SunCoke Energy Inc. Q1 2023 Earnings Call

One contracted blast furnace Coke is solid in all of our non contracted blast furnace Coke sales are finalized through the third quarter.

From a leverage perspective at the end of the quarter. Our gross leverage ratio was approximately 193 times on a trailing 12 months adjusted EBITDA basis.

Finally, as we continue to execute against our 2023 objectives, we remain well positioned to achieve our full year adjusted EBITDA guidance of $250 million to $265 million.

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

Thanks Catherine.

Turning to slide four.

Net income attributable Sun Coke was <unk> 19 per share in the first quarter 2023 down 16 versus the prior year period.

Adjusted EBITDA for the first quarter 2023 was $67 1 million.

A decrease of $16 $7 million from first quarter of 2022.

Lower contribution margin on export Coke sales was the primary driver of the decrease in both net income attributable Sun Coke and adjusted EBITDA.

Moving to slide five to discuss our domestic coke business performance.

First quarter domestic coke adjusted EBITDA was $64 million in Coke sales volume was 950000 tons to $15 $6 million decrease in adjusted EBITDA as compared to the same prior year period was primarily driven by lower contribution margin on export Coke sales.

The timing of non contracted Blessed Coke sales also impacted results this quarter.

The domestic Coke fleet continues to operate at full capacity and all non contracted blast furnace Coke sales are finalized through the third quarter.

Additionally, all foundry Coke sales are finalized for the full year.

Given our solid first quarter performance, we remained well positioned to deliver our domestic coke adjusted EBITDA guidance of $234 million to $242 million.

Moving on to slide six to discuss our logistics segment.

The logistics business generated $13 5 million of adjusted EBITDA. During the first quarter of 2023 as compared to $12 6 million in the same prior year period.

The increase in adjusted EBITDA was primarily due to higher volumes at our convent Marine terminal.

Our logistics terminals handled combined throughput volumes of $5 3 million tonnes during the quarter as compared to $5 2 million tonnes during the prior year period.

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

Although thermal coal pricing has declined modestly CMT continues to benefit from the API two price adjustments, our full year adjusted EBITDA and volume guidance are unchanged.

Now turning to slide seven to discuss our liquidity position for Q1.

Sun Coke ended the quarter with a cash balance of approximately $83 million.

Cash flow from operating activities generated approximately $30 million it was impacted by working capital changes.

We spent $22 6 million on Capex during Q1, and also paid $6 7 million in dividends at the rate of <unk> <unk> per share during the quarter.

In total we ended the quarter with a strong liquidity position of approximately $398 million.

With that I will turn it back over to Katherine.

Wrapping up on slide eight.

As always safety and operational performance is top of mind for our company. We continue to focus on safely executing against our operating and capital plan for full utilization of our coke making assets.

As I mentioned previously we are pleased with the performance of our foundry Coke business.

Foundry expansion project is progressing as planned and its implementation later this year will allow <unk> to grow its market participation meaningfully.

As we've demonstrated in the past we will continue to pursue a balanced opportunistic approach to capital allocation.

We continue to evaluate the capital needs of the business, our capital structure and the need to reward our shareholders and we will make capital allocation decisions accordingly.

Lastly, we look to achieve our full year adjusted EBITDA guidance of $250 million to $265 million for 2023.

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

Thank you.

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A question, we'll pause briefly ask questions are registered.

Our first question comes from the line of Lucas pipes with B Riley. Please go ahead.

Thank you very much operator, good morning, everyone.

My first question is on the international Coke market, Steve They softened quite a bit alongside lower met coal prices and I Wonder if you could frame up the sensitivity to that.

To that weakness.

Question number one thank you.

Thanks Lucas.

As as we said in the.

The fourth quarter and in discussing our full year guidance, we anticipated.

Weaker.

Export market. This year, we built that into our guidance and.

As we've just said here we are we're affirming our guidance for the full year.

Roughly what amount of tons do you export into the coke markets today.

Well I appreciate the question but.

As I think you know, we we don't we don't provide the breakdown of export versus our other tons. We have all of our domestic coke is treated as a segment.

As we've said all of our non contracted blast Coke sales are finalized during Q3.

That's that's helpful.

And then.

What's the what's the typical duration. So if you were to go out.

Four.

Coke sales in the international market today to finalize business with this before 2024 would it be for the fourth quarter of 2023, just getting trying to get a better sense for.

At what timing might see risks from weaker international markets.

Well I think we were focused on our full year and as we said.

We expect to meet our guidance for the year, we expect to run fall.

So we're focusing on.

We're focusing on those sales now and we're affirming our guidance. So we're comfortable with what we're seeing in all the markets.

Got it.

What's a good benchmark to use.

For pricing on international Coke sales cycle.

Hey, Lukas this is Sean yes, so the benchmark generally I mean, obviously there is only one benchmark, which is out there for the metro with the Chinese medical 66 65.

CSR right, but the way we price our group obviously, our quality of the book is much higher than Chinese Coke.

Right and kind of.

It travels much better versus a normal.

Regular traditional visa.

<unk> made so those are kind of advance agents are so it's kind of if you look at bank SNB, our product demand the premium what those both indexes.

And we have like kind of the exports that we are doing with.

