Q1 2024 Warrior Met Coal Inc Earnings Call
Good afternoon. My name is Megan and I will be your conference operator today. This time I would like to welcome everyone. So for your first quarter 'twenty 'twenty four financial results conference call.
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After the Speakers' remarks, there will be a question and answer session.
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This call is being recorded and will be available for replay on the company's website.
Before we begin.
I have been asked to note that today's session may contain forward looking statements and actual results may differ materially from those discussed.
For more information regarding forward looking statements. Please refer to the company's press releases and S. E C filings.
I have also been asked to note that the company has posted reconciliations of the non-GAAP financial measures discussed during this call in the tables accompanying the company's earnings press releases located on the investors section of the company's website at Www Dot warrior met coal.
<unk> Dot com.
In addition to the earnings release the company has posted a brief supplemental slide presentation to the investors section of its website at Www Dot Warrior, Matt Cole Dot com.
Here today to discuss the company's results are Mr. Walt Sheller chief.
Executive Officer, and Mr. Dale Boyles, Chief Financial Officer.
Mr Seller you may begin your remarks.
Thanks, Operator, Hello, everyone and thank you for taking the time to join US today to discuss our first quarter 2024 results.
After my remarks, Dale will review our results in additional detail and then you'll have the opportunity to ask questions.
We delivered very strong results for the first quarter driven by our operational performance.
Volume of steelmaking coal that we produce reached levels not seen since 2020.
We took advantage of the inventory levels, we had built over the preceding quarters to generate over $104 million in cash from operations.
We primarily use to invest in our Blue Creek growth project and returning additional cash to stockholders.
We also made excellent progress on Blue Creek.
Several key milestones as we advance the development of this world class growth project that has the potential to transform our company.
First let me provide an overview of the steel and steel, making coal markets during the first quarter from orders perspective.
The first quarter was predominantly mark, but a strong correction in pricing that started in early March and quickly accelerated.
The rapid change in market sentiment was driven by a combination of macro factors on.
On the demand side, we observed the sudden retreat demand interest from China and India.
On the supply side several loaded vessels were resold by end users increasing available supply in an environment that was already experiencing additional supply availability.
The softness in India demand was largely attributed to a slowdown in projects associated with the upcoming national elections in April through early June.
In China lower demand was a result of continued weakness in the property and construction segments, the China struggling to improve despite numerous stimulus efforts.
As we've continued to observe for several quarters demand from our contracted customers remained strong for the quarter, while our traditional markets offered limited spot sale opportunities.
We were extremely pleased by the performance of a real partner door in the first quarter.
We're able to navigate the temporary loss of the boarding system without any impact to our customers and with minimal impact to our cost.
The authority responsible for the repairs on the Demopoulos law continue to guide towards the restart of river operations by the latter part of the second quarter.
Likewise, we continue to see benefits from our collaboration with our terminal partner in mobile to improve its performance, which has resulted in strong performance outcomes throughout the first quarter.
Yeah.
As previously mentioned the major met coal indices experienced a steep correction in the latter part of the first quarter.
Our primary index P. L. B F O B, Australia ended the first quarter of $242 per short ton, which was $72 per short ton lower than its December 31 value.
And $85 lower than the peak of $307 per short ton achieved in early January.
Likewise, the PLD CFO, China index experience of $68 per ton decline during the same period.
It was in the first quarter at a price of $233 per short ton.
Similar declines were observed with a second peer indices, which also displayed lower relativity in relation to the PLD index, averaging around 83% for the first quarter.
As we've said on prior earnings calls now the Mic Board has transitioned to a high vol. A quality and more volume is being sold into Asia. Our overall targeted average net selling price is 85% to 90% of the PLD F O B Australian index.
We achieved a performance level of 84% in the first quarter, which is a function of product mix geography and freight rates.
Yeah.
According to the World Steel Association monthly report global Pig Iron production decreased by approximately one 4% for the first three months of 2024 as compared to the prior year period.
The month of March was the fourth consecutive month in which global production increased on an average daily basis, excluding Chinese production.
Chinese pig iron production was two 9% lower in this period compared to last year.
Excluding Chinese production the rest of the World production grew one 9% primarily in Asia and a few countries in Europe.
India's steel production continue to grow with stable rates, increasing by three 4% for the same period.
