Power shall sell, and Hoosier shall buy, at least 70 % of the delivered energy quantities through 2025 at the contract price, which is $ 34.00 per MWh. We have remaining delivered energy obligations to Hoosier totaling $ 99.3 million through 2025 as of March 31, 2024 . The agreement was amended August 31, 2023 to extend through 2028 with additional obligations to Hoosier of $ 186.6 million as of March 31, 2024 . In addition to delivered energy, under the Hoosier APA, Hallador Power shall provide a stand-ready obligation to provide electricity, also known as contract capacity. The contract capacity that Hallador Power shall provide to Hoosier is 917 megawatts (“MW”) for contract year one, and on average 300 MW for contract years two to four. Hoosier shall pay Hallador Power the capacity price of $ 5.80 per kilowatt month for the contract capacity. We have remaining capacity obligations to Hoosier through 2025 totaling $ 35.2 million as of March 31, 2024 . The agreement was amended August 31, 2023 to extend through 2028 with additional capacity obligations to Hoosier of $ 60.9 million as of March 31, 2024 . We also have energy and capacity obligations outside of the Hoosier APA to customers through 2029 totaling $ 111.97 million and $ 163.51 million, respectively, as of March 31, 2024 . We have $ 46.7 million of deferred revenue as of March 31, 2024 , related to these obligations. Coal operations A performance obligation is a promise in a contract with a customer to provide distinct goods or services. Performance obligations are the unit of account for purposes of applying the revenue recognition standard and therefore determine when and how revenue is recognized. In most of our coal contracts, the customer contracts with us to provide coal that meets certain quality criteria. We consider each ton of coal a separate performance obligation and allocate the transaction price based on the base price per the contract, increased or decreased for quality adjustments. We recognize revenue at a point in time as the customer does not have control over the asset at any point during the fulfillment of the contract. For substantially all of our customers, this is supported by the fact that title and risk of loss transfer to the customer upon loading of the truck or railcar at the mine. This is also the point at which physical possession of the coal transfers to the customer, as well as the right to receive substantially all benefits and the risk of loss in ownership of the coal. We have remaining coal sales performance obligations relating to fixed priced contracts to third -party customers of approximately $ 270.2 million, which represents the average fixed prices on our committed contracts as of March 31, 2024. We expect to recognize approximately 47 % of this coal sales revenue in 2024, with the remainder recognized through 2027 . We have remaining performance obligations relating to coal sales contracts with price reopeners of approximately $ 155.0 million, which represents our estimate of the expected reopener price on committed contracts as of March 31, 2024. We expect to recognize all of this coal sales revenue 2025 through 2027. The coal tons used to determine the remaining performance obligations are subject to adjustment in instances of force majeure and exercise of customer options to either take additional tons or reduce tonnage if such an option exists in the customer contract. Contract Balances Under ASC 606, the timing of when a performance obligation is satisfied can affect the presentation of accounts receivable, contract assets, and contract liabilities. The main distinction between accounts receivable and contract assets is whether consideration is conditional on something other than the passage of time. A receivable is an entity’s right to consideration that is unconditional. Under the typical payment terms of our contracts with customers, the customer pays us a base price for the coal, increased or decreased for any quality adjustments, electricity, or capacity. Amounts billed and due are recorded as trade accounts receivable and included in accounts receivable in our condensed consolidated balance sheets. As of January 1, 2023, accounts receivable for coal sales billed to customers was $ 16.3 million. 9 Table of Contents ( 8 ) INCOME TAXES For the three months ended March 31, 2024 and 2023, we recorded income taxes using an estimated annual effective tax rate based upon projected annual income, forecasted permanent tax differences, discrete items, and statutory rates in states in which we operate. The effective tax rate for the three months ended March 31. 