John Bair

John Bair asked about Evolution Petroleum's interest in the Northeast basins (Utica and Marcellus), the potential for data center buildouts near their production areas, and the company's strategy for reducing overall debt levels.

Answer

Ryan Stash, Senior Vice President, Chief Financial Officer and Treasurer, explained that while Northeast wells are strong, takeaway capacity issues make them less attractive without firm takeaway. Kelly Loyd, President and CEO, confirmed discussions with operators about data centers but noted no opportunities have materialized yet. Ryan Stash stated the long-term debt target is 1x net debt, with a plan to reduce it over time, but expressed comfort with current levels due to asset strength and hedging. Kelly Loyd added that capital deployment prioritizes high-return investments over debt paydown if returns significantly exceed debt interest.

John Bair inquired about Evolution Petroleum's interest in expanding its asset base into the Northeast (Utica and Marcellus) given its absence from their current portfolio. He also asked if any of the company's assets are suitable for direct resource tapping by data centers. Finally, he questioned the company's outlook and focus on reducing overall debt levels.

Answer

Kelly Loyd, President and CEO, acknowledged the Northeast basins have tremendous wells but cited takeaway capacity constraints as a major hurdle, making it difficult to find deals that meet their return expectations without firm takeaway. Regarding data centers, Kelly Loyd stated that they have discussed this with operators, who are aware and interested, but no concrete opportunities have presented themselves yet. Ryan Stash, Senior Vice President, Chief Financial Officer and Treasurer, stated that the long-term target for debt is 1x net debt, and while they are currently higher, there is a plan to reduce it over time. Kelly Loyd added that capital deployment prioritizes accretive opportunities with significantly higher returns than the cost of debt.

John Bair of Ascend Wealth Advisors, LLC asked about the extent of the cleanup in the UK business and the future impact on the company's tax rate. He also inquired about the EnviroCast business, specifically its focus between residential and commercial markets, potential legislative drivers, and the company's own labor situation at its facilities.

Answer

EVP & CFO William Thalman addressed the tax question, explaining that the high Q2 effective rate was a non-cash P&L impact from UK losses, and he expects the rate to normalize to the 30-35% range for the rest of the year and into the upper 20s in 2026, with cash taxes remaining low. President & CEO John Kasel added that the EnviroCast business is initially focused on the residential market, driven by demand for hurricane-resistant homes and rising insurance costs. He noted that local construction labor shortages are a significant tailwind for their factory-built solution. Kasel also affirmed that L.B. Foster maintains a strong workforce due to a focus on company culture.

John Bair from Ascend Wealth Advisors asked for details on the new Central Florida facility, including its commissioning timeline, required CapEx, and its contribution to 2025 revenue projections. He also inquired about the geographic focus for potential bolt-on acquisitions.

Answer

President and CEO John Kasel detailed that the Florida facility is a 'brownfield' partnership with a major precaster, requiring a capital-light investment of $3.5 million to $4 million. He noted that production is expected to begin by the end of 2024 and its run rate is factored into the 2025 revenue outlook. Kasel also confirmed that any future bolt-on acquisitions would be focused on North American operations, where the company sees significant opportunity.

John H. Bair from Ascend Wealth Advisors, LLC asked about the potential award pipeline to maintain backlog growth and inquired about the progress of initiatives to proactively target the installed base in the petrochemical and refining markets.

Answer

CEO Matthew Malone described a dual strategy of pursuing large, lumpy defense programs while simultaneously building recurring revenue through proactive aftermarket services. He noted the company is actively implementing this aftermarket strategy, using new technology and AI to accelerate quoting, but the financial returns from this effort are still in the early phases.

John Bair of Ascend Wealth Advisors, LLC asked for more detail on the Hawaii project's permitting risks, the potential for expansion into the Asia Pacific market, and the general outlook for domestic project opportunities.

Answer

CEO Frederick McTaggart clarified that permitting risks for the Hawaii project are primarily related to timing, not project viability, with certain state-level permits like archeological studies being the client's responsibility. McTaggart stated the company is not currently pursuing Asia Pacific opportunities, instead focusing on markets closer to home, such as Florida. He also noted that the domestic project pipeline, particularly in the Western U.S., remains encouraging with a steady number of smaller-scale opportunities.

John Bair of B. Riley Securities inquired about the Bureau of Land Management's (BLM) staffing for permit reviews and how Fortitude Gold is managing extended permit lead times for prospects like East Camp Douglas.

Answer

Executive Jason Reid stated the BLM's attitude has improved post-election, with local offices staffing up, but federal leadership remains in flux. Reid expressed frustration over past delays with the Golden Mile permit, which he feels is now starting from scratch. The company plans to aggressively pursue permits under the new administration, prioritizing County Line and seeking to fast-track Golden Mile.

