Q2 2024 Alpha Metallurgical Resources Inc Earnings Call
Operator: Greetings and welcome to the Alpha Metallurgical Resources second quarter 2024 results conference call. At this time, all participants are on 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 now begin.
Greetings and welcome to the Alpha Metallurgical Resources' second quarter 'twenty 'twenty four 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 of Investor Relations and Communications you May now begin.
Emily O'quinn: Thank you, Rob. And good morning, everyone.
Emily O'quinn: Thank you, Rob and good morning, everyone.
Emily O'quinn: Before we get started, let me remind you that in 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 second quarter 2024 earnings release and the associated SEC filing. Please also see those documents for information about our use of non-GAAP measures and their reconciliation. Participating on the call today are Alpha's Chief Executive Officer, Andy Eidson, and our President and Chief Operating Officer, Jason Whitehead. Also participating on the call are Todd Munsey, our Chief Financial Officer, and Dan Horn, our Chief Commercial Officer. With that, I'll turn the call over to Andy.
Speaker Change: 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 second quarter 2024.
Speaker Change: Our 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.
Speaker Change: Participating on the call today are alphas, Chief Executive Officer, Andy Headset, and our President and Chief Operating Officer, Jason Whitehead also participating on the call are Todd Murphy, our Chief Financial Officer, and Dan Horn, Our Chief commercial officer with that I'll turn the call over to Andy.
Andy Eidson: Thanks, Emily. And good morning, everyone.
Andy Eidson: This morning, we issued an earnings release detailing our second quarter 2024 financial results, which included adjusted EBITDA of $116 million and 4.6 million tons shipped within the quarter. In spite of a challenging market backdrop, the Alpha team delivered another solid quarter of performance. Both the operations and the sales teams did very well within the areas they could control by hitting ambitious shipping targets, producing well, and, most of all, operating safely throughout the period.
Andy Headset: Thanks, Emily and good morning, everyone.
Speaker Change: This morning, we issued our earnings release detailing our second quarter 2024 financial results, which included adjusted EBITDA of $116 million and $4 6 million tons shipped within the quarter.
Speaker Change: In spite of a challenging market backdrop, the alpha team delivered another solid quarter of performance both the operations and the sales teams executed very well within the areas. They can control well hitting ambitious shipping targets, producing well and most of all operating safely throughout the period.
Andy Eidson: As we discussed in our most recent earnings call in May, weakening steel demand has negatively impacted metallurgical coal markets, and our second quarter realizations reflect that negative pressure. This is not a surprise, however, as waning demand and difficult uncertainty or significant uncertainty across the world brought about the difficult market we experienced in Q2. These conditions intensified in the third quarter and persisted today.
Speaker Change: As we discussed in our most recent earnings call in May weakening steel demand is negatively impacted metallurgical coal markets and our second quarter realizations reflect that negative pressure.
Speaker Change: This is not a surprise, however is waning demand and difficult uncertainty or significant uncertainty across the world brought about the difficult market we experienced in Q2.
Speaker Change: These conditions have intensified in the third quarter and persistent today.
Andy Eidson: As is typical at this time each year, the domestic negotiation process has begun with North American customers for next year's contracts. Over the coming months, we expect to secure commitments for 2025 domestic tons, and we'll provide an update later in the year on those commitments and our overall shipment volume guidance for 2025. In the interim, we continue to ship our contracted tons to our customers, and we're listening closely to the market to hear how we may be able to meet current and future customer needs.
Speaker Change: As is typical at this time each year the domestic negotiation process has begun with north American customers for next year's contracts over the coming months, we expect to secure commitments for 2025 domestic tons and we'll provide an update later in the year on those commitments and our overall shipment volume guidance for 2025.
Speaker Change: In the interim we continue to ship our contracted tons to our customers.
Speaker Change: And we're listening closely to the market to hear how we may be able to meet current and future customer needs.
Andy Eidson: Given the recent MET market deterioration and volatility, we remain focused on our first priority of preserving the franchise in order to weather whatever market conditions may lie ahead. To that end, we increased our total liquidity by nearly 25% during the second quarter. We continue to take a wait-and-see approach with regard to capital returns as we monitor the market down at. As we've proven with our previous activity in the buyback program, we're eager to return capital to shareholders when conditions allow. I also want to note, particularly with the backdrop that we're doing
Speaker Change: Given the recent met market deterioration in volatility.
