Q1 2021 SunCoke Energy Inc Earnings Call
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Yeah.
Good morning, and thank you for joining us this morning to discuss <unk> Energy's first quarter 2021 vessels with me today are Mike Rippey, President and Chief Executive Officer, and Allison losses, interim Senior Vice President and Chief Financial Officer and controller for.
Following management's prepared remarks, we'll open the call for Q&A. This conference call is being webcast live on the Investor Relations section I'll put a website and a replay will be available later today if.
If we don't get to your questions on the call today, please feel free to reach out to our Investor Relations team.
Before I turn things over to Mike, Let me remind you that the various remarks, we make on todays call regarding future expectations constitute forward looking statements. The cautionary language regarding forward looking statements you know what our SEC filings apply to the remarks, we make today. These documents are available on our website as our reconciliations to non-GAAP financial measures discussed.
On today's call with that I'll, now turn things over to Mike. Thanks, Sean.
Good morning, and thank you all for joining us this morning.
Today, we announced some cokes first quarter results and before I turn it over to Alison who will review the results in detail I want to discuss a few highlights for.
First on safety.
I would like to thank all of my fellow son called teammates as well as congratulate them for their continued commitment and contributions to debt. The dedication of our team is clearly visible through our excellent safety performance, where we achieved zero recordable injuries during the first quarter a record for our company.
Look on the Corona virus front, we continue to take all necessary measures to ensure the health and safety of our workforce and have implemented policies and procedures that follow the guidelines established by the CDC Osha and local health and governmental authorities to protect our workforce and contractors.
Turning to our results in the quarter. We are extremely pleased with the operational performance that our team delivered across both our coke and logistics segments, our coke, making operations returned to running at full capacity and our logistics operation saw a significant uptick in volume.
We achieved record setting first quarter results with adjusted EBITDA of $70 6 million, a 14% improvement over Q1 2020.
We're also pleased with our initial performance in the foundry and export coal markets.
Our products are well received and we are excited about the possibilities in these markets in the future. We will continue to work on optimizing our production and growing our market participation for these products.
A very encouraging development for our logistics segment. This quarter was the signing of a new take or pay agreement to handle iron ore pellets at CMT.
As we discussed in our last call. We successfully tested this product during the fourth quarter of last year, which has resulted in a take or pay agreement and a new product for our logistics business.
Looking at our capital structure and deployment of cash in the first quarter, we reduced debt by $33 million during the quarter and continued to execute on our deleveraging initiative.
Also maintaining our <unk> per share quarterly dividend.
We're well on our way to achieving our long term gross leverage target of three times or lower by the end of this year.
Overall.
Strong operational and financial performance in the first quarter provides a solid foundation.
To build on for the rest of the year. We now expect results at the top end of our 2021 guidance of $215 million to $230 million with that I'll turn it over to Alison to review, our first quarter earnings in detail Allison.
Thanks, Mike and good morning, everyone.
Turning to slide for our first quarter net income attributable to <unk> was <unk> 20 per share up 14 cents versus the prior year period, mainly driven by our logistics segment performance.
Adjusted EBITDA came in at $76 million in the first quarter of 2021.
$8 $5 million for since the first quarter of 2020.
The increase was primarily due to approximately one 1 million tons of higher throughput volume at our logistics segment.
Turning to the detailed adjusted EBITDA bridge on slide five.
First quarter 2021 adjusted EBITDA was higher by $8 $5 million or 14% over the prior year period.
Our Coke operations performed well this quarter and results were reasonably consistent with the first quarter of 2020.
The majority of other pre agreed over a period increase in adjusted EBITDA was driven by our logistics segment and CMT size significant increase in coal export volume driven by strong global demand and supported API two pricing.
When adding in slightly favorable results in corporate and other we ended first quarter at $76 million of adjusted EBITDA.
Turning to slide six to discuss our domestic coke business performance in detail.
Yeah.
First quarter adjusted EBITDA per ton was $61 1.038 million sales time.
Our domestic Coke fleet ramped back up to full capacity utilization during the first quarter of 2021 after the volume turned down in the second half of 2020.
Foundry and export sales complemented our long term take or pay contracted sales and are expected to continue to do so for the rest of 2021.
As a reminder, foundry tons do not replace blast for blast furnace ton on a ton for ton basis for.
For example, due to differences in the production process.
Single time of foundry calc replaces approximately two tons of blast furnace coke, leading to lower production and sales in the current quarter as compared to the first quarter of 2020.
