Michael Mathison

Michael Mathison inquired about the drivers behind the 370 basis point sequential increase in PC's adjusted EBITDA margin in Q4, and whether this margin level is sustainable. He also asked about plans to reduce the CMMC footprint at Stickney to a single column, its potential impact on CMMC margins and revenue, and sought more details on the Douglas fir acquisition for the utility pole business.

Answer

CEO Leroy Ball acknowledged the PC margin improvement, noting a non-repeatable asset sale benefit in Q4 but expressed confidence in sustaining margins in that range, with a target for further improvement, despite copper price uncertainties. Regarding CMMC's Stickney plant, Ball confirmed a high likelihood of moving to a single column, with benefits expected in 2027, including cost cuts and improved margin profile, though it would mean less sales due to reduced raw material. For the Douglas fir acquisition, Ball stated it was a small business in Oregon, securing a critical supply chain for Douglas fir, primarily to enhance opportunities in existing markets and potentially serve as a future platform for Western expansion.

Michael Mathison asked about the drivers behind the 370 basis point sequential increase in PC adjusted EBITDA margin in Q4 2025 and its sustainability. He also inquired about plans to reduce the CMMC footprint at Stickney to a single column, its impact on margins, and any potential revenue loss. Additionally, he sought more details on the Douglas fir acquisition for the utility pole business, its location, and its contribution to geographic expansion.

Answer

CEO Leroy Ball attributed some of the Q4 PC margin increase to a non-repeatable asset sale but expressed satisfaction with overall performance, expecting similar margins going forward with targets for improvement. He confirmed a high likelihood of moving to a single column at Stickney for CMMC, with benefits realized in 2027, expecting less sales but improved margins. Mr. Ball described the Douglas fir acquisition as a small Oregon-based business securing supply, enhancing opportunities in existing markets, and potentially aiding future Western expansion.

Michael Mathison of Sidoti & Company asked about the potential impact of a proposed merger between two major rail companies and questioned how Koppers plans to achieve its high-teens EBITDA margin target after reaching 15% in the quarter.

Answer

CEO Leroy Ball stated it is too early to determine the impact of a potential rail merger but expressed hope that Koppers would continue to serve the combined entity. To reach the high-teens margin target, Ball explained the key driver will be volume recovery across its business segments, which are currently in a rare, simultaneous trough. He believes that as markets rebound, the cost savings already achieved through initiatives like 'Catalyst' will drop to the bottom line, creating a compounding effect on profitability, particularly looking ahead to 2026.

Michael Mathison asked for an estimate on how free cash flow would be allocated between share repurchases and debt paydown, and also inquired about recent volume and pricing improvements in the RUPS segment's crosstie business.

Answer

CEO Leroy M. Ball stated that the primary use of free cash flow will be opportunistic share repurchases as long as the stock remains undervalued, with the remainder allocated to debt reduction. The goal is to reach a leverage ratio of approximately 3x by the end of 2025. He also confirmed they project an 8% increase in crosstie volume for 2025 and expect overall higher pricing due to contractual adjustments and ongoing negotiations.

Michael Mathison asked about the pricing trends for 2027, specifically if Alliance Resource Partners is observing firmer pricing given increasing demand, and requested additional color on this. He also inquired if current low coal inventory levels at power plants suggest that 2025 pricing was a trough, indicating a new normal of higher pricing going forward.

Answer

Joseph W. Craft III, Chairman, President, and CEO, confirmed that Alliance contracted 1.5 million tons for 2027 at prices slightly higher than the high end of the 2026 range, with even higher prices for 2028 in a five-year contract, primarily for Illinois Basin coal. He noted that current market conditions (Arctic weather, higher gas prices) would lead to even higher prices if contracted today. Mr. Craft expressed belief that 2025 pricing was likely a trough, anticipating higher pricing going forward due to limited and potentially declining supply in domestic eastern markets coupled with increasing demand from data centers and winter weather, creating a favorable supply-demand balance.

Michael Mathison inquired about the firmness of 2027 coal pricing given increasing demand. He also asked if the significantly reduced coal inventories at power plants in 2025 and Q1 2026 suggest that 2025 represented a trough in pricing, indicating a new normal of higher prices.

Answer

Joseph W. Craft III, Chairman, President, and CEO, confirmed that 1.5 million tons for 2027 were contracted at prices slightly above the high end of the 2026 range, with some longer-term contracts showing yearly increases. He believes 2025 was a pricing trough, anticipating higher future pricing due to limited and declining supply in eastern markets coupled with increasing demand from data centers, creating a favorable supply-demand balance.

Michael Mathison of Sidoti & Company questioned the impact of declining Chinese demand for seaborne coal on U.S. pricing. He also asked about future investment plans for the high-margin royalty portfolio, including target sectors and its potential scale in the coming years.