Yeah.
Speaker Change: Now turning back to our first quarter results.
Our first quarter sales volume of $2 1 million short tons was 9% higher than the comparable quarter last year.
This volume included the 129000 tonnes that shifted into the first quarter from the fourth quarter of last year as previously disclosed.
The overall increase was primarily driven by the additional production volumes due to the return of workers. Following the conclusion of the labor strike in the second quarter of 2023.
Our sales by geography in the first quarter breaks down as follows 44% and New York, 18% into South America, and 38% into Asia.
As we've previously noted demand from the Asian steel producers has been growing over the past several quarters, resulting in Asian sales up 17 percentage points in 2024.
Same quarter last year.
While sales from our traditional markets were lower primarily due to weak spot markets.
Our spot volume was 37% in the first quarter 2024, which was higher than the 29% in the first quarter of last year.
For the full year, we expect our spot volume to be approximately 25% of the total sales volume.
Production volume in the first quarter was $2 1 million short tons compared to $1 8 million short tons in the same quarter of 2023, representing a 17% increase.
This was the highest quarterly production output over the last three years.
Both mines operated at higher capacity levels in this first quarter compared to the same quarter last year as a result of the additional employees that returned following the conclusion of the labor strike.
The higher sales over production volumes in the first quarter drove our coal inventory yeah. The 892000 short tons from 968000 at the end of 2023.
Our head count was 33% higher at the end of the first quarter of 2024 compared to last year's first quarter.
As previously mentioned the majority of this increase was related to the end of the labor strike.
And our 2024 outlook, we'd budgeted hiring 250 people in the business with approximately 100 of those people at the Blue Creek mine.
As of the end of the first quarter of 2024, we're on schedule with a real hiring and plan to begin accepting applications for positions at the Blue Creek mine in the second quarter.
During the first quarter, we spent $102 million on Capex and mine development Capex spending was $100 million, which included $69 million on the Blue Creek project.
Mine development spending on the Blue Creek project was $2 million during the first quarter of 2024.
Now I'd like to provide you with a more detailed view on our Blue Creek growth project, including updates on our excellent development progress in the first quarter and what comes next.
We accomplished key milestones on the major components for Sema access surface infrastructure and coal transportation.
The feedback has components, including the production flow service shaft ventilation slab shaft remain on schedule for completion late in the second quarter of this year.
Which we expect will allow us to begin development of the initial longwall panel with the first continuous miner unit in the third quarter of this year.
We're extremely excited that the panel development scheduled to begin on the originally expected timeline and we are on track to produce approximately 200000 short tons of high vol. A steelmaking coal in the second half of 2024.
The development tons produced from the second half of this year through the first half of 2025 are expected to be sold in the second half of 2025. After the preparation plant comes online.
In addition, we're continuing on the surface infrastructure in coal transportation components and that work remains on schedule.
Speaker Change: On the surface infrastructure excellent progress continued on the building and the preparation plant and related material handling belt system.
The bathhouse warehouse and electrical Substations should be completed during the second quarter of this year.
The core transportation components are also on schedule and noticeable progress continued on the run of mine belt structure clean coal belt structure and rail and barge load out.
On the financial side, where you're invested $69 million during the first quarter of 2024 on the development of Blue tree, which brings the project to date spending to $435 million.
Company expects to spend approximately $325 million to $375 million in 2024 on the continued development of the Blue Creek reserves.
We remain focused on tight capital discipline, ensuring the project will be completed within a reset baseline cost estimate on the original schedule, including the longwall start up in the second quarter of 2026.
Blue Creek represents one of the last remaining untapped premium high quality high vol. A coal reserves in the U S, which should achieve premium prices where you.
You expect incremental annualized production of $4 8 million short tons of premium high vol. A steelmaking coal after the startup of the longwall, which the company expects will enhance and strengthen its already strong global cost curve positioning and deliver incremental profit and cash flows.
I'll ask Dale to address our first quarter results in additional detail.
Thanks, Paul.
For the first quarter of 2024, the company recorded net income on a GAAP basis of $137 million or $2.62 per diluted share compared to net income of $182 million or $3.51 per diluted share in the same quarter of 2023.
non-GAAP adjusted net income for the first quarter, excluding the nonrecurring business interruption expenses was $2.63 per diluted share.
