Q1 2020 Earnings Call
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I got about director Investor Relations. Thank you. Please go ahead.
Thanks Jessica.
Good morning, and thank you for joining us to discuss Suncoke Energy's first quarter 2020 earnings with me today, Mike repeat President and Chief Executive Officer, and feel best Senior Vice President and Chief Financial Officer. Following managements prepared remarks, well open the call document <unk>. This conference call is being webcast live on the Investor Relations section I'll put a rep.
Right and a replay will be available later today, if we don't get to your questions on the call today, Please feel free to each outdoor investor relations team.
Before I turn things over to Mike, Let me remind you got the immediate remoxy make on today's call regarding future expectations constitute forward looking statements. The cautionary language regarding forward looking statements you know what I see filings applied to the remarks, who make today. These documents are available on our website as a reconsolidations to non-GAAP financial.
Measures discussed on today's call with that I'll now turn things over to Mike.
Thanks, Jonathan Good morning, and thanks to all of you for joining us on our call. This morning.
These aren't precedent in times as the Cobot 19 pandemic has affected every aspect of our society.
Today I'd like to discuss our responses our response to covert 19, including the actions we have taken to protect the health and safety of our employees and contractors to support our customers and steps, we've taken to reduce cost and preserve cash.
Suncoke has been designated as an essential business in every state, where we operate which allows us to continue operations at all of our facilities.
We're in close contact with our critical suppliers and vendors to ensure that we will be provided the materials and services required to continue operating in an uninterrupted manner.
We would suncoke have been keenly focused on taking proactive in effect the steps to ensure that health and safety of our workforce.
As the but then as the pandemic unfolded, our internal Cobot 19 task force work to follow the guidelines, the CDC Osha and local health and governmental authorities to implement policies and procedures to protect our work for some contractors.
As part of this effort, we have implemented screening processes for a central employees as they enter our sites.
And screening procedures staggered shifts and required those who can work from home to do so.
These are just a few of the actions we have taken to maintain a safe operating environment and to protect our employees I'm extremely proud of our employees as they worked diligently to serve our customers with a central products that support our business.
We are continually monitoring the covert 19 pandemic.
As it evolves and we'll continue to respond issues that may arise.
Turning to our performance for the quarter.
The direct impact of the pandemic on our results has been limited the operational performance of our domestic Coke segment.
It was in line with our expectations, despite the challenging macro environment.
Times were higher as compared to the prior year period, and we experienced continued strong operating for operating performance from our facilities.
Looking at the logistics segment foresight energy filed for bankruptcy during the first quarter.
Going forward, there will be shipping all of their coal through javelin global commodities.
We're shipping coal for javelin this year at CMT under a one year agreement and are in the process of negotiating a longer term contract beyond 2020.
Well covert 19 had limited impact on Suncoke in the first quarter, we recognize the challenging economic environment that exist today.
Response to a much lower demand across end use markets, our customers have idled or banked a number of blast furnaces.
The domestic steel utilization rate has dropped to levels only slightly above 50% and may go even lower in the short term before rebounding.
The current situation is unprecedented and as of today, we cannot accurately predict when demand will return to more normal levels.
Cencoex business model is built on long term partnerships with our customers and our ability to partner with our customers in these unprecedented times, it's critical to our long term success.
Well, the take or pay nature of our contracts protect suncoke from an array of downside risks. It is important for us to maintain the strength of our customer relationships.
To that end, we're currently exploring contract restructuring alternatives with our customers to address the short term market challenges.
The results of these conversations will most likely impact results. This year, we find it necessary to withdraw our 2020 guidance, we'll provide more details as we reach agreements with our customers. At this time I can reiterate that are operations and business continuity remains strong and April results.
Our inline with our expectations with that I'll turn it over to say to review our first quarter earnings in detail fight.
Thanks, Mike and good morning, everyone turning to slide for our first quarter net income attributable to SXC was six cents per share.