With the customer we are building those relationships and that helps us kind of what the pricing as well. So yes, that's kind of a benchmark pricing, but there are some or the other.

<unk>, which plays into what ultimately we sell those.

Co pack that forecast.

That's that's very helpful and remind me what it is.

Some of the larger markets Youre, sending your coke too is it Europe , Latin America or Asia would appreciate a little bit of color on that.

Yes, those are the two Europe and Latin America are the main export markets now.

Now, but it's open right if anybody needs both within the domestic market are gone at all our Latin America argued oil we are more than willing to supply and we have been looking at all the opportunities that has that been able to sell these.

<unk> export coal bar noncontract I've spoken to the market.

Got it got it that's very helpful. I'm, just trying to understand that.

A little bit better. So you typically lock in the sales contract first or the supply agreement for the met coal and then the supply agreement for the medical afterwards, so does that happen simultaneously just trying to get a sense for.

Are you locked in the spreads in that in that segment.

So Lucas I mean, it's always like you need to have a supply of full to be able to continue to run our plants and I think we have mentioned this before we used to buy over call on an annual basis and since we went into the <unk>.

<unk> markets, we are doing more of a short term call bias. So obviously the call buys happened first but we are trying to match those all buys with our export fulfilled as much as possible that is always a timing differential there is always the price differential right and I think coming back to your first question.

When does the field gets booked like for example, we are exiting at the end of Q1, our sales are booked through the end of Q3, but it's like anywhere from 30% to 60 to 90 days time lag between.

When the caucus.

It's worth it when it's sold or when we are sitting here kind of finalizing the bills so bit of a time lag of bad but thats. What we are trying to minimize is the variance of the coal price we're buying in the pulp prices we are selling at.

Very very helpful. Thank you. Thank you for that and then.

I'm under the impression that most of this.

Business comes out of Juul.

Is that a misconception, but or would you say that that.

Thats, a reasonable gas well.

Well, so you've got to think of it like jewel at Haverhill combined is our kind of swing capacity bar boundary and.

Smartphone business Smart glass furnace Fools business. So those are the two places where the combination of foundry and spiteful.

Spiteful business comes out.

Very helpful. Thank you then switching topics.

In June we'll come up on the one year anniversary of the.

A letter of intent with U S steel on granite city and I'm wondering at this point.

What are the key things you're still evaluating there a punch list.

Things kind of you need to check off and if so could you could you maybe share that with the market. Thank you very much.

Thanks, Lucas, we're continuing to work towards reaching an agreement with U S. Steel. This is yes, it's a large and complex projects. So wouldn't say that there is a punch list per se, but just that we're continuing to work towards reaching an agreement with them.

Okay, Alright, well I appreciate the update and best of luck.

Thanks Lucas.

Thank you.

Our next question comes from the line of Nathan Martin with the Benchmark Company. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions and congrats on the quarter in the inner Harbor extension.

Thank you thanks, Matt.

Lucas did a pretty good job of hitting my list of questions but.

Maybe one more try on the on the <unk>.

Granite city opportunity there.

And I will take a different spin maybe maybe let's just say hypothetically.

Moving forward with that opportunity.

Would that potentially change your thoughts on shareholder returns given no longer needing maybe as much dry powder per transaction.

And maybe what could those returns look like.

So, yes, I have to say and I. Appreciate the question, but I have to say that our focus is very much on continuing to work towards reaching an agreement so.

That is our focus now and while we really don't get into hypotheticals, but we have said and we'll continue to say is that we really do look at <unk>.

Capital allocation everyday and we evaluate it based on the circumstances at the time and we're going to make decisions that are going to reward our long term shareholders.

Got it I appreciate that stance Kathryn.

Maybe shifting gears kind of to the domestic coke business again, all foundry coke sales for the year finalized.

Non contracted finalize through <unk>.

I'm assuming.

The unsold production you have work will likely go to the export market in the fourth quarter. If so how do you see the export markets trending as we get to the latter part of the year I think Katherine you said last quarter that you expected maybe some improvements in the second half or is that still the case any any update would be great.

Yes, thanks for the question.

Yes, I would say that we do expect to see some improvement it's certainly been hard to predict.

We're very comfortable with.

With what we what we see out ahead and certainly as we sit here.

We're affirming our guidance for the year so.

That's.

That's really that's really where we sit and we're very we're very comfortable with where the market is.

Got it and then I think you mentioned some of this in your prepared remarks, but I might have missed it I apologize how are things progressing as juul investment to produce 100% foundry or how much of the Capex has been spent how much is left just any other thoughts there would be great.

Sure Yes.

We're very well.

We're pleased with the progress we've made there the project on the expansion is on time it's.

On budget.

And.

As you know, we don't provide specific numbers for our growth capex, but we expect to spend between 10 and $15 million.

And that's on track and the project is going to be completed in the third quarter.

Great Alright.

We shared at the time I'll leave it there best of luck for the rest of the year.

Okay.

Thank you.

That concludes our question and answer session I would now like to pass the conference back to Katherine Gates President of Sun Koch for any additional remarks.

Thank you all again for joining us this morning and for your continued interest in Sun Coke.

That concludes today's conference call Hope you all enjoy the rest of your day you may now disconnect your lines.

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