This compares to adjusted net income of $3 57 per diluted share in the same quarter of 2023.
Partially offset by 9% higher sales volumes.
Yeah.
We reported adjusted EBITDA of $200 million in the first quarter of 2024 compared to $259 million in the same quarter of last year.
Our adjusted EBITDA margin was 40% in the first quarter of 2024 compared to 51% in the same quarter of last year.
As I previously mentioned these decreases quarter over quarter were primarily driven by the 9% lower average net selling price higher cash cost of sales and lower results from our gas business, which were partially offset by 9% higher sales volumes.
Total revenues were $504 million in the first quarter compared to $510 million in the first quarter of 2023.
This overall decrease of $6 million was primarily due to the 9% decrease in average net selling prices.
All set by the 9% increase in sales volume and lower demurrage and other charges.
Demurrage and other charges were $3 million lower compared to 2023 first quarter.
Emerge in other charges resulted in an average net selling price of $234 per short ton in the first quarter of 2024.
Compared to $257 per short ton in the same quarter of last year.
Other revenues, mainly from our gas business as well.
Lower in the first quarter of 2024 compared to the same quarter of last year, primarily due to a 34% decrease in natural gas prices between the periods.
Platt premium level F O B Australian index price was relatively stable for much of the first quarter until early March when the index corrected sharply downward.
The index price averaged $279 per short ton for the first quarter, which on average was $33 per short ton lower compared to the same quarter of 2023.
We primarily target pricing our mindset on premium product from this index, which represents about 70% of our volumes.
We primarily target the east coast Highball, a index for our mined for high quality product, which is approximately 30% of our volumes.
However, we do use other indices from time to time to price our products, especially into Asia, which may be priced on a delivered our CFR basis.
Cash cost of sales in the first quarter of 2024 was 80 $284 million or 57% of binding revenues compared to $232 million or 46% of mining revenues in the first quarter of 2023.
Of the $52 million increase in cash cost of sales $22 million of the increase was driven by the 9% increase in sales volumes.
The remaining increase in cash cost of sales of $30 million was due to higher royalty costs, resulting from higher royalty rates in the areas currently being mined and higher labor and supply related cost on higher production.
The higher labor related costs were primarily due to the employees returning from a labor strike that ended in 2023 and additional wage increases.
Our head count was 33% higher than the first quarter this year compared to last year's first quarter.
In addition costs were higher in the first quarter. This year due to a higher spending of about $1 per ton on a higher mix of rail transportation.
Speaker Change: And higher repairs and maintenance all of which should be temporary.
In addition mine development credits were lower now that mine for is producing from the north portal area at the mine.
Yeah.
Overall transportation and royalty expenses were 39% of our cash cost of sales per short ton in the first quarter. This year, a more average net selling prices compared to 42% in the same quarter last year.
Cash cost of sales per short ton Fob port was approximately $133 in the first quarter this year compared to a $119 in the first quarter of 2023.
On a per ton basis transportation costs were about $1 higher due to the higher rail mix, which was mostly offset by lower average net selling prices.
Speaker Change: Likewise royalty costs were lower on lower average net selling prices were higher on a per ton basis of $3.
This was due to the higher royalty rates in the areas currently being mined versus last year's first quarter quarter royalty rates.
Our cost of production was 61% of our total cash cost per short ton compared to 58% last year.
A higher cost of production was primarily due to higher labor related costs of $4 per ton.
Speaker Change: Temporarily higher repairs and maintenance cost of $2 per short ton.
And fewer mine development credits accounted for the remaining amount of the increase.
SG&A expenses were about $19 million or three 7% of total revenues in the first quarter of 2024.
Were slightly higher than 2023 first quarter of two 8% primarily.
Primarily due to an increase in employee related expenses.
Interest income earned on cash investments was lower in the first quarter of this year, primarily due to lower invested cash balances.
Our interest expense was lower primarily due to the early retirement of debt in August of 2023.
Our low effective tax rate reflects expense on lower pretax income.
Speaker Change: Compared to the first quarter of last year.
Tax expense reflects an income tax benefit for depletion expansion foreign derived intangible income.
Turning to cash flow.
During the first quarter of 2020 for free cash flow was $2 million.
