Q3 2022 SunCoke Energy Inc Earnings Call

Good morning, My name is Dennis and I will be your conference operator today.

At this time I would like to welcome everyone to the Sun Coke energy third quarter 2022 earnings conference call.

All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press Star then the number one onboard telephone keypad to withdraw your question Press Star one again.

I would now like to turn the conference over to Shawn to New Agarwal, VP Finance and Treasurer. Please go ahead.

Thanks, Dennis Good morning, and thank you for joining us this morning to discuss Bangkok Energy's third quarter 2022 vessels with me today are Mike Rippey, President and Chief Executive Officer, and Mark <unk>, Senior Vice President and Chief Financial Officer.

Following management's prepared remarks, we'll open the call for Q&A. This conference call is being webcast live when the Investor Relations section of our website and a replay will be up labor 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 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.

Ordinary language regarding forward looking statements in our SEC filings apply to the remarks, we make today.

These documents are available on our website.

Is that he cancellations 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 today.

Today, we announced Suncook Energy's third quarter results.

And before I turn it over to Mark.

A review of the results in detail I want to discuss a few highlights first I would like to thank all of our Sun Coke employees for their continued best in class safety performance, while achieving record third quarter results.

For our collective efforts, we delivered a consolidated adjusted EBITDA of $83 $7 million.

Our domestic coke business performed exceptionally well during the quarter, which allowed us to fully realize the benefits of a strong export coal market in our logistics segment, we continued to see elevated levels of customer demand and favorable pricing.

Our foundry and export Coke initiatives continue to perform well and we are pleased with the positive impact they've had on our financial results looking forward, we are experiencing softening and export coal markets, particularly in pricing driven by global economic uncertainties.

We are pleased to announce that our board of directors approved a new capital project.

Will enable our dual facility to produce 100% foundry Coke Sun.

Sun Coke has become a highly reliable supplier in the foundry market and we continue to see strong demand for our quality product.

This project, which is expected to be completed in the third quarter of 2023.

While Sun Coke to continue to grow in the foundry market importantly, the dual facility will not lose the flexibility to alternate between blast and foundry Coke production. After this project is completed.

Our gross leverage ratio at the end of this quarter was at approximately one nine times on a trailing 12 month adjusted EBITDA basis.

Lastly, recognizing our year to date financial performance, we now expect to surpass the high end of our full year adjusted EBITDA guidance range of $285 million.

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

Thanks, Mike.

Turning to slide four.

Adjusted EBITDA for the third quarter, 2022 was $83 $7 million, an increase of $9 $8 million over third quarter 2021.

This increase was primarily driven by higher margin on export sales.

The third quarter net income attributable Sun Coke was 49 cents per share up 22 cents.

Versus the prior year period, primarily driven by higher margin export Coke sales as well as income tax benefits from foreign tax and research and development tax credits in.

In the current quarter the company recorded deferred tax benefit of $15 $9 million as a result of the release of a valuation allowance established on the deferred tax assets attributable to existing foreign tax credit carry forwards and the recognition of research.

And development credits.

Turning to slide five to discuss our liquidity position for Q3.

Suncook ended third quarter with a cash balance of approximately $59 million cash.

Cash flow from operating activities generated approximately $54 million, we spent approximately $22 million on capex during the quarter and reduced our debt by almost $34 million.

We also paid $6 $6 million in dividends at the rate of eight <unk> per share during the quarter.

In total we ended the quarter with a strong liquidity position of approximately $342 million.

Now turning to slide six to discuss our domestic coke business performance.

Third quarter domestic Coke adjusted EBITDA was a record $76 $6 million in Coke sales volume was 1.022 million tons. The.

The $11 5 million dollar increase in adjusted EBITDA as compared to the same prior year period was mainly driven by higher margins on export Coke sales and higher energy sales pricing.

All on contracted sales tons are committed for the remainder of 2022.

Given our record year to date performance, we anticipate surpassing the high end of our domestic coke adjusted EBITDA guidance of $255 million.

Coke sales volume guidance remains unchanged at approximately $4 1 million tons.

Turning to slide seven to discuss our logistics business.

The logistics business generated $12 9 million of adjusted EBITDA during the third quarter of 2022 as compared to $11 6 million in the same prior year period the.

The increase in adjusted EBITDA was primarily due to higher volumes and pricing across the terminals.

Our logistic terminals handle $5 7 million tonnes of throughput volume during the quarter as compared to $4 9 million tonnes during the prior year period.

CMT handled approximately 200000 additional tons as compared to the same prior year period.

Our domestic terminals handled almost 600000 tons more than the same prior year period, driven by increased demand for handling services from existing and new customers. We expect this strong performance continue through the balance of the year.