Speaker Change: Remain focused on our first priority of preserving the franchise in order to weather whatever market conditions may lie ahead to that end, we increased our total liquidity by nearly 25% during the second quarter.
Speaker Change: We continue to take a wait and see approach with regard to capital returns as we monitor the market dynamics.
Speaker Change: As we've proven with our previous activity in the buyback program, we're eager to return capital to shareholders when conditions allow.
Speaker Change: Also want to note.
Speaker Change: Particularly with the backdrop that we're dealing with today when the market, it's pretty easy to fall into the trap of thinking there are right now is forever.
Andy Eidson: This tub market has lasted a bit longer than it has in recent years, at least in respect to the usual peaks and valleys of the cycle, but the peaks of the past three years also lasted longer than had been expected. One thing is certain, though, and that is that the world needs steel, and metallurgical coal makes steel. So, the most important thing for Alpha is that we continue to operate safely, maintain high productivity, and take advantage of every opportunity the market presents us. That's what our 4,000 team members are good at, and I'm confident that they'll do that. With that, I'll turn the call over to Todd for details on our Q2 financial results. Thanks, Andy.
Speaker Change: This tough market has lasted a bit longer than it has in recent years at least in respect to the usual peaks and valleys of the cycle, but the peaks of the past three years also lasted longer than had been expected.
Speaker Change: One thing is certain though and that is what the world needs deal and metallurgical coal make steel. So the most important thing for alpha and so we continue to operate safely maintain high productivity and take advantage of every opportunity the market presents to us.
Speaker Change: That's what our 4000 team members are good at and I'm confident that's what they'll do.
Todd Munsey: Second quarter adjusted EBITDA was $116 million, down from $190 million in Q1. It sold 4.6 million tons in the quarter compared to 4.4 million in Q1. Met segment realizations decreased quarter over quarter with an average second quarter realization of $141.86, compared to $166.68 for the first quarter. Export met tons priced against Atlantic indices and other pricing mechanisms in the second quarter realized $135.47 per ton, while export coal priced on Australian indices realized $153.52.
Speaker Change: With that I'll turn the call over to Todd for details on our Q2 financial results.
Todd Murphy: Thanks, Andy second quarter, adjusted EBITDA was $116 million down from $190 million in Q1.
Todd Murphy: So $4 6 million tons in the quarter compared to $4 4 million in Q1.
Todd Murphy: That segment realizations decreased quarter over quarter. It was an average second quarter realization of $141 86, compared to $166 68 for the first quarter.
Todd Murphy: Export met tons priced against Atlantic indices, and other pricing mechanisms in the second quarter realized $135 47 per ton.
Todd Murphy: While export coal priced on Australia, and indices realized $153 52.
Todd Munsey: These are compared to realizations of $172.24 per ton and $193.70, respectively, in the first quarter. The Q2 realization for our metallurgical sales was a total weighted average of $145.94 per ton, down from $176.20 per ton in the prior quarter. Realizations in the incidental thermal portion of the MET segment decreased to $75.82 per ton in the second quarter as compared to $76.53 per ton in the first quarter. Cost of coal sales for our MET segment decreased to $109.31 per ton in the second quarter, down from $115.65 per ton in Q1. The primary drivers of the cost reduction were lower sales-related costs as a result of softening coal prices and a reduction in third-party purchase coal costs in the quarter.
Todd Murphy: These are compares realizations of $172 24 per ton and $193 70.
Todd Murphy: Respectively in the first quarter.
Todd Murphy: The Q2 realizations for our metallurgical sales was a total weighted average of $145 94 per ton down from $176 20 per ton in the prior quarter.
Todd Murphy: Realizations and the incidental thermal portion of the met segment decreased to $75 82 per ton in the second quarter as compared to $76 53 per ton in the first quarter.
Todd Murphy: Cost of coal sales firm that segment decreased to $109.31 per ton in the second quarter down from $115 65 per ton in Q1.
The primary drivers of the cost reduction were lower sales related costs as a result of softening coal prices and a reduction in third party purchase coal costs in the quarter.
