Q2 2023 SunCoke Energy Inc Earnings Call

Ladies and gentlemen, welcome to the Sun Coke energy second quarter earnings.

Earnings call My name is Glenn and I'll be your operator for today's call if you'd like to ask a question. During the presentation. You may do so by pressing star one on tackling keypad.

I would not hedged floor to your host.

Chateau, New Alcoa, VP finance and treasurer at the beginning.

Thanks Glenn.

Good morning, and thank you for joining us this morning to discuss <unk> Energy's second quarter 2023 results with me today are Mike Rippey, Chief Executive Officer, Katherine Gates, President and Mark Murray Senior Vice President and Chief Financial Officer, following managements prepared remarks, well open the call for Q&A. Please.

<unk> call is being webcast live on the Investor Relations section I'll put a website and a replay will be available later today.

We do not 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 Kathryn 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.

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 Katherine.

Thanks Anthony.

And thank you for joining us on today's call.

Earlier today, we announced some coke energy second quarter results I wanted to discuss a few highlights before turning it over to Mark to review the results in detail.

I'd like to start by thanking all of our Sam Cooke employees for their contributions to our record second quarter results.

Our domestic coke plants ran at full capacity and delivered excellent results for the quarter.

Our logistics terminals were impacted by weaker commodity market conditions, but still delivered solid results.

Through our collective efforts, we delivered consolidated adjusted EBITDA of $74 million a record for our second quarter performance.

We also announced today that the board of directors is Suncoast approved a 25% increase in our quarterly dividend from <unk> 10 per share.

The increase is effective on September one 2023.

Next quarterly payment.

This meaningful increase demonstrates the board's and management's confidence in our continued progress and the strength and stability of our underlying core businesses.

Our foundry Coke business continues to perform well with the foundry Coke expansion project recently completed on time and on budget.

This project allows suncoast to continue to grow our market participation without losing the flexibility to alternate between blast and foundry Coke production.

Our order book for non contracted blast furnace Coke is solid with substantially all of our non contracted blast coke sales finalized for the full year.

From a leverage perspective, we ended the quarter with our gross leverage ratio at approximately $1 709 times on a trailing 12 month adjusted EBITDA basis.

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

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

Thanks Catherine.

Turning to slide four.

Net income attributable Sun Coke was 24 per share in the second quarter 2023 up <unk> <unk> versus the prior year period.

Adjusted EBITDA for the second quarter of 2023 was $74 million.

An increase of $2 $7 million from second quarter 2020 to the.

The increase in adjusted EBITDA was primarily driven by favorable coal to coke yields and higher coke sales volumes due to timing, partially offset by lower contribution margin on non contracted less coke sales and lower volumes in our logistics segment.

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

Second quarter domestic Coke adjusted EBITDA was $68 $2 million in Coke sales volumes were 1.043 million tons.

The $3 $9 million increase in adjusted EBITDA.

As compared to the same prior year period.

It was driven by.

Excellent operational performance.

Our domestic coke plants achieved higher coal to coke yields during the second quarter.

Our plants also realized higher coke sales volumes in the second quarter due to our coke shipment timing shift from the first quarter. These.

These operational achievements were partially offset by the lower contribution margin that we anticipated on our non contracted blast coke sales.

The domestic Coke fleet continues to operate at full capacity and substantially all non contracted blast furnace Coke sales are finalized for the full year.

Given our strong performance during the first half of the year, we are well positioned to deliver domestic coke adjusted EBITDA on the high end of our guidance range of $234 million to $242 million.

Now moving on to slide six to discuss our logistics business.

Our logistics business generated $11 7 million of adjusted EBITDA and handled combined throughput volumes of approximately $5 2 million tonnes during the second quarter of 2023.

As compared to $12 5 million and $5 8 million tons, respectively. During the same prior year period.

The decrease in adjusted EBITDA was primarily due to the lower throughput volumes that resulted from the weaker commodity market conditions.

Thermal coal pricing continued to decline, but CMT benefited from the full API two price adjustment during the second quarter.

While we anticipate continued volatile commodity market conditions, we expect to deliver logistics full year adjusted EBITDA within our guidance range of $47 million to $50 million.

Now turning to slide seven to discuss our liquidity position for Q2.

Suncook ended the quarter with a cash balance of approximately $78 million cash flow from operating activities generated approximately $69 million.

We fully paid down our revolver balance of $35 million during the quarter.

<unk> $27 $8 million on Capex and paid $7 2 million in dividends at the rate of <unk> <unk> per share.

In total we ended the quarter with a strong liquidity position of approximately $428 million.

As Katherine mentioned, we announced a 25% increase in our quarterly dividend. This increase is consistent with one of our key capital allocation priorities, which is rewarding our long term shareholders.

With that I will turn it back over to Katherine.

Thanks, Mark wrapping up on slide eight.

As always safety environmental and operational performance, our top priority for our company.

We remain focused on safely executing against our operating and capital plan for full utilization of our coke making assets.

As I said earlier, our foundry Coke business continues to perform well.

