Q1 2023 Alpha Metallurgical Resources Inc Earnings Call
Greetings and welcome to the Alpha metallurgical Resources' first quarter 'twenty to 'twenty three results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note. This conference is being recorded.
I will now turn the conference over to your host Emily O'quinn Senior Vice President Investor Relations and Communications you may begin.
Thank you, Rob and good morning, everyone.
Before we get started let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward looking statements and actual results may differ materially from those discussed.
For more information regarding forward looking statements and some of the factors that can affect them. Please refer to the company's first quarter 2023 earnings release and the associated SEC filing.
Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures.
Participating on the call today are alphas, Chief Executive Officer, Andy Edson, and our President and Chief Operating Officer, Jason Whitehead also participating on the call are Todd Muncy, Our Chief Financial Officer, and Dan Horn, our Chief commercial officer, and with that I'll turn the call over to Andy.
Thanks, Emily and good morning, everyone.
We're pleased to report a very good first quarter performance today, marking steadfast progress towards our ambitious production goals for this calendar year.
Our performs our teams performed well both from a production or sales standpoint within the quarter. In addition to the everyday excellence of our workforce that is shown in the results. We'll discuss later several particular alpha teams have been recognized with noteworthy accolades in recent weeks and months.
In terms of safety performance on the national level, our Paramount group one the Interstate mining compact commissions 2023 mine safety and health training industry Award for the underground Division.
At the state level in West, Virginia, eight Alpha properties, One home Safety Association Awards in 2022 Mammoth processing more for processing Black Castle surface mine Kingston, South surface mine Workman Creek surface model Glen Alum tunnel mind Cedar growth number two modern road Fork 52 months.
I'm pleased to announce the home Safety Association also selected one of our operations Vice presidents as the 2022 West Virginia coal safety leader in individual award recognizing excellence in safety achievements and records, Jimmy Wood, who leads alphas Midwest, Virginia surface in Kingston region was selected as the 2022 recipients of this prestigious award.
We're very proud of Jamie's hard work and dedication to safe production.
Additionally, Alpha one for West, Virginia, Mountaineer Guardian awards for exceptional safety performance. These when he buys a workman Creek Cedar growth number two Kingston number two in road Fork 52.
In March the Paramount mine rescue team competed in the southeast Regional mine rescue contest, where they took home top honors as the overall overall contest Grand champions as well as first place in the mine rescue overall bench competition and first data.
Yeah.
Her outstanding Environmental stewardship Alpha was nationally recognized by the International mining Compact Commission with our deep mine 26 in Virginia being selected as the winner of their National Mine Reclamation Award for 2023.
On the state level, the Black King mine won the West Virginia Coal Association is underground Reclamation Award, while Workman Creek and long Ridge surface mine when the organizations drainage control.
We hold ourselves to a very high standard and it is extremely gratifying to see the number of safety and environmental awards earned by the Alpha team.
We're very proud of these efforts and strive everyday to continue this good work.
Along these lines I'm also pleased to report that Alpha was recently named as one of the nation's most trustworthy companies by Newsweek magazine.
We ranked number two in the materials and chemicals industry category.
And the recognition is based on independent surveys collected from company stakeholders employees customers and shareholders.
Allison's culture is built on operating safely and ethically and we believe in teamwork and trading one another with respect we also believe in being good neighbors in the communities, where we live and work.
It's an honor to be nationally recognized for this distinction and it's a reflection of the quality of people we have across the entire organization.
Before Todd and Jason get into the details of our financial and operational performance for Q1, I want to briefly comment on the recent trucking and manufacturing acquisitions, we announced last quarter.
Both have proven valuable to organization, so far and while we anticipated that Maxim manufacturing could expand our rebuild capabilities. The additional opportunities we've already discovered a far exceeded our expectations.
We're testing out new concepts almost weekly and the success. So far indicates that we will be able to better control our own fate in regard to parts and supplies that are often proven difficult to find this not only makes us more efficient, but it also helps eliminate some of the supply chain delays and availability of hurdles we were experiencing before acquiring the.
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It's a similar story with Maxim transportation as the performance of the trucking operation has also been excellent.
Looking ahead to the second quarter and the rest of the year in terms of a broader market outlook. We believe a number of geopolitical and global economic factors will continue to influence the met coal pricing.
With this uncertainty alongside the declining metal indexes, we witnessed in the last several weeks, we're focusing on controlling our internal processes to manage cost to the best of our ability.