S was down nine cents versus the prior year period, mainly driven by the performance of the logistics segment.
From an adjusted EBITDA perspective, we finished the first quarter at $62.1 million down $5.2 million versus the first quarter of 2019.
The decrease was primarily due to lower throughput volumes and lower fees per tonne F.C.M.T., partially offset by higher sales volumes at domestic coke.
Moving to the detailed adjusted EBITDA bridge on slide five.
As you can see consolidated adjusted EBITDA was down approximately $5.2 million versus the prior year period.
Our Coke segment performed well this quarter. These results reflect a 6.3 million dollar adjusted EBITDA improvement due to increased volumes.
The increase was partially offset by lower coal to coke yield gains due to lower coal prices as a reminder, well we do pass through the cost of coal to our customers, we generate incremental adjusted EBITDA from higher from higher coal prices due to improved yield game calculation.
We continue to see sustained operating performance from the rebuilt our friends at Indiana Harbor, which is the primary driver of the increase in production this quarter.
In terms of our logistic segment.
We saw lower throughput volumes at both CMT and care G.
In addition to the lower volumes revised pricing also impacted profitability when compared to the prior year period.
Quarter over quarter, the logistics segment was down $9.4 million.
When adding and slightly unfavorable results at corporate it other we ended at $62.1 million of adjusted EBITDA in Q1.
Turning to slide six to discuss our domestic coke business performance in detail.
First quarter adjusted EBITDA per ton was $60 and 1.069 million tons of production. These results reflect an increase of approximately 63000 tons of coke production across the fleet.
The biggest single increasing production versus the prior year period comes from Indiana Harbor as strong operating performance drove a 30000 ton increase in production.
Lower coal to coke yield gains due to lower price lower coal price adversely impacted results, but were mostly offset by lower operating costs.
Flipping to slide seven.
Our logistics business generated $3.3 million of adjusted EBITDA during the first quarter as compared to $12.7 million in the prior year period.
The decrease in EBITDA is primarily due to lower throughput volumes and the new agreement with javelin Global commodities limited that Mike mentioned previously.
Our domestic terminals were impacted by softer softer demand due to covert 19 handling approximately 3 million tons during the quarter versus 3.6 million tons in the prior year period.
The M.T. contributed $1.3 million of adjusted EBITDA, and 1.25 million tons in the quarter.
Oh, the 1.25 million tons handle during the quarter 900000 work for coal and 325000 were for other products such as pet Coke in aggregate.
We expect dependent next to have an impact on demand at our logistics facilities, but we have taken measures to reduce costs, including rightsizing our team to meet current demand and restricting discretionary spending among other initiatives.
Turning to slide eight and our liquidity position in Q1.
As you can see in the chart, our consolidated cash balance was $235.8 million at the ended the quarter.
We spent approximately $23 million on ongoing maintenance capex.
During the quarter the company increased its borrowings under its revolving credit facility by approximately $157 million in order to enhance its cash position and preserve financial flexibility.
We feel confident that debt that we are in a strong operational position today and that these actions safeguard our business and ensure that the company will maintain the cash and balance sheet strength required to navigate the current market conditions.
The proceeds from the revolving facility are being held is cash on the company's balance sheet and may be used for working capital or other corporate personnel purposes.
During the quarter, we repurchased $12 million face values SXCP senior notes at a discount we also repurchased approximately 1.6 million shares for $7 million and paid a dividend worth $5 million at the rate of six cents per share.
In light of the current environment, and the resulting deterioration in the ceiling coal markets, we remain committed to allocating capital responsibly, and if posh share repurchases repurchase activities.
As the market stabilizes and things return to normal we intend to resume executing on our long term capital allocation priorities with the primary focus on reducing leverage to three times or lower.
We'd like to note that our gross leverage at quarter end is inflated due to the additional revolver borrowings, which I mentioned that are being held as cash and the balance sheet.
