Q3 2020 SunCoke Energy Inc Earnings Call

I am proud of Capex.

[music].

At this time office [laughter] ARNA listen only mode.

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I would now like to hand conference over to Mr., Sean can.

Can you please begin.

Hello, Good morning, and thank you for joining us to discuss Suncoke Energy's third quarter 2020 earnings.

Today, our micro to be President and Chief Executive Officer, and feel that senior Vice President and Chief Financial Officer.

During management's prepared remarks, we'll open the call for joining this conference call is being webcast live on the Investor Relations section of the website and I do believe it will be available later today.

If we don't get to your questions on the call today, please feel free to reach out to our Investor Relations team.

Before turning things over to Mike, Let me remind you that the various remarks, we make on today's call regarding future expectations constitute forward looking statements. The cautionary language regarding forward looking statements in RFP filings apply to the remarks, we make today.

These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call.

I will now turn things over to Mike. Thanks.

Thanks, Jonathan Good morning, and thank you all for joining US today, let me start with an update on our ongoing response to the coal with 19 pandemic. We continued to take all necessary measures to ensure the health and safety of our workforce and have implemented policies and procedures to follow the guidelines established by the CDC.

Osha and local health and governmental authorities.

Protect our workforce and contractors October 19 task force continually monitoring and evaluation evolving situation and responds and adjust to the environment development.

The environment develops.

Turning to our third quarter performance Cokemaking operations performed well despite.

Operating it turned on levels.

All of our facilities demonstrated excellent cost discipline and delivered results in line with our expectations despite challenging macro environment.

Another significant achievement for some coal during the quarter was the extension of the Haverhill two contract with AK steel for an additional two years the contract now expires on June Thirtyth 2025.

This extension further illustrates the strength and long term nature of our relationships with our customers.

During our previous quarters earnings call, we announced the Suncoke would enter the foundry coke market.

The testing development and capital deployment activities necessary for profitable Coke market foundry Coke market production are going well and we are excited to enter this new market with a high quality product, we have tested our foundry coke and Coke was with a number of potential customers and the results have been very encouraging.

We are now well positioned to profitably enter the foundry coke market in 2021.

We continue to execute on our revised 2020 objectives and are well positioned to achieve our full year adjusted EBITDA guidance.

With that I'll turn it over to phase to review, our third quarter earnings in detail, but.

Thanks, Mike and good morning, everyone moving onto third quarter performance as you can see on slide four diluted EPS was a loss of three cents per share in the third quarter of 2020 compared to a loss of $1.81 cents per share in the third quarter of 2019 the price.

Three year period included $1.94 cents per share impairment charge related to our logistics goodwill and long lived assets at CMT.

Excluding this noncash charge EPS was down quarter over quarter by 16 cents, mainly due to lower volumes across the segment.

Looking at adjusted EBITDA. This came in at $47.8 million in the third quarter of 2020 versus $66.7 million in the third quarter of 2019.

Adjusted EBITDA from the Coke operations decreased $11.8 million compared to the prior year period domestic sales volumes were approximately 190000 tons lower than the prior year due to customer turn down.

The volume shortfall was partially offset by lower operating cost and.

Adjusted EBITDA from the logistics segment decreased by $5.3 million versus third quarter of 2019 throughput.

Throughput volumes at CMT and the domestic terminals were lower by approximately 1.4 million tons versus the prior year.

Slide five bridges, the third quarter 2019, adjusted EBITDA to the third quarter 2020 adjusted EBITDA.

As we discussed on our second quarter conference call in response to a challenging an unprecedented environment, we partnered with our customers to address their near term coke needs in exchange for the extension of several coke contracts, we agreed to reduce our coke production in 2020 by approximately 550.

Thousand tonne.

Substantially all of this reduction will occur and third and fourth quarters of 2020.

This volume decrease contributed to lower adjusted EBITDA from Coke operations in the third quarter of 2020 as compared to the prior year.

Strong cost control, partially offset the impact of these lower volumes, though.

The logistics operations were $5.3 million lower quarter over quarter, due to lower volumes and lower pricing, which was again offset by lower operating costs.

Corporate expenses in the quarter include foundry related research and development cost of approximately $1 million.

And were also impacted by period over period, Mark to market adjustments in deferred compensation driven by changes in the company's share price.

Slide six details the domestic Coke operating performance, we sold 868000 tons of Coke in the quarter sales volumes for all facilities were impacted by the volume relief provided to our customers.

Q3, 2020, adjusted EBITDA per ton was approximately $56 per ton compared to $57 per tonne in Q3 of 2019. The decrease in adjusted EBITDA per ton was due to lower sales volume, but was largely offset by favorable cost recovery and strong cost.

Management, our plants have been diligent in lowering costs, where possible by managing supplies and services.

Overtime contractor usage postponing capital work and various other effort.

Moving to slide seven love.

Logistics adjusted EBITDA was $4.3 million in Q3 of 2020 versus $9.6 million in Q3 of 2019, CMT contributed $1.7 million to Q3, 2020, adjusted EBITDA as compared to $7.4 million.

Q3, 2019 on comparable volume.

The deterioration of adjusted EBITDA at CMT is due largely to lower pricing didnt.

The domestic terminals handled approximately 2.2 million tons in Q3 of 2020 versus 3.4 million tons in Q3 of 2019, the lower volumes at domestic logistics terminals were more than offset by the measures taken to reduce costs, including a meaningful workforce reduction.

Moving on to the next slide you could see on the chart that our cash balance at the ended the quarter was $86 million.

During the quarter cash flow from operations generated $74.5 million and we had capex of 16, and a half million dollars, we'll pay down a portion of the revolver borrowing as working capital charges were a source of cash this quarter, we expect working capital to reverse in the fourth quarter.

As we build coal inventories going into the winter and as we prepare for an increase in production for 2021.

Additionally, we paid a six cents per share dividends in the quarter, which was a use of cash of $5 million and today announced the declaration of the third quarter dividend, we established the dividend at a rate that we believe the sustainable even during challenging market conditions and while this is a decision made quarterly by our board of directors we.

I believe we have ample liquidity to maintain the dividend.

At the end of the quarter on an LTM basis, our gross leverage was 3.37 times and our net leverage was 2.98 times.

We intend to continue executing on our long term capital allocation priority with the primary focus on reducing gross leverage to three times or lower to that end, we repurchased seven and a half million dollars face value of SXCP notes in the third quarter and an additional 33.2 million.

$1 here in Q4.

With that I will turn it back to Mike.

Good.

Wrapping up on slide nine.

As we continue to operate.

During these extraordinary times, our first priority continues to be the safety and well being of our employees and contractors, who will continue to do everything possible to ensure that they are well position are well protected and able to perform their jobs with confidence.

We remain focused on our core businesses.

And how to best optimize our operations, including our logistics assets.

As we announced in the previous quarter, we have made significant progress in reducing our cost structure and add a near term stability by working collaboratively with our customers to address both current market challenges and longer term supply requirements.

We also continue to maintain our asset base to ensure that we are able to operate efficiently in the long term, 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 fully utilizing in maintaining finally, we are confident in the revised financial targets, we put forward.

And our entire organization is focused on achieving these results.

Before we end our prepared remarks, I would like to take the opportunity to again, thank all of our employees contractors and suppliers were working diligently through these difficult times to ensure our business continues to perform well with that we can open up for Tonight.

At this time, ladies and gentlemen, if you would like to ask a question. Please go ahead and press Star then the number one on your telephone keypad.

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