This was the result of cash flows generated by operating activities of $104 million.
Less cash used for capital expenditures and mine development of $102 million.
Free cash flow was $108 million lower than 2020, threes first quarter, primarily due to higher accounts receivable of $115 million and higher Blue Creek Capex spending.
Speaker Change: Free cash flow in the first quarter of 2024 was negatively impacted by an $86 million increase in net working capital from the end of 2023.
The increase in net working capital was primarily due to the previously mentioned increase in accounts receivable and higher sales volumes.
Partially offset by lower inventories.
Our total available liquidity at the end of the first quarter of 2024 was $801 million and consisted of cash and cash equivalents of $694 million.
And $107 million available under our ABL facility.
Now, let's turn to our outlook and guidance for the full year 2024, we have reaffirmed our outlook for the full year as outlined in our earnings release.
While our second quarter volumes could be seasonally lower than the first quarter due to weak spot demand from our traditional markets and Asia and in particular, India, We expect better demand in the second half of the year.
<unk> volume in our traditional markets remained strong.
I'll now turn it back to Walt for his final comments.
Thanks, Dale before we move on to Q&A I'd like to make some final comments.
We expect demand from the world's largest met coal import regions to remain softer throughout the second quarter on one hand, India's steel demand is expected to be subdued until later in the summer.
Country await the completion of its national election process and the impact of the monsoon season.
On the other hand, China's harder to predict but the absence of convincing improvements in the property and construction segments are leading us to remain cautious. We also expect global met coal supply to be strong during the second quarter as is normally the case.
We expect disruptions caused by the Baltimore bridge collapsed to be manageable by the industry and it should be contained within the second quarter.
Speaker Change: For these reasons, we expect pricing to remain lower for the second quarter compared to the first quarter potentially challenging some of our peers, who are higher cost and marginal producers.
Although we have good visibility into our contracted volumes spot opportunities are expected to remain scarce and mostly skewed towards the Pacific Basin.
Speaker Change: We're current pricing levels and freight costs are driving lower than desired average net selling prices.
For these reasons, we will continue to be patient when possible and seek opportunities and maximize average net selling prices for warrior, even if we need to temporarily manage higher than normal inventory levels.
Well, we're well prepared to address a variety of market conditions.
We're also extremely excited and laser focused on the disciplined development of a world class Blue Creek, who serves as <unk>.
Mentioned earlier, we continue to make excellent progress in developing Blue Creek.
We're on track for the first development tons from continuous monitoring units in the third quarter 2024, with a longwall scheduled for startup in the second quarter of 2026.
With that we'd like to open the call for questions operator.
At this time I would like to remind everyone that to ask a question. Please press Star then the number one on your telephone keypad.
We will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Lucas pipes with B Riley Securities. Please go ahead.
Thank you very much operator, good afternoon, everyone well Dale for my first question I wanted to touch a little bit on the on the nearer term outlook it sounded like by.
Lucas Nathaniel Pipes: The status of your kind of closing comments, there how well that in Q2, we should expect lower shipments.
But your realization to kind of continue that favorable trend from Q1.
So I wondered if you could maybe expand on that a little bit would appreciate your thoughts. Thank you very much.
Well I think that's accurate I think that you know when we look at the second quarter, and where demand is and what's going on globally, and we expect prices to stay relatively stable.
And our production profile as we said we look at the whole year, and we look at sales and production for the second quarter.
I think it's fair.
The first quarter was really strong and we need to be a little cautious in the second quarter.
And then in terms of sales should we think of it being less than production.
Production.
Oh, no I'm, not saying there'll be lessened production I just think that the.
First quarter was pretty strong and we had the two rollover vessels that went into the first quarter than I've got added in there and.
Just.
Kind of costs are fast too well.
Where it will be for the quarter.
But but that 85% to 90% realization on the benchmark. That's that's the right way to think about it.
Lucas Nathaniel Pipes: Yes.
Lucas Nathaniel Pipes: Okay.
Thank you thank you for that and.
In terms of your kind of market outlook your commentary still some.
Lucas Nathaniel Pipes: Some some risks out there and I just wonder if you could maybe speak to where where things might be getting a little bit better where theres still more challenged thank you.