Answer

Chairman, CEO, and President Joseph Craft acknowledged that while recent inbound inquiries for seaborne coal show more attractive pricing, the domestic market still offers better netbacks, which ARLP will continue to prioritize. However, he sees a probability of higher export volumes next year. For the royalty business, Craft reiterated a strong commitment, with plans to reinvest the segment's EBITDA, targeting over $100 million annually. He stated the focus remains primarily on the Permian and Delaware Basins, with the capacity to pursue larger opportunities given the segment's lack of leverage.

Michael Mathison from Sidoti & Company asked for clarification on several points: why the Energy Services division is able to raise prices amid industry pressure, the nature of recent large commercial contracts in Building Solutions, why that division is outperforming homebuilder trends, and for any directional guidance for modeling the combined company post-merger.

Answer

Executive Chairman Jeffrey Eberwein and CEO Richard Coleman explained that Energy Services' strength comes from providing mission-critical, high-demand tools. Regarding Building Solutions, they noted the backlog is a mix of projects driven by pent-up demand in their Northeast territory, where a housing shortage persists. For outlook, Jeffrey Eberwein stated that while formal guidance isn't provided, Building Solutions and Energy Services are expected to be at least flat with Q2, the incoming Hudson business is past its trough, and the merger should yield $2 million in cost synergies over a few quarters.

Michael Mathison from Sidoti & Company sought clarification on the revenue value of the UNC Chapel Hill contract, the operational timeline for the Crystal Clean facility, the size of the sales team, and whether the company was reiterating its full-year revenue and gross margin targets.

Answer

CEO Chris Gannon clarified the initial UNC contract is for $400,000, with multi-million dollar potential in subsequent phases. He estimated a four-month timeline to get the Crystal Clean facility operational after the definitive agreement is finalized. Gannon stated the commercial team consists of four direct sales professionals and one corporate development lead. He confirmed the company is maintaining its full-year revenue guidance but described a positive gross margin as an 'ambition' rather than a formal target for the year.

Michael Mathison inquired about the potential annual revenue from a typical waste destruction as a service contract, the expected timeline for the Department of Defense demonstration, and the start and completion dates for the North Carolina AFFF destruction project.

Answer

CEO Chris Gannon confirmed plans for a national network of TSDF partners and noted the DoD demo is a multi-month process starting in June/July. CFO Russell Kline detailed the economics, projecting that an AS30 unit could generate $12-$20 million in annual revenue depending on waste type and utilization. Gannon added that the North Carolina project would begin within the next month.

Michael Mathison of Sidoti & Company inquired about Hudson Global's regional performance, asking for the drivers behind the strong net revenue growth and higher margins in Asia, the revenue increase in the Americas despite negative job market headlines, and the outperformance in Europe amid a flat economy. He also sought clarification on the structure of the Mackenzie CMO Group integration.

Answer

CEO Jeff Eberwein explained that Asia's strong performance was largely due to favorable comparisons against a depressed prior-year period, marking a return to normal activity. Global CEO of Hudson RPO, Jake Zabkowicz, attributed Americas growth to new logo sales and a successful 'land and expand' strategy. For Europe, Zabkowicz cited traction from investments in the Middle East and expanded service offerings. Regarding the Mackenzie CMO Group, both executives clarified it was a strategic team hire with modest sign-on bonuses and a profit-sharing model, not a traditional acquisition, designed to integrate their branding and marketing expertise.

Michael Mathison from Sidoti & Company inquired about the trend in Chinese coal import demand during the second quarter and sought an early outlook on potential Time Charter Equivalent (TCE) rates for the fourth quarter.

Answer

President, CEO & Director John Wobensmith confirmed that Chinese coal import demand was soft during the quarter but noted a recent uptick in buying over the last month, suggesting a potential recovery by year-end. Regarding Q4 TCE rates, Wobensmith declined to predict specific levels but pointed to a strong forward curve. He highlighted that Genco is well-positioned for Q4 with most of its fleet on the spot market, minimal scheduled dry-dockings, and a cash flow breakeven rate expected to drop below $10,000 per day.

Michael Mathison inquired about the company's future debt paydown strategy and leverage targets, the overall health of its tenants, and whether tariffs have impacted construction costs for its build-to-suit projects.

Answer

CFO Clayton Chun stated the company's leverage is below its 5-6x target, so future cash will be prioritized for growth capital. SVP Kit Millan confirmed tenant health is strong, with rising foot traffic and sales. CEO Lance Parker noted that general inflation, rather than specific tariffs, affects construction costs, which they mitigate through forward pricing and efficient execution.