Q1 2020 Earnings Call
Good morning, welcome to the Contort energy first quarter 2020 results conference call.
All participants will be in listen only mode.
You need assistance, please not conference specialist Starkey, Oh, I see that.
After today's presentation, there will be an opportunity to ask question to ask a question America Star then one on your touched on sound.
Please note this event is being recorded.
Now I'd like to turn the conference over to Emily O'quinn, Vice President Corporate Communications screen, if the crankcase go ahead.
Thanks, Anita and good morning, everyone.
Before we begin let me remind you that during our prepared remarks, and the Q and a period our comments relating to expected business and financial performance contain forward looking statements and actual results may differ materially from those discounts.
For more information regarding forward looking statements and some of the factors that can affect then please refer to the company's first quarter Twentytwenty earnings release any associated FCC filing.
Please see those documents for information about our use of non-GAAP measures and the reconciliation to GAAP measures participating on the call today, our culture as chairman and Chief Executive Officer, David Stephan and Chief Financial Officer, Andy Oh.
Also participating on the call is Jason <unk>, our Chief operating officer, who is available to answer questions on operations with that I'll turn the call ever today that.
Like you have like good morning, everyone and thanks for joining the call today.
As we all know over the last several weeks the Corona virus in Debbie that's created unprecedented uncertainty in our country and across the world.
This is not only disrupted global economies to degree not seen in my lifetime, but has also created the public health challenge.
These are difficult times and as we said her last earnings call. We're committed to taking precautions that reduced the risk of exposure to cope at 19 for people that come true. We understand that these are challenging circumstances for everyone and we are grateful to our more than 4000 employees.
For their dedication in cooperation implementing precautionary measures across the company health and safety of everyone on our teams important to US we take these issues very seriously.
As I turn to our operation results for the first quarter I want to start by highlighting our exceptional EBITDA of $60 million for the quarter, which was largely driven by outstanding cost performance our operations team.
Central App that cost reach a multi year low $70.68 per tonne compared to fourth quarter cost at 80, 236, which was already a meaningful improvement over previous quarters.
This dollar cost performance as Lund <unk> points of the quarter, what I returned to control last fall I sit down with the management team to discuss our vision for come true up we recognize that we had to drive efficiencies at both the operating in corporate levels in order to secure the long term viability and profitability considerably.
The team put a great short and long term strategy in place to achieve this vision and the success of that strategy is evident in the first quarter results I want to thank Jason why did for his leadership and congratulate the entire operations group on a job well done.
Looking at results against a broader economic backdrop, I think it's important to point out that we're able to post impressive cost numbers. Despite the onset of the krona virus late in the first quarter.
Although my hope for consumer was to build off the strong quarter the markets in headwinds, resulting from the bars will challenge us as well as everyone else in our industry. However, the hard work we've done over the past not much in the building blocks, we put in place well help culture or whether the expected market disruptions over the next few quarters.
The capital projects, we invested in are allowing us to build a bridge, even lower cost future for considerably.
Millions of dollars and savings from streamlining our operations it has seen a infrastructure or even more important now.
The strategic actions, coupled with meticulous cash management instituted by Andy well position can turn up or durability and he is unprecedented times.
We remain committed to an aggressive cash preservation strategy and we finished the first quarter with 257 million in total liquidity.
As a result of the cares actually it was passed by Congress, we expect to receive an accelerated AMC tax refund of roughly $68 million early in the third quarter.
We also anticipate the ability to defer approximately $14 million this year's payroll taxes in connection with the chronic virus relief package.
Before I turn it over to Andy to provide additional color I want to briefly touch on some market analysis and just in discussed some of the external factors we're watching.
Even though the first quarter met coal prices continue to be challenging it was encouraging to see the demand for our met coal held up quite well.
As our reported volume show our met shipments of 3.3 million tons, the first quarter matched our fourth quarter 2019 shipments.
Despite the announcement of any blast furnace Idlings Coke plant slowdowns.
Our strong shipments continued well into April.
However.
Actually began to weaken significantly as a co that 19 pandemic spread and price volatility increased the last couple of weeks.
Well the supply has been reduced across basins, the United States.
Dan has fallen at even faster pace, resulting substantial price weakness ranging from a 13% decline in high volume market.
To a 26% decline Australian premium hard coking spot prices in April alone.
To put this in perspective prices have dropped 35% to 50% over the past 12 months.
Some estimates, indicating the temporary U.S. met coal production cuts may have been as high as 50% of the toll supply.
I'll have to wait a little longer to get April trade and demand data.
But march numbers gives us, yes, but what to expect in the coming months.