I just think as I said with India, I think India is a real bright spot, but I think we've got to let you know let them get through the elections and through the monsoon season.
What we're seeing in Europe is again contracted volumes are moving very well there and into South America. It just spot opportunities are pretty pretty thin in those areas and then where we're really just we don't have a whole lot of confidence in what will happen in China.
Speaker Change: Thank you for that and then one one last one around Blue Creek so.
Speaker Change: Congrats on the progress to date and you.
You mentioned kind of all of that.
Pieces, all lined up for starting the longwall panel development later this year and I wondered if you could remind us what production you expect.
Through these development panels in 2024, and then I think you mentioned a number for 2025, but if you could remind me of that.
Appreciate it and then.
If you could also <unk>.
Blaine to that the sales application from those development tons. Both this year next year that would be very helpful. Thank you sure well monarch, we shouldn't mine a couple hundred thousand tons. This year and that'll just be from the cm units as they start to ramp up you know you will have to start one and then shortly thereafter after we clear.
Speaker Change: Should be running three continuous miner units.
And have about 200000 tons clean equivalent on the ground.
Speaker Change: And we.
That coal will remain on the ground till we get the prep plant up and running which would be the middle of next year.
Speaker Change: And in the meantime by then next year, we're looking at probably a total of about 1 million tons produced off the CMC sections.
But we will start to move that coal when the preparation plant comes online which should be mid year.
So that's one dose so we should start looking at moving that coal into the market and selling that call in the back half of 'twenty five.
Speaker Change: Excellent well I look forward to that and really appreciate all the color and continued best of luck.
Speaker Change: Thank you thanks Louis.
Speaker Change: Your next question comes from the line of Nathan Martin with the Benchmark Company. Please go ahead.
Thanks, operator, good afternoon, guys. Congrats on the strong operational performance.
Maybe just to follow up Lucas as last question. There you know targeted prep plant start up I think you said second half of 'twenty five to maybe move some of those tons. When do you expect to have you know your rail load out in barge load out in place at that point or would you be looking to truck coal just any more details there would be great.
I think in the back half will still be working on the <unk>.
I think we'll be running trucks over to a train load out at that point on the back half of the year next year, while we continue to complete the overland belt to the rail load out.
By barge I'm not as certain by barge one will start moving.
Some of those tons by barge.
But I know, we'll be able to meet our expectation is we'll be moving to the rail load out soon is the preparation plant starts up.
Speaker Change: Okay got it well I appreciate that and then maybe just kind of a modeling question and sorry, if I missed it I know you guys mentioned the capture rate of 84% in your prepared remarks for the first quarter could you kind of walk us through how you get to that 84% just so we can be clear.
Yeah.
Yeah. Nate this is Dale it's really just our average net selling price divided by the average of the index for the quarter.
Pretty straight just try that easy easy way to model it.
Okay.
I'm using a calendar.
But 279.
Yes, the calendar average.
Speaker Change: I apologize for cutting you off what were the numbers again sorry.
So our net average selling price up to 34.
Okay, and shortens the buyback $2 79, which was the average on a short ton basis for the first quarter.
Speaker Change: Okay got it.
Speaker Change: And then and then maybe just an update on our logistics hour kind of upgrades you before progressing I think you guys said that did pretty well this quarter I know you said railroads exceptional but.
Speaker Change: Anything any effects from the Panama canal or the Red Sea.
Speaker Change: I'm just curious there.
Speaker Change: Well as far as what's going on in mobile things are going very well the improvements they've made it have made a huge difference in the efficiency down at the port of mobile.
Speaker Change: For our customers, we're still seeing with the issues in the Red Sea is longer transit times for that coal to get to customers and the same thing as you know with the Panama Canal. So we're seeing longer transit times.
Speaker Change: And then also impact transportation cost.
Speaker Change: But that's really been the impact from what's been going on for a couple of quarters now.
Speaker Change: You know what kind of progress have you guys made at the existing mines I think you said 250 total.
Speaker Change: Wondered about our Blue Creek and how has the initial reception been to Blue Creek as you start your hiring ramp up there.
Speaker Change: Well I'll tell you. We are you know naturally we have a schedule on our budget on what we expect and we are right on budget for where we expect it to be year to date and what we're seeing in terms of people looking towards Blue Creek, because we're seeing a strong reception of those.