Our expansion project was completed on time and on budget and allows us to grow our market participation, while maintaining flexibility to make either glass or foundry coke.

We continued to make progress on our capital allocation strategy during the quarter with a meaningful increase in our quarterly dividend.

We continuously evaluate the capital needs of the business, our capital structure and rewarding long term shareholders and we will make capital allocation decisions accordingly.

Finally based on the reliability and performance of our operating segments. While also factoring in volatile market conditions, we look to achieve the high end of our full year adjusted EBITDA guidance at $250 million to $265 million.

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

Yes.

Thank you, ladies and gentlemen, if you would like to ask a question. Please press star followed by one on telephone keypad now.

I hate to ask your question. Please ensure your actual linked to low quality.

We have our first question comes from Lucas pipes from B Riley <unk> you.

Your line is now open.

Okay.

Thank you very much operator, good morning, everyone and congrats on a good quarter.

Thanks Lucas.

Hi.

I wanted to start the first question with the capital return announcement.

The announcements you've made you're increasing the dividend.

And.

How do you think about buybacks.

From a tax perspective buybacks.

It could be a lot more efficient so I'm wondering where were buybacks.

Factor into your capital return.

Framework from here, Thank you very much.

Well thanks Lucas.

As you know we consider all options when we're making capital allocation decisions and as we said we look to reward our long term shareholders.

We really determined that a dividend increase was the best way to do that at this time and given the steadiness of our cash flows.

And recognizing and taking into full account the GPI project.

Okay.

Got it.

Okay.

I appreciate that.

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On the <unk>.

On the export side can you remind us roughly what amount of volumes go into.

The coke export business.

Well Lucas as you know we don't disclose.

Okay.

Okay.

Sorry, Luca go ahead.

Yes.

Yes.

Just kind of a rough range on an annual basis.

And Lukas this is Sean so.

On a combined basis, we have said that for the full year, roughly 650000 tons of equaling blast furnace coke.

Is going into that combined spot blast furnace and foundry both market. So that number is still hasnt change and obviously, we as we've talked before we really don't break out the numbers between foundry Coke and spot glass furnace coke for the commercial reasons, but roughly we have $4 2 million of <unk>.

<unk> $3 $6 million is contracted and 600 to 650 equal in glass furnaces going into the foundry unexplored.

Spot blast furnace coke market.

Okay.

Yes.

Alright, and geographically where we're at.

Exports typically be going kind of what's the rough geographic breakdown of the.

Coke export business.

So for the past couple of years in 'twenty, one 'twenty two we did in majority of the export market going into.

Europe , and South America, and these locations, but in 'twenty to 'twenty three we did some shipments to South America, and and as we talked about in the last quarter. We are seeing more of a demand from north American.

Bulk users.

Which could be our domestic.

Domestic.

But change those as well as into Canada. So the market is changing a little bit in 2023 as compared to what we did in 'twenty, one and 'twenty two.

Yes, Lucas, we really think about our our merchant flask Coke on really is as a as an on contracted basis, but to really look at where we can find the most profit whether it seaborne north Americans.

That's really that's really where we are today is Sean you said.

Okay.

Very helpful. So the increased demand in North America.

Anything you could point to us what has been driving that.

Canada.

Domestic.

I would just say that we're certainly.

<unk> seen interest in both I think it's fair to say.

I think it's driven by Lucas just to explore on that I mean, it is just driven by the demand and supply balance I think.

Coming through call. It there was huge inventory levels build up and then as those inventory levels are driven down I think all the steel producers in North America are reassessing their coke situation, how much glass when it says they want to run and things like that and that is what is causing this additional call. It additional day.

Man within within within.

Within the North American region.

And I think Lucas as you know we've seen.

Over the last year on year, and a half a significant amount of Av.

Be it a coke supply come off the market so that factors into this as well.

That's helpful.

And it's this additional demand translating into desire for.

Longer term contract so could we see that $3 6 million number creep.

Creep up or is there downside risk because.

Some glass furnace operators still look too.

Growth on the Es side, how do you think about that three six.

Contractual level over the coming years.

Well I mean, we're certainly.

We're certainly pleased with the contracted coke that we do have and it provides us.

The steadiness of our cash flows and otherwise that youre seeing and youre seeing that.

Come through here as we increase our dividend, but we certainly.

<unk> also benefited from our merchant Coke sales and so we will just continue to look for ways to most profitably put our coke out there into the market.

Thank you.

I appreciate that and then my recollection is that most of the.

Coke spot sales are out of tool is do I remember that right or maybe something shifted within your portfolio. Thank you.

Lukas I mean jewel is where we are producing most of the foundry.

Spot sales upcoming mostly out of <unk> and a little bit of a combination a little bit extra from Jules So having LNG will kind of.

Act as our combined spot call, concluding foundry and X and then spot spot blast furnace.

Okay. Okay.

Okay. That's helpful. And then if you export is it down through the golf wear off the east coast.

It's down to the Gulf typically.

Yes got it okay.