Our coke plants continued their strong operational performance and disciplined cost management during the quarter, while producing and selling new products.
On the back of strong first quarter 'twenty, one 'twenty 'twenty. One performance we are on track to achieve our full year domestic coke adjusted EBITDA per ton and production guidance.
Moving to slide seven to discuss our logistics business.
The logistics business generated $10 $9 million of adjusted EBITDA during the first quarter of 2020, one as compared to $3 $3 billion in the prior year period.
The increase in adjusted EBITDA is primarily due to higher throughput volume at CMT.
Our logistics business handled five 3 million tonnes of throughput volumes during the quarter as compared to $4 2 million tonnes during the prior year period.
CMT handled one 6 million more tons versus the prior year period, mainly driven by higher exports and iron ore.
Increased global demand strong API to index pricing and increasing natural gas prices have resulted in higher thermal coal exports from the U S. We expect export volumes to remain strong in the second quarter.
Although our domestic terminals volumes were lower compared to the first quarter of 2020, it was more than offset by lower operating costs, resulting from the cost savings initiatives implemented last year.
Given our very strong first quarter 2021 results and looking at the API two forward curve, we now expect to deliver at the higher end or possibly even exceed our logistics adjusted EBITDA guidance range of $20 million to $25 million.
We expect to handle approximately 5 million tons of coal at CMT as compared to our original guidance of 4 million to 5 million tons, along with two and a half million to 3 million tons of other products for which the guidance remains unchanged.
The volume guidance for our domestic coal terminals also remains unchanged at approximately $10 5 million ton.
Turning to slide eight and our liquidity position for Q1.
As you can see from the chart. We ended the first quarter with a cash balance of approximately $54 million.
Cash flow from operating activities generated close to $65 million due to strong operating performance and the timing of cash payments.
We spent $21 million on capex during the quarter, which included some carryover of payments from last year.
We lowered our debt by $33 million during the quarter with the majority of the reduction coming in the form of Paydowns on our revolving credit facility. We expect additional deleveraging to continue over the balance of the year as we continue to make good progress managing our balance sheet.
We also paid dividends worth $5 $1 million at the rate of six cents per share during the quarter.
In total we ended the quarter with a strong liquidity position of approximately $386 million with that I will turn it back to Mike.
You Allison.
Wrapping up on slide nine as always safety and operational performance is top of mind for our organization.
To continue our exceptional safety performance demonstrated from the first quarter, while focusing on successfully executing against our operating and capital plan in 2021.
As I mentioned earlier, we are pleased with the progress we have made during the first quarter on our foundry and export Coke growth initiatives. These additional sales enable our coke fleet to run optimally at full capacity and we will continue to focus on further developing our customer base and participation in these markets.
From our logistics business perspective.
The new iron ore take or pay agreement is another step in the direction of revitalizing CMT as we continue our efforts to bring new products from customers.
The uptick in coal exports underpinned by the revised take or pay contract provides a strong foundation to further build upon at CMT.
We again made good progress on our well established and well balanced capital allocation goals.
<unk> to bring down our debt balance is critical to stabilizing and strengthening our capital structure. We will continue to evaluate capital needs of the business, our capital structure and the need to reward shareholders on a continuous basis, and we will make capital allocation decisions. Accordingly, finally, as I stated earlier.
<unk> strength in steel and coal export markets combined with our excellent first quarter results leads us to comfortably project full year results at the high end of our adjusted EBITDA guidance, we will provide further updates to the guidance as we have more clarity about the second half of the year in our next earnings call.
With that let's go ahead and open up the call for Q&A.
As a reminder to ask a question for you on Mesa from Starwood.
One on your telephone to withdraw your question press the pound or cash.
Please standby, we compile the Q&A roster.
Your first question comes from the line of Matthew Fields from Bank of America. Your line is open.
Hey, everyone.
Just wanted to ask a few here on the business.
The foundry coke volumes in the first quarter.
Matthew Thanks for your question, but as we've indicated in the past, we don't intend to discuss specific.
Volumes or price components of the the foundry coke or export sales activities. As you can appreciate I know, particularly the foundry coke market is a smaller market.
And to discuss in any detail or our.
For patients would not put us in a competitively good position.
It's worth noting Matthew that we.
We set out on this foundry initiative going back a little over a year and as you can see in our first quarter results.
We've Ah.
Exceeded in a very modest way our expectations are for the Coke business. We came out of last year and are turned down position and we're fortunate enough to have good weather and great operations and we ran at full capacity from the first quarter. So the objective there was to allow us to continue to run for them to do so profitably.