John Bair of B. Riley Securities inquired about the staffing levels at the Bureau of Land Management (BLM) for permit reviews and how ongoing permitting delays are influencing the company's strategy for submitting new applications for prospects like East Camp Douglas.

Answer

Executive Jason Reid responded that the BLM's attitude has improved since the recent election, with local offices reportedly staffing up, though leadership at the federal level is still in flux. He noted that past delays have effectively reset the timeline for projects like Golden Mile and that the company now plans to submit as many permits as possible under the new administration. Reid also highlighted that the County Line project should be simpler and faster to permit and build due to its nature.

John Bair asked about the permitting requirements and expected timeline for the Scarlet North target, given the significant delays experienced with the Isabella Pearl permit. He also questioned the strategy of reducing drilling rigs to preserve cash, considering the challenges in getting approval to mine existing discoveries.

Answer

CEO Jason Reid stated that while most environmental studies for Scarlet North are complete, the company is intentionally delaying the permit submission to avoid overwhelming the understaffed Bureau of Land Management (BLM). He attributed the delays to the current federal administration. Reid confirmed that Fortitude Gold has already reduced its active drill rigs from a high of five to two and will continue to cut back on exploration spending to manage capital, focusing only on high-priority targets near known mineralization.

John Bair of Ascend Wealth Advisors asked about the progress and cost management of manufacturing infrastructure investments, and separately inquired about the timeline, investment, and structure of the 'Mini ball' data analytics initiative.

Answer

VP of Operations Aaron Christiansen described the manufacturing investment as a long-term, sustained commitment focused on adding capacity and reducing costs, noting pre-buying materials is limited. CFO and CIO Susan Kreh explained the data analytics initiative is a multi-year effort starting in fiscal 2025, using a hybrid model of a new internal leader and third-party offshoring partners.

John Bair asked about customer ordering behavior, specifically if they are building inventory ahead of potential price increases, and inquired about the company's future pricing strategy to offset inflation.

Answer

Christopher Lamson, Group VP of Retail and Wholesale, stated that the company has disciplines to prevent customers from pre-buying inventory ahead of price changes. He confirmed a regional price increase in Q1 and another planned for the industrial business. CEO Daniel Jaffee added that mining costs and regulations create a consistent need for price adjustments to recover costs and reflect value, as these factors cause costs to rise annually.

John Bair from Ascend Wealth Advisors followed up with a question regarding Oil-Dri's cat litter market share performance and the sources of any recent gains.

Answer

Christopher Lamson, Group VP of Retail and Wholesale, responded that the company's market share increased modestly. He attributed the growth to a strategic focus on the lightweight and crystal litter segments, which are growing significantly faster than the overall cat litter category, thereby lifting Oil-Dri's overall position.

John Bair asked about the potential for ore grade improvements to boost financial results in the coming quarters. He also requested an update on the status of the Back Forty project in Michigan, including any changes in the environmental and permitting climate.

Answer

President and CEO Allen Palmiere stated that grade improvements are expected to help rebuild cash balances by Q4 2024, with a more significant step-change in grade anticipated in Q1 2026 from the new Three Sisters and Gloria area. Regarding the Back Forty project, Palmiere described it as being in 'limbo' due to an unfavorable financing climate for junior miners. He expressed confidence in the Michigan permitting process, calling it professional and noting the risk is relatively low.

Inquired about the impact of new Western Canadian pipelines on customer activity, whether interest is coming from new or existing customers, the effect of new regulations on demand, and the potential for working with state departments of natural resources on orphan wells.

Answer

The new Canadian pipelines are expected to increase activity from existing customers in Canada, as drilling has remained strong in anticipation of this new market access. Regulatory drivers like the EPA rules, Inflation Reduction Act, and Canadian carbon tax continue to stimulate demand for their products. While they haven't directly reached out to state DNRs, they are involved in orphan well projects through their customers and OEMs who are tackling methane capture and abatement.

Inquired about the reasons for increased inventory levels, the timeline for phasing out the PF2100 system, and the extent of international business activity, both in traditional oil & gas and in the new diversification sectors.

Answer

Inventory is up due to managing long lead times in the supply chain and the ongoing transition from the PF2100 to the PF2200 system. The company aims to complete the transition by late 2024 or early 2025 but will continue to support the 2100 with parts. International activity has seen an uptick, especially from South America (Argentina), and exposure is growing through OEMs. However, diversification efforts into non-oil and gas industries are currently focused on North America, where the company can provide direct technical and service support for these more complex projects.