Excluding the additional rebar <unk> revolver borrowings our gross leverage would have been 3.25 time.
In total we ended the quarter with strong liquidity position of approximately $324 million.
With that I will turn it back to Mike.
Thank you pay wrapping up on slide nine.
As we operate in these unprecedented times, our first priority remains the safety in wellbeing of our employees and contractors.
We will continue to do everything possible to ensure.
They are all well protected and able to do their essential jobs with confidence.
At this time, we've not lost sight of our core business and we will focus on successfully executing against our operating plan in 2020.
We will continue to pursue opportunities to optimize our asset base.
Specifically as it relates to the convent Marine terminal.
We have significant coal contracts expiring at the end of 2020 successfully navigating through these renewals as a key initiative for our organization and for the long term success I'm Suncoke energy. Additionally, we continue to explore opportunities in the boundary cope market as mentioned in our previous earnings call as we.
We have discussed the steel industry and our customers have been adversely impacted by the spend damage and we're committed to partnering with them through these challenging times.
To ensure we address our customers' needs in the short term.
While also providing long term stability of supply.
As we have progressed report I look forward to keeping our investors and stakeholders informed throughout the year.
And finally, we will keep a vigilant in our asset base to make sure. It is properly maintained and able to operate efficiently even as operating levels may fluctuate in the near term.
We are proud of the investments we have made creating the highest quality assets in the industry, which we are committed to maintaining so that we do not skip a beat as markets begin to improve.
[noise] [noise] [noise] before we end our prepared remarks.
I would like to take this opportunity to thank all of our employees contractors and suppliers.
We're working very hard during these difficult times to keep our business operating safely.
With that we can open the call for today.
Thank you at this time I'd like to remind everyone in order to ask your question. Please press star fall by one on your telephone keypad, we'll pause for just a moment to compile the acuity roster.
Your first question comes from Matthew Fields with Bank of America. Your line is open.
Hey, everyone.
A couple nitpicky ones first when the quarter did you buyback the bonds.
It was about March I think March timeframe.
Yes, the timeframe yep.
For early March before.
Everything went into locked down.
That's right.
Stock repurchases were also kind of before the lock on started.
And then you already have anymore.
Okay has there been any more bond repurchases in the second quarter yeah.
No.
Yes.
And then.
I appreciate you know drawn revolver to keep Josh on the balance sheet lot of incentives are doing the same.
Len.
I guess more line of sight on what 2020, it's been a look like.
You can you think about allocating some of that cash to buy more bonds.
Kevin is a pretty significant arbitrage between.
We will cost a little over two bonds that are trading in a pretty steep discount.
Right and we were monitoring where bonds are as you know we drew down on the revolver just to get to solidify our position here at your at quarter end and we'll monitor what are what our revolving borrowings will be as we navigate through this situation.
Okay great.
In terms of.
Contract restructuring that you.
You started to men.
Obviously, I know, there's probably nothing that you can check to conquer detail, but what's on the table would be is.
Restructuring.
And it's volume.
Sure.
The very take or pay nature of the contracts like whats.
For the conversation.
You're right Matthew there's very little we can say at this point in time, but.
It's fair to conclude that there's a menu of options that were exploring with our customers that might include some of the items, you've discussed and others as well, but we can't speculate or discuss these these ongoing negotiations.
Okay.
And your interest [laughter] to review your existing contracts that are.
Or material adverse.
Don't have pandemic or business downturn language, it's more like explosion.
Specific kind of incident to.
Clearforce mature under contracts right.
We we feel strongly about the force majeure protections that are provided our contracts and.
Should we need to Oh, we would enforce vigorously.
And.
I appreciate Brian you sort of keep liquidity.
Can get leverage down already assets you can monetize.
You can do.
Yeah no.
Convent Marine terminal was a big box for.
400 million plus the number of years ago.
Something that you'd be willing to sell obviously that price is probably a little lower today, but.
Anything you can do to kind of boost liquidity.