Globally, the crude steel production posted one of its worst month in recent years with the overall global production declining 6% compared to March 2019, and excluding China. The production was down more than 10%.
On the markets that are most important to us the decline was quite challenging as well with European crude steel production, showing a 20% decline in both north and South America declining nearly 10%.
Well bore you with much more data, but it's sufficient to say well March number four week initial manufacturing PMI readings indicated April numbers are even weaker.
That index was 36.1 in April down from 48.5 in March.
As you know a P.M.I. indexed below 50 indicates contracting business conditions.
And manufacturing slow dramatically to couple key regions for our business, Arizona manufacturing PMI declined from an already weak March level of 44.5, a 33.6 in April.
Additionally, Brazil fell from 48.4 to 36 in April.
So in summary, there are obviously, some adverse circumstances that week and many other companies.
Having to manage around the real question is what will happen in the coming weeks and how will those developments influence the back half the 2020 might look like.
That visibility is admittedly quite limited at this time and in this environment, it's frankly impossible to accurately predict exactly what pricing demand will do.
An uncertain times like these.
I believe having a solid financial financial foundation and strong channels are essential to withstand the disruption.
That's why I'm, so proud of the work or team has done over the last nine months to shore up the foundational elements of our business the cut cost into transition to a more nimble company.
Those challenges are going to serve us well and I'm optimistic about our ability to successfully navigate the path ahead.
I'll now turn the call over to Andy for some additional details on our financials.
Thanks, David.
Obviously, the uncertainty around the impacts of the Corona virus, both in terms of the human toll in the new economic realities has created an extremely difficult environment plan for.
And as David mentioned is gonna be impossible, particularly right now and.
Oh likely for the very near future to know exactly what the new normal will look like and for that reason contouring suspended as 2020 God's few weeks back.
We do expect it to remain suspended for the next several weeks until we do have some better visibility on on how things are going to develop.
Given that backdrop, it's only appropriate that I'll begin by discussing the most important financial items and the items that most people will largely be a very interested in our cash position liquidity on our cash flows.
We ended the quarter with approximately $227 million, an unrestricted cash and $156 million unrestricted cash.
Including $30 million available under our ABL, while the total available liquidity was $287 million at the end of March.
As we announced on March 23rd we do 57, and a half million dollars on our revolving credit facility as precautionary measure to bolster our cash balances increased financial flexibility.
This revolver draw is reflected is reflected in our first quarter cash balance that I mentioned naturally in ABL is subject to variability in volatility based on accounts receivable inventory balances and values and as such.
Bassi of Arabia can fluctuate so as we go forward there could could be some movement and the availability, but long term trends typically dictates.
Relatively static figure.
Turning to our cash flows or first quarter operating cash flow was roughly breakeven while capex was just under $50 million inventory build was approximately $22 million during the quarter and as we previously announced the company out most of his operations in April in response to market conditions and expected customer deferrals, but also in them.
Out of inventory levels.
To that the idling period itself.
Wrapped up at the end of April we ended up approximately 800000 tons down during that month.
All the operations are back home on an area of nearly all of our furloughed workforce has returned to the job as we continue to try to match production to sales.
There is one important cash inflow that I want to highlight a future cash inflow.
The David referred to the AOMT credit monetization re fun.
At the beginning of the year, we had expected receive approximately $35 million of this refund.
Probably in the fourth quarter of 2020, followed by $16.5 million each of the following two years.
Due to the cares act passed by Congress and the building efforts of our taxing we now anticipate receiving all $68 million the textron unlikely in July of this year.
Also as David mentioned in connection with the carriers that we expect to defer approximately $14 million and payroll taxes until 2021 and 2022.
Which they've arrived at these new requirements, we still intend to appeal this determination ever and ever seen an extension for falling appeal until may 22nd so more details on that as as it develops.
Moving to our financial results are we posted very strong first quarter, even <unk> $60 million nearly doubling from the fourth quarter, mainly due to the excellent performance by Jason's team all costs, specifically, a cat met which came in and $70.60 per times and as David mentioned that was that's a multi multi year low for that particular metro.
Yeah.
If you drill down a little bit further to just the cost of consider a produce coal that was sold during the quarter. So this would exclude the small amount of coal that we purchased from third parties or costs was right at $69.
Overall cat met generated $69 million of even died during the quarter, while our two thermal segments in central and northern out combined add another $2 million Viva dog and S.G.N.A. allocation is not factored into these segment needed to our results.
And just add a little bit more context on our cat met costs because again it was just phenomenal order.
Roughly $70, a 68 cents per time [noise].