2024 and 2023, was ~26% and ~ 13 %, respectively. Historically, our actual effective tax rates have differed from the statutory effective rate primarily due to the benefit received from statutory percentage depletion in excess of tax basis. The deduction for statutory percentage depletion does not necessarily change proportionately to changes in income (loss) before income taxes. ( 9 ) STOCK COMPENSATION PLANS Non-vested grants as of December 31, 2023 858,363 Awarded - weighted average share price on award date was $ 8.41 1,500 Vested - weighted average share price on vested date was $ 5.33 ( 321,419 ) Forfeited ( 28,000 ) Non-vested grants as of March 31, 2024 510,444 For the three months ended March 31, 2024 and 2023, our stock compensation was $ 0.7 million and $ 1.2 million, respectively. Non-vested RSU grants will vest as follows: Vesting Year RSUs Vesting 2024 1,000 2025 509,444 510,444 The outstanding RSUs have a value of $ 2.7 million based on the March 28, 2024 closing stock price of $ 5.33 . As of March 31, 2024, unrecognized stock compensation expense is $ 3.3 million, and we had 611,035 RSUs available for future issuance. RSUs are not allocated earnings and losses as they are considered non-participating securities. ( 10 ) LEASES We have operating leases for office space and processing facilities with remaining lease terms ranging from 4 months to 8 years. As most of the leases do not provide an implicit rate, we calculated the right-of-use assets and lease liabilities using its secured incremental borrowing rate at the lease commencement date. During the fourth quarter of 2023, we entered into three finance leases which were accounted for as failed sale-leaseback transactions. During the three months ended March 31, 2024, we entered into two finance leases with the same terms that were also accounted for as failed sale-leaseback transactions. Finance lease assets are included in finance lease right-of-use assets on the condensed consolidated balance sheets and the associated finance lease liabilities are reflected within current portion of lease financing and long-term lease financing on the condensed consolidated balance sheets as applicable. Depreciation on our finance lease assets was $ 1.1 million for the three months ended March 31, 2024 . Imputed interest expense on our lease liabilities was $ 0.3 million for the three months ended March 31, 2024 . We deferred financing fees of $ 0.1 million at March 31, 2024 and December 31, 2023, respectively, in connection with entry into the finance leases. These deferred financing fees will be amortized on a straight-line basis over the term of the finance leases. We did not have finance leases during the three months ended March 31, 2023. 10 Table of Contents The following table (in thousands) relates to our leases: Three Months Ended March 31, 2024 2023 Operating lease information: Operating cash outflows from operating leases $ 52 $ 52 Weighted average remaining lease term in years 7.80 1.10 Weighted average discount rate 10.0 % 6.0 % Finance lease information: Financing cash outflows from finance leases $ 1,238 — Proceeds from sale and leaseback arrangement $ 1,927 — Weighted average remaining lease term in years 2.82 — Weighted average discount rate 8.5 % — % Future minimum lease payments under non-cancellable leases as of March 31, 2024 , were as follows: Operating Finance Leases Leases (In thousands) 2024 $ 33 $ 4,569 2025 88 6,092 2026 121 5,780 2027 124 241 2028 128 — Thereafter 516 — Total minimum lease payments $ 1,010 $ 16,682 Less imputed interest and deferred finance fees ( 335 ) ( 2,023 ) Total lease liability $ 675 $ 14,659 As reflected within the following balance sheet line items: Three Months Ended March 31, For the Year Ended December 31, 2024 2023 (In thousands) Operating lease assets Buildings and equipment $ 675 $ 712 Operating lease liabilities: Current operating lease liabilities Accounts payable and accrued liabilities $ 52 $ 58 Non-current operating lease liabilities Other long-term liabilities 623 654 Total operating lease liability $ 675 $ 712 Finance lease assets Finance lease right-of-use assets $ 16,178 $ 12,346 Finance lease liabilities: Current finance lease liabilities Current portion of lease financing $ 4,958 $ 3,933 Non-current finance lease liabilities Long-term lease financing 9,701 8,157 Total finance lease liabilities $ 14,659 $ 12,090 As of March 31, 2024 and December 31, 2023 , we had approximately $ 0.7 million, respectively, of right-of-use operating lease assets recorded within “ buildings and equipment ” on the condensed consolidated balance sheets. 11 Table of Contents ( 11 ) SELF-INSURANCE We self-insure our non-leased underground mining equipment. Such equipment is allocated among seven mining units dispersed over eleven miles. The historical cost of such equipment was approximately $ 262.0 million as of March 31, 2024 , and December 31, 2023 . Restricted cash of $ 4.7 million and $ 4.3 million as of March 31, 2024 , and December 31, 2023 , respectively, represents cash held and controlled by a third party and is restricted for future workers’ compensation claim payments. ( 12 ) FAIR VALUE MEASUREMENTS We account for certain assets and liabilities at fair value. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are: Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. We consider active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis. We have no Level 1 instruments. Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability. We have no Level 2 instruments. Level 3: Measured based on prices or valuation models that require inputs that are both significant to the fair value measurement and less observable from objective sources (i.e., supported by little or no market activity). ARO liabilities use Level 3 non-recurring fair value measures . ( 13 ) EQUITY METHOD INVESTMENTS We own a 50 % i nterest in Sunrise Energy, LLC, which owns gas reserves and gathering equipment with plans to develop and operate such reserves. Sunrise Energy, LLC, also plans to develop and explore for oil, natural gas, and coal-bed methane gas reserves on or near our underground coal reserves. The carrying value of the investment included in our condensed consolidated balance sheets as of March 31, 2024 , and December 31, 2023 , was $ 2.6 million and $ 2.8 million, respectively. ( 14 ) CONVERTIBLE NOTES On July 29, 2022, we issued $ 5.0 million of senior unsecured convertible notes (collectively, with the subsequent 2022 issuances, the ("Notes”)) to a related party affiliated with an independent member of our board of directors. The Note carries an interest rate of 8 % per annum with a maturity date of December 29, 2028. For the period August 18, 2022, through August 17, 2024, the holder has the option to convert the Note into shares of the Company's common stock at a conversion price of $ 6.254 . During the three months ended March 31, 2024, the holders of the $ 5.0 million senior unsecured convertible notes converted them into 799,488 shares of common stock of the Company and, in connection with such early conversion, we elected to pay interest through August 2025 with 112,570 shares of common stock on the conversion date. We recorded a loss on extinguishment of debt in the condensed consolidated statements of operations in the amount of $ 0.55 million during the three months ended March 31, 2024. On August 8, 2022, we issued an additional $ 4.0 million of senior unsecured convertible notes to related parties affiliated with independent members of our board of directors. The Notes carry an interest rate of 8 % per annum with a maturity date of December 29, 2028. For the period August 18, 2022, through August 17, 2024, the holder has the option to convert the Notes into shares of the Company's common stock at a conversion price of $ 6.254 . Beginning August 8, 2025, we may elect to redeem the Note and the holder shall be obligated to surrender the Note at 100% of the outstanding principal balance together with any accrued unpaid interest. Upon receipt of the redemption notice from the Company, the holder may elect to convert the principal balance and accrued interest into the Company's common stock. During the three months ended March 31, 2024, the holders converted $ 3.0 million senior unsecured convertible notes into 479,693 shares of common stock of the Company and, in connection with such early conversion, we elected to pay interest through August 2025 with 67,542 shares of common stock on the conversion date. During the same period, the holders also converted accrued interest into 57,564 shares of the Company's common stock. We recorded a loss on extinguishment of debt in the condensed consolidated statements of operations in the amount of $ 0.30 million during the three months ended March 31, 2024. 12 Table of Contents On August 12, 2022, we issued an additional $ 10.0 million senior unsecured convertible note to an unrelated party. The Note carries an interest rate of 8 % per annum with a maturity date of December 31, 2026. For the period August 18, 2022, through the maturity date, the holder has the option to convert the Note into shares of the Company's common stock at a conversion price of $ 6.15 . Beginning August 12, 2025, we may elect to redeem the Note and the holder shall be obligated to surrender the Note at 100% of the outstanding principal balance together with any accrued unpaid interest. Upon receipt of the redemption notice from the Company, the holder may elect to convert the principal balance and accrued interest into the Company's common stock. During the three months ended March 31, 2024, the holder converted accrued interest into 65,041 shares of the Company's common stock. The funds received from the issuance of the various Notes described above were used to provide additional working capital to the Company. The conversion price and number of shares of the Company's common stock issuable upon conversion of the above notes are subject to adjustment from time to time for any subdivision or consolidation of our shares of common stock and other standard dilutive events. ( 15 ) NOTES PAYABLE - RELATED PARTIES In March 2024, we issued unsecured promissory notes, having a 12 -month maturity date and 12 % per annum interest rate, to (i) Charles R. Wesley IV Revocable Trust (in which our director Charles R. Wesley IV has a pecuniary interest) in the principal amount of $ 2,000,000 , (ii) Lubar Opportunities Fund I, LLC (in which are our director David J. Lubar has a pecuniary interest) in the principal amount of $ 2,500,000 , and (iii) Hallador Alternative Investment Advisors LLC (in which our director David C. Hardie has a pecuniary interest) in the principal amount of $ 500,000 . At March 31, 2024, accrued interest associated with the notes payable – related party on the condensed consolidated balance sheets was $ 0.1 million. ( 16 ) ORGANIZATIONAL RESTRUCTURING On February 23, 2024, ( the "Effective Date"), we committed to a reorganization effort in the