I hope you can agree that we had a very nice first quarter and our Coke operations. So foundry has gone exactly as we'd expected it to.
Alright.
And then previously you guys have.
In your slide deck, you've given when you break down kind of the quarterly shipments and logistics you have given the CMT EBITDA.
And EBITDA attributable to content, specifically and.
Thats missing this quarter.
Is that debt.
<unk> from policy.
Do you are you not going to provide that anymore or is it just you know an oversight and you can give that to us.
Not an oversight Matthew it's a purposeful in somewhat of a foundry as we're now repositioning CMT, we expect to be serving different customers different markets over different time periods different circumstances, so to discuss at any level of detail the profitability of CMT again, given the competitive situation.
<unk> down there in the Gulf might disadvantage us in the commercial markets, where we have to compete every day.
Alright fair enough.
I'm afraid of going over three here for them.
Total great questions that I hope you can appreciate the.
The necessity to.
Protect ourselves commercially small.
Understand.
Maybe I'll ask it in a different way here.
Iron ore take or pay contract.
Is that with the U S customer or a foreign customer.
It's where the U S customer.
Okay.
Investment grade rated customer.
I've said, all I'm going to say now I, probably already said too much because all I did as invite the next question.
Alright fair enough.
That's helpful and then.
Just sort of just going on the back of the guidance for cash flow for the year 80 to 100, maybe you're closer to the top end of that if you are sort of.
Got it you know hitting the top end of everything else.
Kind of implies close to $55 million of cash flow for the next three quarters, which gets you basically all the way paid off on the revolver by year end.
Is that you know obviously things can happen and we don't know what the future holds but is that kind of the plan.
The cash you're generating for the rest of the year kind of whittle down that revolver balance over the next three quarters is as low as you can get it.
And here you thought you were in a goal for three you're exactly right. So you have now gone one for three internal hall of Fame, because you're a bad at $3 33.
Perfect I'll take it alright.
Yes.
Thanks, Thanks, Matthew Hudson and good luck with the rest of the year.
Again, if you would like to ask a question. Please press star and the number one on your telephone keypad. Your next question comes from the line of for Lucas pipes from B Riley.
Your line is open.
Well try to do better than.
333.
But.
Good job on the quarter.
And.
First question, Mike just to hone in a little bit on.
How the business is running versus your expectations you talked about an update three months from now the meantime comfortably upper end of your previous guidance range and what I'm looking for my first question is a little bit more color as to what's been driving the better than expected.
Performance is it.
Is it foundry Coke is an export is it domestic customers coming back looking for more volumes on the back of the strength of the steel market.
Just a little bit more color on that I would appreciate it. Thank you.
Good question. Thanks Lucas.
The outperformance doesn't have to do with our volumes, we expected to run full and we did so whether it's our domestic customers our export customers our foundry customers where.
We're meeting the expectations, we had set out for ourselves with regard to all three of those markets solid performance really comes on the cost side.
Our teams did absolutely wonderful job here in the first quarter.
And I am very much appreciative of their hard work.
Also you can appreciate in the first quarter you know, we don't have a lot of outage work.
We choose not to do outages in the first quarter, because whether it can really wreak havoc on those outages.
Sometimes new outage work.
<unk> necessary to reduce your production during that timeframe.
<unk> share of electricity or steam production during the timeframe and the work we did during the first quarter, albeit limited had no impact on our our production. So the the teams had.
A wide open field from which to perform so and they took advantage of that opportunity.
Certainly winter can present challenges for manufacturers like ourselves.
This winter with the exception of a few weeks was relatively mild one so we had a little bit of wind at our back there too but.
I don't want to take anything away from the performance of the teams. They all performed at very very high levels and they exceeded our expectations for a for our performance on the cost side.
Very helpful really appreciate that.
I'll I'll take this for a double.
All right.
[laughter].
And then just kind of looking ahead.
There is.
Another step down in New York domestic Coke minimums in 2022, and just just looking for an update here. Other ongoing negotiations are you predominately looking too.
The export market more foundry coke business.
As those minimums stepped down just what's what what's your plan for that I am sure. You can appreciate this is an important question for investors. Thank you.
That's an excellent question and the answer is all three.
It's premature to comment as to.
Which one of those alternatives.
We'll ultimately went out for 'twenty, two and beyond but we are in discussions with our domestic customers. We continue to look to grow our export and our foundry Coke business.
