Michael Matheson

Michael Matheson asked if Alliance Resource Partners' full-year CapEx for 2025 is expected to come in at the low end of guidance, given lower year-over-year and sequential CapEx in Q3. He also inquired whether the higher depreciation expense in Q3 2025 and the updated full-year guidance represent a new normal or were influenced by one-time factors. Furthermore, Matheson sought Joe Craft's perspective on whether the Gavin investment signals a broader trend of utilities selling coal-fired capacity or if such transactions remain isolated. Finally, he asked if the sharply reduced expense per ton in Appalachia is sustainable or if it included one-time factors.

Answer

SVP and CFO Cary Marshall indicated that full-year CapEx is more likely to be closer to the midpoint of guidance, with Q4 CapEx expected to be higher than Q3. Marshall confirmed that the current level of depreciation expense is likely the new normal, reflecting assets placed in service throughout the year. Chairman, President, and CEO Joe Craft stated that the Gavin investment is more indicative of isolated transactions, estimating five to ten potential coal-fired plant sales east of the Mississippi. Craft affirmed that the lower expense per ton in Appalachia is sustainable, primarily due to improved geology at Tunnel Ridge and consistent performance at MC mine, with a specific geological issue at Meitike expected to cause a temporary cost increase in Q4 but not impact the long-term trend.

Michael Matheson inquired if the lower year-over-year and sequential CapEx in Q3 2025 suggests full-year CapEx will be at the low end of guidance. He also asked if the higher Q3 depreciation expense and upped full-year guidance indicate a new normal or one-time factors. Additionally, he questioned if the Gavin-like transaction signals a trend of many utilities selling coal-fired capacity, and if the sharply reduced Appalachia expense per ton is sustainable or due to one-time factors.

Answer

SVP and CFO Cary Marshall indicated that full-year CapEx is likely closer to the midpoint of guidance, with Q4 expected to be higher than Q3. He confirmed that the current depreciation level is likely the new normal due to assets placed in service. Chairman, President, and CEO Joe Craft clarified that Gavin is more of a one-by-one trend, with an estimated 5-10 plants east of the Mississippi potentially changing ownership, not a widespread sell-off. He affirmed that the lower Appalachia expense level is sustainable, primarily due to the new district at Tunnel Ridge, with Meitike's Q4 situation being a specific, non-systemic geological issue.

Asked for specifics on the UNC contract revenue, the operational timeline for the Crystal Clean facility, the size of the sales force, and confirmation of full-year revenue and gross margin targets.

Answer

The company stated the initial UNC contract is for $400,000 with potential for multi-millions in the next phase. The Crystal Clean site is expected to be operational about four months after the definitive agreement is finalized. The sales team consists of four direct business development professionals plus one corporate development person. Management confirmed they are sticking to their full-year revenue targets but clarified that a positive gross margin is an ambition rather than a formal target for the year.

Michael Matheson of Sidoti & Company inquired about the percentage of the fleet booked on long-term contracts for the remainder of the year and asked about the priority of debt paydowns versus shareholder returns like dividends and buybacks.

Answer

CFO Gianni Del Signore explained that long-term contract cover averages around 30% of the owned fleet annually, with a significant portion kicking in during the Q3 ice season. He also stated that the company is comfortable with its current debt amortization schedule of approximately $11 million per quarter and does not plan for accelerated paydowns, prioritizing balance sheet strength alongside shareholder returns.

Michael Matheson asked about the medium-term outlook for shipping capacity, whether Pangaea's specialized business model provides insulation from competitive pressures, and if the company has a specific target leverage ratio.

Answer

CEO Mark Filanowski stated that the low newbuilding order book should support rates for the next couple of years and that the company's focus on ports and terminals is a strategic move to reduce volatility. He and CFO Gianni DelSignore clarified that while there is no single target leverage ratio, they are comfortable with their current position, which they estimate at around 50-55% debt-to-vessel value, and view it from multiple perspectives.