Customer commitments for the year very strong and at the midpoint of guidance, 94% of our metallurgical tonnage is always also already committed with 43% committed but not yet price.
It's also important to remember that even after a substantial drop in recent weeks.
Met coal indexes were playing at historically strong levels.
As is our standard we intend to maintain our focus on safely producing coal Errol oddly supplying it to our customers.
As previously announced Alpha's annual meeting of stockholders was held last week and all directors standing for reelection were elected to serve another one year term.
I look forward to working with them all to keep alpha moving forward and I. Thank them for their leadership and service to the company.
Speaking of the Board management continues to execute on the boards $1 $2 billion share repurchase authorization with more than $700 million returned to shareholders in the form of buybacks since the program's inception, just 14 months ago.
As we've stated before we remain committed to share repurchases as our preferred capital return vehicle and we expect to continue buying back shares provided market conditions and cash flow levels allow.
With that I'll turn it over to Todd for a discussion of our first quarter financial results.
Thanks, Andy first quarter, adjusted EBITDA was $354 million up from our fourth quarter level of $248 million, we sold $3 9 million tons in the quarter $3 7 million of which came from our met segment and 200000 tons from the all other category.
Quarter over quarter realizations increase for the met segment as a whole with an average realization of $208 93 for the first quarter compared to $186 29, since the fourth quarter 2022.
Export met tons priced against the Atlantic indices, and other pricing mechanisms in the first quarter realized $211.31 per ton, while export coal priced on Australia and indices realized $240.76.
Realization for our metallurgical sales in the first quarter was a total weighted average of $213 21 per ton an increase of roughly 12% against the prior quarter's $190.94 per ton.
Realizations and the incidental thermal portion of the met segment decreased quarter over quarter coming in at $137 65 per ton in Q1 as compared to $146 24 in Q4, reflecting the lower lower thermal pricing for the period when the tons were sold.
Similarly first quarter realizations in the all other category were $109 36.
Down from $126.10 per ton in the fourth quarter this quarter over quarter drop in realization is also due to the declining pricing environment for thermal coal.
Cost of coal sales within our met segment decreased to $110.56 per ton down from 11 $112.97 per ton in the fourth quarter.
Cost of coal sales in the all other category also decreased quarter over quarter to $74 69 per ton.
Down from $80 76 per ton in the fourth quarter 2022.
SG&A, excluding noncash stock compensation and nonrecurring items decreased to $17 $7 million in the first quarter as compared to $19 million in the fourth quarter.
Q1, Capex was $74 $2 million up from $61 million in the fourth quarter 2022.
This increase includes some rollover expenditures from the previously mentioned prior year delays over the last few quarters supply chain issues have contributed to some lumpiness in capex spending that we expect to continue throughout the remainder of the year.
Moving to the balance sheet and cash flows as of March 31, 2023, we had $222 $5 million in unrestricted cash down from $301 $9 million at the end of the fourth quarter.
We had $93 $1 million in unused availability on our ABL at the end of the quarter.
Alpha had total liquidity of $315 $6 million as of the end of March which is net of the $145 million in share repurchases during the quarter.
Of which $136 million was pursuant to our share repurchase program and $9 million related to shares repurchased for taxes on equity awards.
By comparison total liquidity at the end of the fourth quarter was $441 $1 million.
Cash provided by operating activities decreased quarter over quarter to $177 $4 million in Q1.
As compared to $185 million in Q4.
First quarter operating cash flows were negatively impacted by an increase of $133 $8 million in working capital.
The primary drivers were higher accounts receivable and inventory balances, partially offset by accounts payable.
As of March 31, our ABL facility had no borrowings and $61 $9 million of letters of credit outstanding.
Changed from the prior quarter.
In terms of our committed position for 2023 sales, 51% of our metallurgical tonnage in our met segment is committed and priced at the midpoint of guidance at an average price of $203.86. Another 43% of our 2023 met tonnage at the mid point is committed but not yet priced.
The thermal byproduct portion of the met segment is 75% committed and priced at an average price of $108.77 and.
And we are fully committed and priced for this year in our all other category with an average price of $88.74.
We adjusted the tax rate guidance for the year to 12% to 17% down from the previous range of 15% to 20%.
All other guidance ranges remain the same as previously issued.
Alamos Board has declared a quarterly cash dividend of 50 cents per share an increase from the prior quarter's 44 cents per share, which will become payable on July 5th for holders of record as of June 15.
Pursuant to our share repurchase program, we repurchased 870000 shares at a cost of $136 million in the first quarter of 2023.