Economics will will drive that.
Yeah.
Obviously as we get closer to 22, we'll be providing updates as to the.
The fruits of those labors, but I think for now we had a 400000 tonne hole to fill if you will this year and the year is not over yet, but we are running full and our.
<unk> are for 'twenty, one we'll continue to do so so we need to continue to build on those initiatives, that's where our future success lies.
Mike just now you said for for 'twenty one expectations.
Was that 'twenty, one or 'twenty two 'twenty, one we expect to run full in 'twenty. One we had 400000 tons to fill up and we expect to be able to fill those partners in 'twenty one.
And.
For 2022 is there concern debt.
You may have to.
Run at reduced utilization rates.
If.
One of the three initiatives fall short as well.
What would be the contingency plan for that.
Well if those plans fall short, we obviously run at less than full capacity, it's not our intention or our desire or our goal to not run full next year. We believe quite strongly that we produce a very high quality product second to none in the market, whether it's for the domestic market other.
Mobile market, our coke in its physical properties its utilization and blast furnaces unrivaled. So we believe we've got a wonderful product. We believe we are a low cost producer and it will be my buying belief that low cost producers of quality products should be able to run their facilities for so it's my strong.
Beliefs on my every intention to see our facilities run folder well maintained as you know the reliable and customers. Appreciate these things.
Very helpful. Thank you, Mike I'm not sure if this will count as it is.
Single or not.
But I appreciate your perspective.
Last last one from me.
On the iron ore take or pay.
Probably strike out on this one but can you give us a little bit more context around.
<unk> volume.
Just.
Just a little bit more color for investors to appreciate the opportunity here. Thank you.
No, it's and Youre going to strike out on this one Lucas, but youre still going to go to the hall of Fame too. So I don't don't feel badly, but we again for commercial reasons and I Hope you can all appreciate the sensitivity.
Not going to go into the specifics of these new agreements, we're reaching as we revitalize CMT.
Understood Alright, well.
Continued best of luck I hope.
We'll see each other in the hall of Fame shortly.
I'll turn it over all the great. Thanks Lucas.
Your next question comes from the line of Brett Hendrickson from Nicole MS Capital. Your line is open.
Yes.
Hey, Mike How's it going thanks Ronny umbrella.
<unk>.
<unk>.
So you guys can you hear me from that.
Pardon me, you're breaking up we're not able to hear you.
Yes.
Let me try that.
Hey, Mike can you hear me now yeah, it's in all of them clear. Thanks, good the operating I haven't totally hear me. So anyway. Thanks for all the hard work you said something to Lucas.
Reminded me of something that was going to ask you.
You know you just talked about the quality of your coking coal.
There's been more of the steel manufacturers and even some of the car manufacturers have been talking about.
Hum call it in an environmentally more friendly coal and could you just talk about where you guys might have an advantage there as they become it seems like increasingly focused by the month on on that so can you talk about maybe where that creates advantage.
And maybe maybe how that fits into some of the comments from 'twenty two.
Yes, it's a good question, Brian it's actually quite a complex question, but I'll try to be brief in my answer.
The question really revolves around environmental performance and more particularly greenhouse gas emissions.
I think our environmental record speaks for itself.
For the Mac standard no one's built a coke battery in the United States are utilizing technology other than ours since 1998 net debt remains the case.
We don't have water discharges and we we combust other particular matter and our co production process and produce electricity.
And steam so environmentally.
Our processes the standard.
On the that's the broader statement.
The more focused question around greenhouse gas goes to the reduction in greenhouse gas emissions in the production of steel and.
The science a bit complex here, but simply.
Our product by its nature is a very high strength products.
CSR is the term.
As for me here tossed around and what that allows steelmakers to do is reduce the amount of coke in the furnace.
And.
Remain able to support the burden inside of the blast furnace and substitute and other materials, whether it be natural gas or other BH b I saw our.
Product, specifically allows for less greenhouse gases to be.
Throwing off in the production of Iron. So we believe that we offer and environmentally.
Friendly product both in the production of the product itself, that's the coke, making as well as it allows steelmakers to reduce their greenhouse gas emissions and their iron making process.
There are no further questions at this time ill turn the call back over to Mike.
Thank you all again for joining us on the call. This morning and of course for your continued interest in Sun Coke and we look forward to discussing our results in the second quarter call. So thanks, again and as always if you have questions Chantal and team stand ready to to answer them. After the call. Thanks again.
This concludes today's conference call. Thank you for participating you may now disconnect.
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