Down from roughly $82 a town in the prior quarter that 70%.
Reduction core over a quarter, but it's a staggering 34% reduction from Q1 19 costs $94 a time.
Our cat met.
Underground productivity as measured by feet per shift increasing impressive 9% over the fourth quarter, continuing a strong strong trend over the past couple of course.
Kept thermal costs increased from a relatively low level in the fourth quarter and it was primarily attributable to 31% reduction in volume as we continue contact curtailing production certain thermal operations.
You know or northern out segment, a five dollar increase in the cost of sales was due to a plan law will move which was completed in March and expect the next long will move to take place in September.
On the revenue from our cat and that volume remain quite robust and <unk> first quarter. The total shipments roughly even with the fourth quarter 3.3 million tons.
And revenue portion for a short time slightly declining about $2.18 to $92.80.
Northern half revenues and realizations.
Increased slightly with volumes remaining at one and a half a million times.
And cat thermal sales tonnage to climb a 31 for standing in connection with our continued being a physician of thermal production, which results in a 15 million dollar decline and cat thermal revenues.
David commented earlier are met volumes continue to be very strong in April.
S G.N.A. after excluding noncash dot com and one time items remained roughly flat at $13.4 million in the first quarter compared with 13.1 million and the fourth quarter.
As Jason is done with our with reducing our operating costs, we've reduced our corporate overhead by approximately $10 million since the first quarter of last year.
And we continue to highly manage all over controllable expenses going forward.
And with those details operator, I believe we're ready to open line for questions.
Oh yeah.
Well you will not be in the question and answer questions to ask that question in my <unk>.
<unk>.
<unk>.
<unk>.
The first question, Okay, well that's pipe.
<unk> <unk>.
Oh, Hey, guys get mornings is actually Dan day on for Lucas because when I congratulate you on the cost performance on the Cat met side is really really nice job. There I. My first question here, we've seen a lot of blast furnace closures, especially U.S. Europe, you touched on that and the prepared comments just are you guys.
Seeing you know coke quiets differing volumes or you know outside of.
2223.
Just any other color on impacts from kind of idled blast furnaces coke plants. Thanks.
I'll I'll I'll start at all day at horns also with as he can he can provide digital color, but the answer is simply is yes, I'm, you're saying to <unk>.
Yeah, we're monitoring this dancing classification with both our domestic international customers.
We're reading the same thing we're hearing the same thing that's being put out publication. So yeah, we're certainly saying that <unk>, both the second and third quarter.
Yeah, I'll spot sort of <unk> <unk> <unk>.
I'll start off by saying you know we we've we've seen this before we saw this you know nine into a lesser degree and 15, we've last tortoises starts come off line of course coke plants have to slow down to match, we we follow that and we have seen some <unk> would match our production to those deferrals not a surprise at all.
We'll we'll watch the blast furnaces, frankly is leading indicator and as those.
Do come back on line later in the year.
We'll we'll adjust our production with and we we know our customers will adjust their co production accordingly to it's not that we haven't seen before.
Great. Thanks, <unk>, one out there on sort of the the capital project you guys have Wideout Blackie goal in branch road for 52 any impacts from this to to those I think you would send one branch perch, Colin in third quarter during impacted that timeline or or anything else, we should be thinking about.
No no impact were those projects are continuing as we previously indicated.
Great. Thank you I I guess, we'll sneak one more and which is you know the anti tax refund <unk> is there an eight respecting you guys in suspended guidance is there a path to a positive free cash flow in 2020.
This is able to take that one.
When you when you look at all of our below the line.
Cash items things that go back to the bankruptcy funding of reclamation accounts and things like that 2020 was setting up to be a relatively difficult year from a cash from perspective as it was I think it's hard when you look at all inclusive of those all those items to really bridge that gap.
I think we're still going to be in a position of cash Bill Byrne during the year and and naturally any any pressures we see in the second third quarter rule.
No further.
Further increase the bar in there, but you know from liquidity perspective, we we still feel pretty solid that you know we've.
We've got things as tightened up as is humanly possible at this point and we continue to to look for other areas to improve.
Just to to shore up for what you know whatever's to calm.
Awesome I appreciate all that color. Thanks for taking my questions and that's a block.
Thank you.
Yeah, and if you have a question. Please Dar then one and next question from.
What's the benchmark company <unk>, Okay, great. Thank you very much. So first congratulations on the the met cold cash cost kind of a Uh huh.
Huge huge increase or decrease I should say I guess my question is the sustainability of of those cost in the second third and fourth quarter. It sounds like you'll be dealing with less volume in the second and third quarter to to be able to spread out those costs, but maybe you know how sustainable is are keeping costs down around that 70 70 dollar.