Since the beginning of the program through May 4th 2023, we have spent approximately $715 million to acquire four 8 million shares of common stock at an average price of $148 74 per share.
The outstanding share count has been reduced by roughly 23% from the time the program began.
As of May 4th 2023, the number of common stock shares outstanding was approximately 14 point for a minute.
I will now turn the call over to Jason for some details on operations.
Thanks, Todd and good morning, everyone.
I am pleased to report that the Alpha mines are operating very well so far in 2023.
In Q1 was alpha is highest production quarter in at least the last five years.
Our captive mine production was nearly $4 4 million tonnes.
And I'd also like to congratulate our deep mine 41, guys admit chlor for setting their own personal record of 638000 tons in the quarter.
Based on Q1 M should adder for the Central Appalachian Basin.
Alpha operations climbed five of the top nine producing coal complexes.
RMR for complex took first place in the quarter, while our mclaurin Bandele operations climbed third and fourth.
We're always looking for opportunities to efficiently approve improve our output.
Bringing on additional continuous miners and mines that are performing well.
We've added a nice continuous monitor to our road Fork 52 modest cat litter.
And it more for our Panther Eagle has ramped from three to four continuous miners.
We continue working on the development projects, we've recently announced like Rolling Thunder and Checkmate Poulton deep mines to replace tonnage from locations that are mining out.
And Asian and future capacity were.
We're making progress in Italy.
Leading our prep plant enhancements as well.
As a reminder, once fully implemented these.
These upgrades will allow us to recover additional coal when the Washington, Washington process.
Yielding combined additional tonnage of roughly 160000 tons per year at a very low incremental cost all while increasing the rate of raw coal processing.
We've also been pleased with the vertical integration of our Maxim rebuild division.
We announced last quarter too.
To address supply chain issues.
Maximum transportation, which includes more than 70 on road cold trucks, and several pieces of sporting equipment and the team members.
Is it nearly fully staffed levels as we continue to refine schedules and processes within this division.
We have seen increased called flows to and from preparation plants and load outs.
Max the manufacturing has been a reliable supplier for ear cases, as we originally intended.
They have also proven capable of much more.
In the first quarter, we test it out a number of additional equipment parts.
That's fully integrating the development of several other continuous monitor parts into the pipeline.
Bringing this work in house has been a game changer for our rebuild and maintenance teams.
Allowing them to expand their calendar for the year and streamline the supply chain.
Eliminating many delays and reliability problems from various other third party suppliers.
I can't say enough about the employees involved in these efforts they worked to integrate a manufacturing company and the alpha while also far exceeding our expectations about the immediate and future usefulness of Maxim manufacturing.
Congratulations to all involved in these successful efforts.
With that I'll turn the call over to Dan for some additional information on the coal markets.
Thanks, Jason and good morning, everyone.
Since the beginning of the year metallurgical coal markets have softened amid broader recessionary concerns uneven recoveries and manufacturing demand and most recently economic on east stemming from regional bank failures in March.
Persistent inflation and rising interest rate environments in many economies, including the U S have hampered steel demand.
As global geopolitical issues continue the strength of China's reopening or the lack thereof. Afterwards years long strict zero Covid policy is a factor that we expect will continue to influence demand.
Additionally, the duration and potential outcome of Russia's invasion of Ukraine could significantly impact Europe , resiliency and growth prospects.
Despite these uncertainties the world Steel Association's most recent short range outlook projects, a 2.3% rebound in steel demand this year, bringing the expected global demand to 1.82 billion metric tons.
The organization expect steel demand at 1.85 billion metric tons in 2024.
Further increase of one 7% likely led by manufacturing and accelerating growth in most regions with the exception of China, where world steel expects decelerate position due to population decline.
In terms of the indices in first quarter price movements for metallurgical coals. The Australian premium low vol index increased slightly from $294 50 per metric ton on January 123 hundred $1 per ton in the quarter close.
The U S East Coast low Vol index increased from $280 per metric ton on January one to $287 on March 31st.
U S East Coast Highball, a index moved from $276 per metric ton at the start of the quarter to $2 85 per ton at the end of March.
U S East coast time, Obeef Dahl from $275 per metric ton at the beginning of January to $2 65 per metric ton at the end of March.
Throughout April and into the early days of May all four indices have softened considerably from their quarter closed levels as at May 5th 2023.
Australia and P. L V has decreased to $240 25 per metric ton and U S. East Coast low vol has dropped to $2 46 per metric ton.