Coal Operations Segment (the "Reorganization Plan") that included a workforce reduction of approximately 110 employees, or approximately 12 % of the workforce. The reduction in workforce was communicated to employees on the Effective Date and implemented immediately, subject to certain administrative procedures. The Reorganization Plan is designed to strengthen our financial and operational efficiency and create significant operational savings and higher margins in our coal segment. This step will help to advance our transition from a company primarily focused on coal production to a more resilient and diversified integrated independent power producer ("IPP"). As part of this initiative, we substantially idled production at our higher cost surface mines, Prosperity Mine, and Freelandville Mine, with minimal production. We also focused our seven units of underground equipment on four units of our lowest cost production at our Oaktown Mine. In connection with the Reorganization Plan, we incurred an aggregate of $ 1.9 million one -time charges, of which $ 0.8 million were included in accounts payable and accrued liabilities in the condensed consolidated balance sheets and $ 1.1 million were included in operating expenses in the condensed consolidated statements of operations. The one -time charges were related to compensation, tax, professional, and insurance related expenses. ( 17 ) AT MARKET AGREEMENT On December 18, 2023 , we entered into an At Market Issuance Sales Agreement (the “Sales Agreement”) with B. Riley Securities, Inc. (the “Agent”), pursuant to which we may issue and sell, from time to time, shares (the “Shares”) of our common stock, par value $ 0.01 per share (the “Common Stock”), with aggregate gross proceeds of up to $ 50.0 million through an “at-the-market” equity offering program under which the Agent will act as sales agent (the “ATM Program”). Under the Sales Agreement, each of us have the right, by giving five ( 5 ) days’ notice, to terminate the Sales Agreement in its sole discretion. The Agent may also terminate the Agreement, by notice to us, upon the occurrence of certain events described in the Sales Agreement. During December 2023 , we issued 794,000 shares of Common Stock under the ATM Program for net proceeds of $ 7.3 million. During the three months ended March 31, 2024 , we issued 710,623 shares of Common Stock under the ATM Program for net proceeds of $ 6.6 million. 13 Table of Contents ( 18 ) SEGMENTS OF BUSINESS As of March 31, 2024, our operations are divided into two primary reportable segments, the Electric Operations and Coal Operations segments. The remainder of our operations, which are not significant enough on a stand-alone basis to warrant treatment as an operating segment, are presented as "Corporate and Other and Eliminations" and primarily are comprised of unallocated corporate costs and activities, including a 50 % interest in Sunrise Energy, LLC, which the Company accounts for using the equity method and our wholly-owned subsidiary Summit Terminal LLC, a logistics transport facility located on the Ohio River. Three Months Ended March 31, 2024 2023 (in thousands) Operating revenues Electric operations $ 58,912 $ 92,494 Coal operations 66,870 95,273 Corporate and other and eliminations ( 16,110 ) 567 Consolidated operating revenues $ 109,672 $ 188,334 Income (loss) from operations Electric operations $ 15,247 $ 18,705 Coal operations ( 11,457 ) 13,088 Corporate and other and eliminations ( 1,057 ) ( 2,560 ) Consolidated income (loss) from operations $ 2,733 $ 29,233 Depreciation, depletion and amortization Electric operations $ 4,697 $ 4,675 Coal operations 10,728 13,275 Corporate and other and eliminations 18 26 Consolidated depreciation, depletion and amortization $ 15,443 $ 17,976 Assets Electric operations $ 211,116 $ 218,132 Coal operations 370,292 391,248 Corporate and other and eliminations 4,012 7,247 Consolidated assets $ 585,420 $ 616,627 Capital expenditures Electric operations $ 6,242 $ 843 Coal operations 8,632 12,639 Corporate and other and eliminations — — Consolidated capital expenditures $ 14,874 $ 13,482 14 Table of Contents ( 19 ) NET INCOME (LOSS) PER SHARE The following table (in thousands, except per share amounts) sets forth the computation of basic earnings per share for the periods presented: Three Months Ended March 31, 2024 2023 Basic earnings per common share: Net income (loss) - basic $ ( 1,696 ) $ 22,051 Weighted average shares outstanding - basic 34,816 32,983 Basic earnings (loss) per common share $ ( 0.05 ) $ 0.67 The following table (in thousands, except per share amounts) sets forth the computation of diluted net income (loss) per share: Three Months Ended March 31, 2024 2023 Diluted earnings per common share: Net income (loss) - basic $ ( 1,696 ) $ 22,051 Add: Convertible Notes interest expense, net of tax — 293 Net income (loss) - diluted $ ( 1,696 ) $ 22,344 Weighted average shares outstanding - basic 34,816 32,983 Add: Dilutive effects of if converted Convertible Notes — 3,163 Add: Dilutive effects of Restricted Stock Units — 594 Weighted average shares outstanding - diluted 34,816 36,740 Diluted net income (loss) per share $ ( 0.05 ) $ 0.61 15 Table of Contents