Speaker Change: Yeah.
Speaker Change: Of the applicants for those those roles. So we're we're pretty happy with where things are right now and we think we're right on schedule.
Speaker Change: Great very helpful guys I appreciate the time and best of luck.
Speaker Change: Again, if you have a question. Please press Star then one.
Catherine Chances: Your next question comes from Catherine chances with BMO capital markets. Please go ahead.
Catherine Chances: Hi, Thank you for taking my question.
Catherine Chances: Go ahead.
Catherine Chances: Regarding the Blue Creek incremental volume.
Catherine Chances: What do you expect to contract as well incremental volume next year. Once you start selling in the second half or is that going to be more spot exposed.
Speaker Change: I think what we'll be doing there is going out and canvassing customers to see who is interested in trying the product and so I think it will be contracted it's nothing well I don't think it of blood in the spot market. It would be people getting test volumes in smaller volumes. So they can see what the products like.
Speaker Change: Sure welcome. Thank you.
Speaker Change: Your next question comes from the line of Lucas pipes with B Riley Securities. Please go ahead.
Lucas Nathaniel Pipes: Thank you very much operator, and thank you very much for taking my follow up questions.
Lucas Nathaniel Pipes: Questions.
Lucas Nathaniel Pipes: First one just a reminder, I think we've discussed this three months ago, but.
Lucas Nathaniel Pipes: Looking for a quick update in terms of kind of the split between CFR and <unk> business.
Lucas Nathaniel Pipes: By my numbers my number for what what's the what's the rough breakdown today.
Lucas Nathaniel Pipes: I think you can look at when we talk about where the the coals are flowing to the Oh co flowing into Europe, which was 44% for the quarter as all F O B everything going to South America, which was 17% 18%.
Lucas Nathaniel Pipes: That's all F O b and probably.
Lucas Nathaniel Pipes: A much smaller percentage going into Asia is F O b.
Lucas Nathaniel Pipes: The remainder everything else going into Asia would be CFR.
Lucas Nathaniel Pipes: And Zambia.
Speaker Change: Got it and so for the rest of the year, we can probably just called this is kind of roughly constant.
Speaker Change: Our expectations are we get back to a spot cargoes of 25%, where we were much higher than that in the first quarter. So I guess, our expectation right now at least is that we'll have a little higher volumes going into.
Speaker Change: Our Europe, and South America, I mean that could change, but I think right now given the information we've shared with you our expectation is those number.
Speaker Change: In the Europe, and South America increase on a percentage basis, a little bit.
Speaker Change: And is that for the remainder of the year or for Q2, specifically.
Speaker Change: That's for the remainder of the year, we said, we expected spot volume to be 25% for the year and I think you can expect the spot volumes were almost <unk>.
Speaker Change: Completely be going into Asia.
Speaker Change: Very helpful. I appreciate that.
Speaker Change: I noticed.
Speaker Change: Recently on the.
Speaker Change: Our results.
Speaker Change: The proxy vote.
Speaker Change: Proposal related to a poison pill bylaw provision was.
Speaker Change: Adopted.
Speaker Change: Wondering if you could maybe share a little bit how this came about and if there was any any specific catalyst that that drove that thank you. Thank you very much.
Speaker Change: Oh, you know what I think just looking at that provision.
Speaker Change: I think a lot of shareholders, you think thats kind of commonplace. The the biggest thing that we didn't think was commonplace in that.
Speaker Change: It isn't a request was the requests that are being put into the bylaws.
Speaker Change: But you know we've gone out every time we've.
Speaker Change: Done anything we've gone out and ask for shareholder approval anyway. So it wasn't something that.
Speaker Change: We really thought was necessary because they've been doing it in the past anyway.
Speaker Change: Got it alright, well I appreciate it thanks, again and again best of luck.
Speaker Change: Thank you very much thanks Lucas.
Speaker Change: At this time there are no further questions.
Walter J. Scheller: I will now turn the call back over to Mr. Schiller for any comments.
Walter J. Scheller: That concludes our call. This afternoon. Thank you again for joining us today and we appreciate your interest in warrior.
Speaker Change: Thank you and that concludes today's.
Speaker Change: Today's conference. Thank you all for participating you may now disconnect.