U S High vol, a and high vol. B indices were 238 and 218 per ton respectively on the same date.
Turning now to thermal coal market, where the pricing has very significantly fallen off from the highs of last year. The API. Two index continued its several months decline moving from 180 805 per metric ton on January 3rd two $138 per metric ton as of March 31st 2023.
The softening trend has continued into the second quarter with the API two at 120 205 as at May 5th.
Okay.
In terms of logistics, we experienced a short periods of downtime in the first quarter of D. T. A dominion Germinal associates in Newport news temporary equipment issues slowed down our ability to load vessels in mid March this required some rescheduling, but the issue was quickly resolved in D. T. A is back up to normal throughput rates.
Additionally, despite many challenges that our railroad partners faced in the first quarter rail performance to and from our properties has largely been positive in recent months, especially in terms of service to DTA.
We continue to work closely with our transportation partners to efficiently move our coal from our operations to customers across the world.
Yeah.
And with that operator, we're now ready to open the call for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
One moment, please while we poll for questions.
Yeah.
Our first question comes from Lucas pipes with B Riley. Please proceed with your question.
Thank you very much operator, good morning, everyone and congratulations on a good quarter and the many environmental safety and social recognition steps that's terrific to see.
Hi, My first question is on the sales outlook for the remainder of the year. When I Q1 was good but when I when I look at the full year mid.
Mid point it seems like there's still a step up coming so I wondered if you could maybe articulate the timing.
And your outlook on that front. Thank you very much.
Hey, Lukas its Dan good morning, well you know I think we had.
In spite of the transferred some of the issues I mentioned the D T a and with the railroads you. Yeah. We we probably would have shipped a little more coal if it wasn't for those will catch those tons up and going forward.
I think I've mentioned on previous calls we took some more contract positions in 2023 than in recent years. So you know, we we have good golf and its in our in our numbers because these tons, regardless of which direction. The market indices go these tons are going to ship.
You know I think we have we have pretty good confidence in those numbers certainly there's been some demand softening.
And some of the markets, but when that happens its good to have tons of under contract.
Hey, Lucas this is Andy just to add a final point on that we I think historically you see that the the second and third quarters of our years are probably a little bit more a little bit higher volumes at least they had been in the last three or four years and so that youre looking at a curve where we are.
Pretty close to being ratable, but there there's typically a little bit of a bump up entering and exiting summer. So I think that's where you'll see the.
You know the numbers start.
Looking looking closer to what the annualized guidance number is.
Got it very helpful and then the reduction in the tax rate.
What was the driver of that and kind of going forward should we think more kind of that 15% to 20% or.
Or how would how would you frame that up.
Hey, Lucas.
Really that's just.
Passage of time, having a little more granularity into the calculation of our tax rate is is dependent upon some pretty large permanent differences that affect the rate and so.
It's really just having more granularity as we progressed through the year and so.
In terms of looking forward, obviously, we adjusted the range down so we feel like that's kind of.
Where things will finish out this year.
Got it very helpful. Thank you for that and then top one one last one could you remind us how you think about minimum liquidity and minimum cash requirements are terrific to see that rolling thunders is progressing well and so I wanted to get your quick take on.
The two items. Thank you.
Yeah, Yeah, our view on minimum liquidity hasn't changed Lukas I mean, we want to keep you know 250 to 300 million of cash and when we do have the D. O L matter that we've that we've talked about before that's still in process and so markets being a little bit choppy I mean, we're pretty resolute that that's the that's the area we need.
To stay to move things forward.
Yeah.
Got it.
Helpful gentlemen, really appreciate that color and continued best of luck.
Thanks, Luke and I appreciate it.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our next question is from Nathan Martin with the Benchmark Company. Please proceed with your question.
Hey, good morning, guys, congrats on the quarter, India and rewards as well thanks for taking my questions.
Maybe kind of going back to Lucas's question on shipment cadence I mean looks like.
Yeah, and I think as Jason mentioned, a very strong production quarter, maybe you built around 250000 tons or more of our inventory just comparing exit numbers in your reported sales.
Any idea when you kind of expect to ship some of that inventory and you know again are we kind of above ratable maybe into Q3, Q or just any more color would be helpful.
Yeah, Hey, Nate it's Andy Yeah, as I mentioned to Lucas there I think that you know Q1 typically in all the quarters and it varies across years. They do tend to be somewhat ratable, but we do tend to see bumps in the second and third quarter of higher volumes and so I think that's and that's for you know numbers of <unk>.
