Hallador Energy (NASDAQ:HNRG) executives used the company’s first-quarter fiscal 2026 earnings call to highlight a long-term capacity contracting milestone reached after the quarter ended, while also detailing a quarter that was pressured by generation constraints and outage-related costs at the Merom power plant.
12-year capacity agreement announced after quarter end
President and CEO Brent Bilsland said Hallador executed a 12-year capacity agreement with a subsidiary of a utility that is “expected to generate more than $1 billion of contracted revenue from 2028 through 2040,” at pricing “more than 2x our historical contracted capacity pricing.” The agreement remains subject to approval by the Indiana Utility Regulatory Commission, which Bilsland said the company anticipates in the second half of 2026.
Combined, the March agreement and the new 12-year agreement represent “approximately $1.1 billion” of capacity-only sales and position Hallador as “substantially sold forward” on accredited capacity for about the next 14 consecutive years, Bilsland said. He noted the contract initially covers a smaller volume in planning year 2028, rising to about two-thirds of accredited capacity from planning year 2029 through 2040.
Importantly, Bilsland emphasized that the new agreement covers capacity only. “We are not committing energy under this contract,” he said, which he described as a way to secure long-duration contracted revenue while preserving exposure to merchant energy pricing upside.
Management sees capacity tightening ahead of energy pricing
In prepared remarks and in Q&A, Bilsland outlined a view that capacity markets are repricing first as large-load customers seek accredited capacity to advance projects, while energy market impacts may follow later. “We view capacity as the critical first step,” he said, adding that for data centers and other large-load projects, accredited capacity can be a “gating factor.”
During Q&A, Bilsland said data centers are a major source of demand he is seeing, though not the only one, citing examples such as potential steel plant expansions in Indiana and announcements of aluminum smelters elsewhere. He also pointed to Indiana’s receptiveness to data centers compared with other states that have enacted pauses or moratoriums on new data centers.
On energy pricing, Bilsland said the company views capacity as a “lead indicator for energy” and described a lag between capacity contracting activity and when new facilities come online and begin drawing power. “We’ve seen a little price movement up, which is encouraging,” he said, while adding, “By and large, everything we’re seeing is encouraging.”
Asked whether Hallador might wait for energy markets to strengthen further given the capacity revenue foundation, Bilsland said the company feels “no pressure.” He also said Hallador is “well hedged for 2026,” and that the new capacity deals establish forward visibility through 2040. He added that the company would consider locking in energy if attractive opportunities arise, but said the biggest pricing response Hallador has seen recently has been in capacity.
Q1 results pressured by Merom availability constraints and replacement power
Turning to quarterly performance, Bilsland said results were generally in line with expectations previously provided, but were affected by “availability constraints at Merom” that began in the fourth quarter and continued into the first quarter, reducing generation. He said outage-related replacement power costs were an additional headwind, and described the quarter as “operationally challenging.”
Bilsland reiterated that reliability at Merom is a key priority and said the unit in question is in a planned maintenance outage. During that outage, Hallador is making reliability-related capital investments intended to improve performance heading into summer and peak demand periods.
He also described Merom as central to Hallador’s vertically integrated platform, noting that lower plant performance can ripple through the business by increasing coal inventories and reducing efficiency at Sunrise Coal. He said improved reliability supports not only electric sales but also internal coal demand, mine productivity, and overall operating efficiency.
Looking ahead, Bilsland said second-quarter results will reflect the planned outage, which is expected to temporarily reduce generation. He said the company expects a shift in the second half of the year as the plant returns from outage and availability improves.
Financial details: lower electric sales, net loss, improved liquidity and no bank debt
CFO Todd Telesz reported electric sales of $65.1 million for the first quarter, down from $85.9 million in the prior-year period, attributing the decline to reduced generation at Merom. Third-party coal sales rose to $35.1 million from $30.2 million, which Telesz said was driven “primarily by improved pricing on shipments to customers.”
On a consolidated basis, total operating revenue was $101.8 million, compared to $117.7 million a year earlier. Hallador posted a net loss of $9.3 million, compared with net income of $10.0 million in the prior-year period. Operating cash flow was $20.5 million versus $38.4 million a year earlier, with Telesz citing lower generation, higher purchase power costs, and an increase in coal inventory of about $4.6 million.
Adjusted EBITDA was $5.5 million, down from $19.3 million in the prior-year period. Capital expenditures were $7.7 million versus $11.7 million a year earlier, and Telesz said spending is expected to remain focused on planned maintenance, reliability, and operational improvements. For the full year, the company expects capital expenditures to “increase modestly compared to 2025 levels,” excluding potential ERIS-related development investments.
Telesz also highlighted changes in Hallador’s financial position and contracting book:
- Forward energy and capacity sales position of $571.2 million at March 31, 2026, compared with $543.5 million at year-end 2025. He said this figure does not include the 12-year capacity agreement signed after quarter end.
- Total forward sales book of approximately $1.2 billion when combining forward energy and capacity sales with third-party forward coal sales of $288.4 million as well as intercompany sales to Merom.
- No outstanding bank debt at March 31, 2026, compared to $29.7 million at December 31, 2025.
- Total liquidity of $97.5 million at March 31, 2026, up from $38.8 million at year-end 2025. Telesz attributed the increase to capital raised during the quarter, capacity payments received, and added borrowing capacity under a new credit facility.
Telesz said Hallador entered a new credit agreement in early March with Texas Capital Bank, Old National Bank, and other lenders, replacing its prior facility. The new agreement includes a $75 million revolving credit facility and a $45 million delayed draw term loan, with a March 2029 maturity and an accordion feature.
Gas turbine development, dual-fuel initiatives, and M&A considerations
In response to analyst questions, management discussed the proposed 515 MW combustion turbine project at the Merom site under the MISO ERAS program, as well as potential dual-fuel initiatives for existing generation.
On the gas expansion, Bilsland said securing a “big block of capacity” improves financial footing and confidence, but noted constraints in the market for equipment and EPC services. He said Hallador is in discussions with those parties and would announce a transaction if it decides to proceed.
Regarding timing, Bilsland said MISO had not yet “picked up the application,” but Hallador still anticipates MISO doing so in June, with a decision required around September as the program’s 90-day clock runs.
On dual-fuel possibilities, Bilsland said a gas line could serve both the gas turbine project and potentially enable dual-fueling the coal-fired units, emphasizing it would not be a replacement of coal but could provide flexibility to burn either fuel. He said the company is reviewing such investments and would evaluate whether they make economic sense.
Separately, asked about M&A, Bilsland said he sees “a lot of opportunity,” citing Hallador’s public company platform, its ability to pursue long-term contracts, and its development work around interconnection and expansion. However, he said the company would only pursue deals it believes are “smart” and value-accretive for shareholders.
Closing the call, Bilsland thanked participants and said the company is “very excited about the future.”
About Hallador Energy (NASDAQ:HNRG)
Hallador Energy Company is a coal producer and mine operator trading on NASDAQ under the symbol HNRG. The company’s primary business activities center on the production and sale of bituminous thermal coal. Hallador’s operations encompass two surface mines: the Shoal Creek Mine located in southwestern Indiana and the Bull Mountain Mine situated in eastern Montana. Both sites are designed to extract high-quality coal reserves for the power generation market.
Hallador Energy markets its coal primarily to electric utilities and industrial customers across the United States.