Level.
Well, we're all looking each other who wants to grab that that answer <unk>, obviously as I explained to pass and you know very well mark it all it all depends on your production levels. When you get started looking at a cost and and you know we suspending guides because we didn't really have.
<unk> viewer visibility into what.
The second third fourth quarter will look like for the rest of this year.
The news the take away from my perspective is is that even as difficult as a markets where the first quarter.
We kept reduction where we need to keep it and the those cost easily came in line. There so but now that I mean easily they came in line chasing you want you want them chat about this at all with Mark offshore I mean I think.
Both hit the nail the head you know as long as we're able to to run Hermanns, you know near capacity you know I've I would say the calls for sustainable.
You know it's interesting how I think Andy mentioned.
17% increase for rubber core.
Or 17% reduction or a reporter 9% increase on paper fifth and if he looked at you want it last year, 34% decrease on cash calls done a 17% increase on productivity limit the deep on productivity. So you know it look at those four numbers, it's really to say.
It's really clear you know the relationship between productivity or volume and and cost. So I think as long as the minds are able to run you at a rate. That's near capacity. Then you know those types numbers, we should expect.
As we adjust those monthly.
The cost some of the cost of inventory is still sitting on the books have to flush through current period.
Cost of sales and so if you flatten out and you flatten the market then it's even better so I.
I think by and large these cost reductions or are not just sustainable but there you know I don't want putting more pressure on Jason but there are always can be a little bit more squealing there to squeeze out.
Well it sounds like you will be bringing on some lower cost minds I assume team singer mix would would improve I would imagine over time, so well set right yeah with the three projects, which will you know when they come along they should constitute roughly 30 between 25, 30% of our productive capacity and with those all lower sixtys if not for you on the bus.
Certain projected cost.
It's it's not unreasonable to expect you know some contribution there.
Okay, Great and then just in terms of now that he's here and now I realize you guys suspended guidance, but.
In terms of stuff Thats controllable Capex SGN a.
You guys do you have some visibility or should have some visibility around.
Any any comments or thoughts about how.
Our capex will trend in the current environment for that for the remainder of this year and then also type SGN any type savings things that you can do.
To control cost, maybe relative to where youre in previous guidance is there upside to the lower end of those guidance ranges that you had previously provided.
Yeah again trying to avoid.
Issuing guidance when weve not issue guidance.
Same way as it is with operational costs, there's always a little bit more little bit more square will be taken out we have been taking very close looked at as DNA, but we feel like we're getting pretty close to the critical mass required to be a public company. So I don't know, but there's a significant amount left there's always going to be a little bit.
But from a Capex perspective, you know Jason.
We're constantly communicating about the different projects and where we maybe able to be able to defer some capital so.
Again, I think their Pos possibilities I don't want to speak to the quantum but those are things that we are reevaluating daily.
And then this question's for for Dan just about the market in general when you look at some of the U.S. met prices and maybe the indices that we read on Platts and other places like that.
Dan do you think that those prices that we see printed are representative of the prices that you guys get or or are things just so tough out there that.
You have to take you know discounts.
Either mid single high single digit whatever the case maybe.
Discounts to those indices.
Hi, Mark up.
Well you know I think we've said before wouldn't that prices are going up we tend to solid premiums to the index. So when prices are going down the industry tends to sell it discounts beyond that if we sell so many different products what wall medium RF. All semgas authors, there's a lot of different answers to that question I and I'm really not going to give you any of them, but I.
I can tell you what we're matching the market we're following the market.
You know, it's difficult I I I can't predict that either I wish I could we're we're staying with it.
And Oh, well just have to see what does that we've seen it before.
I'm confident we'll well through this.
Got it and then last and final question on the on any any update on Cumberland and your thoughts regarding that from a meter strategic perspective or from a capex perspective, However, you want to.
Yes addressing.
Well markets, David I don't have any anything beyond what we've said previously obviously.
In the in these markets for preservation of capital is key.
We we spoke last time about.
Oh preparatory work, we did a as party and pallet, but at this point time I don't have any any real update on Cumberland beyond that we're we're still evaluating.
The future direction there.
Okay, great. Thanks, Congrats again on like on the cost side.
Thank you Mark Frechette it.
Well this concludes.
They put in place our question and answer session I would like to turn the conference back over to David Seth and for any closing.
Again, thanks, everyone for joining us today and your interest in Qatar energy have a great rest of your day. Thank you so much.
This conference has now concluded. Thank you for attending today's presentation you may now this.