But I don't think this year is gonna be different from that so I do think you'll see a spike in the middle of the year as we see more shipments and so building. Some inventory in Q1 was pretty helpful. For the shipment requirements that will be seeing over the next 345 months and and again, we can't I can't stress enough how.
The incredible job that the production team did I mean operations, Jason and his crew are absolutely crushed it this quarter.
Setting records across the board on the volumes that we're pushing out I mean five of the top mine production complexes in central Appalachia, where alpha complexes and so we're extremely proud of that kind of performance and to do that while maintaining a very safe environment and doing a good job in that regard.
And winning all these awards are you just cant beat that so really excited about Q1 really excited about the rest of the year as well.
Appreciate the thoughts.
As.
As it relates to the prep plant enhancements when are those expected to be complete if you could remind me and with that you know maybe it'd be helpful. In our increase in here.
Sales rates as well.
Hey, This is Jason I think you know there's actually a.
Two two different sets of enhancements that are kind of going on simultaneously and they're really space, there's different phases as they come on throughout the year.
But I think it's safe to say by September or October .
Those will all be behind us.
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But you know some some.
Some are complete are some are ongoing and some R. R.
Our soon to be underway.
But you know those that that nominal increase is baked into our guidance.
I expect any material changes.
From any of that.
Yeah.
Thanks, Jason maybe taken a step back you guys. So yeah. So many tons into the the global met coal market.
He said discussing kind of in your prepared remarks, but it'd be great to get some more color or what do you guys see opportunities to sell the remainder of your coal for this year and even going forward, maybe and then.
We talked about also benchmark come down but seems to have found some stability here recently, however, the CFR China price continues to move in the opposite direction. So it.
It'd be great to get your thoughts on whether you feel like the met prices largely reflect the market at this point or if there could be a chance for further moderation from here. Thanks.
Okay.
Certainly the demand softened a little bit here in Q1, and what we saw were a lot of buyers sitting on their hands just wait watching the price drift down what we expect to see here is.
As we get closer to July one our cut regular customers will come in for a call I think we will see the market pick up we'll see the demand pick up there's been a lot of waiting as the old catch a falling knife thing here for the last couple of weeks and as you said.
Recent days we've seen.
The trough that we're coming out of that trough. It appears so.
Regardless you know the markets, if we're going to ship corridor. The markets, we've already outlined a lot of coal going into the Atlantic Basin.
India is going to be strong this year and occasional cargo to China. As you pointed out CFR, China is not a particularly attractive number at this point, but yes, we'll be opportunistic there and John if there's if there's something there so really where it's where we expect to ship is where we've been shipping Oh.
And I'll add that the North American market has been quite strong in the North American steel industries running pretty well in the end the coke plants and blast furnaces in particular are running well so all of that.
Thanks, Dan I appreciate that and then maybe one more on shareholder returns you guys. Obviously continue to execute on your buyback program as a.
As you've told the market you would you also increased your regular quarterly dividend I think for the third consecutive quarter in a row I believe.
Have you considered a more defined shareholder return program at some point like many of your peers are doing but he didn't maybe something that gives you flexibility to repurchase shares pay a regular dividend or even a special dividend and the cash levels are high enough.
Yeah. Thanks for the question Nate.
I guess to go back to what I said last quarter, I mean, even even today with the market going and where it is we're still we still view the company to be.
And I won't say criminally undervalued, but criminally undervalued and to that degree I think a way we would like to continue to pick up these shares I mean, when we're when companies are trading this whole sector is trading at the the multiples that we are it's on hard assets. It's odd to me. So we're very happy to continue acquiring our own.
Shares we will continue obviously with the regular dividend and while we don't have a.
We don't have a formula out there for cash flow I think you can look at what we've done over the past 13, 14 months and you can kind of back into what our cadence has been it's been lumpy, but by and large we spent a certain amount of money over that timeframe. Each week and you know that's not guiding toward the cadence and the.
Future, but that's how we think about it we like to be not slow and steady we do have opportunities in open windows to go out and pick up more shares if if we choose to do so we do that very judiciously, but.
But as long as the market allows we think that the the best allocation of that that shareholder return program is it still too repurchasing the shares.
Okay.
Thanks.
Thanks for the thoughts Andy and thank you all you guys for your time information and best of luck.
Alright, thanks, everyone.
With that I appreciate everybody being on the call and I. Appreciate your interest in alcohol I Hope you all have a great day.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.
Okay.