Yes, the breakdown would be super helpful. Just kind of a rough.

A rough breakdown of export volumes I. Appreciate you don't want to give exact numbers, but a rough a rough breakdown would be very helpful. On the export side 600.

<unk>, obviously, a big number and if it's.

Yes, understood on that Lucas, but again due to the commercial right I mean, we have talked about foundry markets being so small.

Not a lot of players in there. So if we breakdown one that becomes very brand so I understand.

But at this point, it's very difficult for us to do that.

Alright, I appreciate the color.

Keep up the good work.

Thanks Lucas.

Thank you.

As a reminder, ladies and gentlemen, if you would like to ask any further question. Please press star one on platform key patents.

With our next question comes from Nathan Martin from the Benchmark Company Nathan Your line is now open.

Thanks, operator, good morning, everyone. Congrats on the quarter. Thanks for taking my questions.

Thanks, maybe I'll start, let's see all foundry Coke sales for these are finalized.

Substantially all non contracted coke sales finalists for the full year as well now.

I understand full full half to go but.

At least to me youre well on your way to potentially exceed full year adjusted EBITDA guidance.

Hi, there. So maybe just curious is there something that kept you from raising guidance at this point are there any potential headwinds <unk> seen in the second half I think Katherine you mentioned some volatile market conditions, maybe you could elaborate on that thanks.

Yes, absolutely.

Nathan and I appreciate the question.

As I did say the commodity markers and markets are weaker than certainly more volatile and I would actually say that that's not just for our logistics volumes, but it's actually for price as well on the remaining on contracted blast Coke merchant tons. So we have to keep that in mind.

I expect that we will have some benefit actually from the API two price adjustment in the second half, but we're not going to see that at the same level that we saw at the first half of the year.

And as you saw on the slides on our corporate costs were actually lower in the second quarter. So we expect those to be higher. This was all timing to expect them to be higher in the second half.

And frankly, Nathan that the second quarter was a record for US. It was we had exceptional performance.

Shouldn't be more pleased with that but we really can't forecast based on record performance.

So we'll have more clarity at the end of the third quarter and we will certainly reassess it at that time, but those are some of the factors driving our guidance here.

Okay I appreciate that Kathryn.

I apologize if I missed it you just mentioned logistics volumes did you guys provide any updated sales guidance for the logistics segment.

Nathan the guidance for logistics volumes that unchanged at this point.

Sure.

Okay <unk> I think it was 22 million tonnes kind of overall and I think the split was.

Remind me I think there was something like 12 million.

CMT, so 10 million SMT.

Yes, I think I think you are right.

Okay.

Okay.

And maybe just.

You mentioned the comment on API to benefit Catherine.

No.

You said the benefit probably will be down sequentially based on where we see average so far.

Is that true.

Would be great to get some color on what you guys are seeing from an export coal standpoint from your <unk>.

Coal partners.

But the car.

Sure Nathan So yes, what I said was that we've seen the API two prices kind of fall during the quarter, but when we looked at third quarter, we won't see that same benefit that we saw in the first half, but we also don't expect that to just completely dropped off so that.

So there'll be some benefit for us.

In the third quarter, but certainly not at the level that we were in the first half.

And as we as we know and as we took.

Took into account with our guidance.

The export markets. They are they are weak right now and they are volatile and so.

We fully took that into account.

In saying that we would be at the high end of our guidance range.

Okay. So export markets for coal specifically, a week is what youre, saying or just logistics in general.

Hi, Nathan.

Youre talking about the call I think Katherine was talking about the export market.

Metallurgical coal on the coal side, yes, I mean, we have seen a slight drop off in the volumes similar to the pricing and volume go hand in hand together so so.

There is a drop off in volume, but given that we're guiding to our volume guidance being unchanged. We feel that there is not going to be a significant drop up are definitely seeing a little bit of softening in the second half both in volume and pricing.

Sure.

Got it and that was obviously, what I was looking forward, thereby confirming that because we have not changed your full year logistics shipment guidance.

From some weakness we're seeing right now okay perfect.

And then maybe just one last one you guys completed the foundry coke expansion projects that drew.

Our on time on budget. So congratulations there are there any other projects on the horizon for 24 beyond just trying to think about potential for growth Capex on top of maintenance, which I think you guys previously talked about around 80 $85 million Scott still holds true.

Right so.

Our our regular maintenance capex really the growth Capex that we're contemplating is for the GTI project.

If we're able to move forward with that project as we are still working with U S. Steel on that so thats, what we contemplate out ahead for purposes of growth Capex.

Got it and so obviously absent that you still feel comfortable in that $80 million to $85 million kind of at this level is that still hold true.

Exactly right yes.

Okay, perfect Alright, well I appreciate all those comments guys I'll leave it there and best of luck in the second half.

Alright, thank you.

Thank you Nathan.

We have no further questions on the line I'll now hand back to Katherine Gates, President Ofer <unk> for closing remarks.

Thank you all for joining us today and thank you for your interest in Santos.

Yes.

Thank you ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines.

Okay.

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