Our logistics full year, adjusted EBITDA guidance range of <unk> $48 million to $52 million is unchanged.

With that I'll turn it back over to Mike.

Thanks, Mark wrapping up on slide eight.

As always safety and operational performance is the top priority of our organization.

Our efforts will continue to focus on safely executing against our operating and capital plans.

As I mentioned at the beginning of this call. We are pleased with our continued success in the foundry and export coal markets. We are now focused on executing the foundry expansion project, which will allow suncorp to meaningfully grow in the foundry coke market, while also preserving flexibility switch between blessed and foundry Coke production.

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Although the foundry market remained stable.

Export coal market is experiencing significantly increased volatility we realized the benefit of favorable market conditions and export coke sales through the third quarter.

But we are now seeing softening in the export coal market, which is factored into our guidance.

We are pleased with the sustained demand for our services and new customers at our logistics terminals based on current projections, we expect a solid finish to the year for our logistics business.

We remain focused on making progress on our capital allocation strategy from a growth perspective, we continue to work towards a mutually beneficial agreement with U S. Steel on the granite city GPI opportunity. We also continue to reward shareholders with substantial dividends, which were.

<unk> increased by 33% last quarter finally on the debt side, we continue to make good progress, reducing our revolver balance and expect our deleveraging initiatives to continue through the balance of the year.

As we have done in the past, we continue to evaluate the capital needs of our business, our capital structure and our commitment to reward shareholders on a continuous basis, and we will make capital allocation decisions accordingly.

Finally <unk>.

Based on the outstanding performance of our operating segments aided by favorable export coal market conditions, we look to surpass the high end of our full year adjusted EBITDA guidance of $285 million for 2022.

With that let's go ahead and open the call for Q&A.

At this time I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad, we'll pause for just a moment to compile the Q&A roster.

Your first question is from the line of Lucas pipes with B Riley Securities. Please go ahead.

Thank you very much operator, good morning, everyone and good job on the quarter.

Thanks Lucas.

Mike My first question is on the sustainability of the Coke margins. So so.

Good.

Work there.

The he commented on the volatility, but what do you think is a reasonable.

Margin per ton between good operations.

And then also the shift to the foundry business would really appreciate kind of your thoughts on what you think is most sustainable in the in the Coke business. Thank you very much.

It's an excellent question Lucas and obviously, when we discuss with great regularity here at Sun Coke.

As we said the.

The third quarter of this year really benefited.

From what were very strong export.

Market conditions, and you saw we produced 1 million tons and generated $76 6 million of EBITDA. So that was exceptional work by our teams. We produced at a very very high level and we took full advantage of those.

Excellent operating.

Results by by exporting a lot of Coke.

Do you think going forward.

Hard to predict the future, but certainly export market conditions have softened and pricing has come well off of what we were able to realize in the third quarter. So when I look back and I think about it.

Q3 of 'twenty one.

Where are we produced very similar levels of output.

The output is down a tad, but that relates to the fact that we're selling now more foundry. So we produced at full output here in the third quarter 'twenty two as we did in the third quarter of 'twenty, one going back to the third quarter of 'twenty, one and you'll see that on slide six we generated $65 $1 million of EBITDA.

Kind of.

Ah $60, a tonne type run rate so if youre looking for.

Run rates and more normalized conditions that wouldn't be a bad place to focus your attention, but again.

Export.

Seaborne coal markets will demonstrate volatility.

Again, as we experienced in a very positive way in the third quarter and with.

We'd expect some some returned to more normal conditions going forward I hope that helps you.

That's helpful really appreciate the color switching topics to the logistics side.

A lot of reports about challenges in the lower Mississippi with low water levels.

Is that an opportunity and that may be more traffic shifts to the rail and then to your CMT terminal.

Or is it more of a risk because you are in the delta.

I imagine that may impact loadings as well so so would appreciate.

Good thoughts on this thank you.

Another good question really for US it's it's a neutral we don't see any.

Pick up in traffic because of those low <unk>.

Order levels and of course, we don't see deterioration because we accept most of our materials inbound by rail so it's kind of a neutral to us.

We do.

Utilized barge.

Deliveries to our granite city facility on the Coke side and to date that hasn't been an issue for us I should've become of course, we have <unk>.

Backup plans in place to keep the facility well supplied and call. So.

Very much a neutral for our company.

I appreciate the color Mike.

To you and the team best of best of luck.

Appreciate it thank you.

Once again I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad.

And at this time there appear to be no further questions I will now turn the call back to Mike Rippey for any closing remarks.

Okay, well good again.

As always we appreciate you joining us on the call. This morning.

Of course your continued interest in Sun Coke, So with that we'll end today's call and look forward to talking to you guys out ahead. Thanks again.

Thank you for joining today's call you may now disconnect.

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