We serve caching and take the leverage.
Our liquidity position is quite strong right now and as we've stated our our goal is to get to three times are less than we believe that.
Overtime or operations will allow us to accomplish that.
We are looking at.
Repositioning CMT.
Given the loss of volumes, particularly as relates to Marie.
And we'll continue to do so too I think you answered drone question with regard to so I think is so particularly in opportune for a come in opportune time for a company with good liquidity to be looking to sell assets.
Okay fair enough.
Thanks, very much and good luck.
Thank you.
Your next question comes from attributes Rosehill with Jefferies. Your line is open.
Yeah, Good morning, guys.
Morning.
Good morning.
On the business side.
<unk>.
However, those negotiations with customers go it seems plausible that you will defer some volumes I'm just trying to think through how that looks for you. Specifically do you continue to produce that your current rates and just stockpile coal can defer those volumes or do you slow production and if you slope.
Production does that impact the EBITDA per ton or the profitability of your operations.
Where the path you got how does that impact your profitability do actually slow production or you just hold onto it I'm not asking you specifically on any.
Customer negotiation I'm, just saying for Suncoke. If you were to slow down deliveries do slow production and what does that do to profitability.
We're not able to discuss these actions we may or may not take as a result of these discussions today.
Okay fine thank you.
[noise]. Your next question comes from Lucas <unk> F.B.R. Your Alliance open.
Hey, good morning, everyone.
Well.
I I wanted to ask.
Utilization rates at York facilities.
They're above I mean at the ended a quarter or 100%. They were in 100% you know, it's kind of silly slightly above yeah.
Today.
Well, we indicated that are April results were in line with our expectations.
So as of right now.
<unk>, producing you're kind of <unk>.
Full capacity.
That's correct.
That's that's helpful. Thank you <unk> and then I I.
She said she pulled guidance for the year, but I I wonder if you could kind of.
Maybe just comment on your free cash flow.
<unk>.
Outlook for lack of about a better word but would you expect to be pretty casual positive even with some of these contract negotiations.
So look as you know we did pull all of our guidance inclusive, but uncap accent free cash flow guidance, but in you know in you know we could we could.
Yep.
Scenario play a number of different different event, but you know in all of those we are free cash flow positive.
That's that's helpful. That's all I have for now I I appreciate the color and stuff like.
Thank you okay.
[noise]. Your next question 'cause <unk> <unk> <unk>, Steve fulfill audience open.
Good morning.
Got on the call late I apologize I guess, it's been addressed it sounds like it hasn't but to the extent that you need to idle any facilities you talk about whether you do hot Idol code cold idle and what sort of risk there are to the underlying furnaces in terms of metal warping, keeping the seals on the doors et cetera.
Yeah, No I I think it's extremely unlikely that we would be a hot idling or.
Any of our facilities resolve the discussions are taking place today with our customers.
If that were on again I I can't stressing off that's extremely unlikely.
We've been a hot idol condition, we would either continue to keep the ovens warm by keeping whole in the ovens in a in heat in state, obviously or we would.
Keep the ovens.
Hot with natural gas being injected.
Okay.
And then it was given to volumes a blast versus had been idled.
And not getting into these discussions you're having with the customers can you talk about what sort of merchants opportunities. There are for the hope that may be.
Sitting in access the North America, whether it can be export it out then what sort of market opportunity there is there.
The there'd be very limited opportunity to right now this this pandemic, but we're experiencing is is a global pandemic and.
The U.S. a fall often demand is not dissimilar to what's happened throughout the or the world.
Yeah.
So I had thank you.
Mhm. Thank you.
Again, if you'd like to ask the question. Please press star ones.
No no for the question at this time.
Okay. Good. Thank you all again for a joining us in our call. This morning, and as always your continued interest in Suncoke and we look forward to.
Discussing Ah our company is we continue to evolving respond to the the cold in 19 pandemic. Thank you again.
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