Todd Munsey: SG&A, excluding non-cash stock compensation and non-recurring items, decreased to $14.2 million in Q2, as compared to $19.9 million in the first quarter. CapEx in the second quarter was $61.1 million, down from $63.6 million in the first quarter. Moving to the balance sheet and cash flows as of June 30, 2024, we had $336.1 million in unrestricted cash, an increase of $66.7 million, or nearly 25% from our March 31, 2024.
Todd Murphy: SG&A, excluding noncash stock compensation and nonrecurring items decreased to $14 $2 million in Q2, as compared to $19 $9 million in the first quarter.
Todd Murphy: Capex in the second quarter was $61 $1 million down from $63 $6 million in the first quarter.
Todd Murphy: Moving to the balance sheet and cash flows as of June 32024, we had $336 $1 million in unrestricted cash an increase of $66 $7 million or nearly 25% from our March 31.
Todd Murphy: Unrestricted cash figure of $269 $4 million.
Todd Munsey: We had $95.6 million in unused availability under our ABL at the end of the quarter. As of the end of June, Alpha had total liquidity of $356.7 million, up from $288.1 million at the end of the first quarter. Cash provided by Operating Activities was $138.1 million in the second quarter, down from $196.1 million in Q1. As of June 30th, our ABL facility had no borrowings and $59.4 million of letters of credit outstanding, down from $61.3 million in the prior quarter.
Todd Murphy: We had $95 $6 million in unused availability under our ABL at the end of the quarter.
Todd Murphy: As of the end of June Alpha had total liquidity of $356 $7 million.
Todd Murphy: Up from $288 $1 million at the end of the first quarter.
Todd Murphy: Cash provided by operating activities was $138 $1 million in the second quarter down from $196 $1 million in Q1.
Todd Murphy: As of June 30th our ABL facility had no borrowings and $59 $4 million of letters of credit outstanding down from $61 $3 million in the prior quarter.
Todd Murphy: Yeah.
Todd Munsey: In terms of our committed position for 2024 at the midpoint of guidance, 71% of our metallurgical tonnage in the MET segment is committed at a price of $157.97. Another 29% of our met tonnage for the year is committed, but not yet priced. The thermal byproduct portion of the MET segment is fully committed and priced at the midpoint of guidance at an average of $75.96. As we discussed in the last quarterly call, we expected market softness to limit our repurchase activity in Q2, and we communicated our intention of building and maintaining our liquidity position. We did not repurchase any shares in the second quarter under the company's share buyback program.
Speaker Change: In terms of our committed position for 2024 at the midpoint of guidance, 71% of our metallurgical tonnage and the met segment is committed and priced.
Speaker Change: At an average price of $157 97.
Another 29% of our met tonnage for the year as committed but not yet priced.
Speaker Change: Thermal byproduct portion of the mass segment is fully committed and priced at the midpoint of guidance at an average of $75 96.
Speaker Change: As we discussed in our last quarterly call, we expected market softness to limit our repurchase activity in Q2.
Speaker Change: And we communicated our intention of building and maintaining our liquidity position, we did not repurchase any shares in the second quarter under the company's share buyback program.
Jason Whitehead: As of July 31, 2024, the number of common stock shares outstanding was approximately 13 million, and the remaining stock buyback program authorization permits approximately $400 million and additional repurchases contingent on cash flow levels and market conditions. We have repurchased a total of 6.6 million shares under the existing plan at an average share price of $165.74. I will now turn the call over to Jason for an update on operations for the quarter. Thanks, Todd. And good morning, everyone.
Speaker Change: As of July 31, 2024, the number of common stock shares outstanding was approximately $13 million.
Speaker Change: The remaining stock buyback program authorization permits approximately $400 million and additional repurchases contingent on cash flow levels and market conditions.
Speaker Change: We have repurchased a total of $6 6 million shares under the existing plan at an average share price of $165.74.
Speaker Change: I will now turn the call over to Jason for an update on operations in the quarter.
Jason Whitehead: I'm pleased to report that our teams continue to operate safely and efficiently in the second quarter. We have again achieved safety and environmental performance that is better than the industry average. Over the last few months, our mine rescue teams have received numerous individual and team awards at competitions throughout the region, including many first-place finishes. There are simply too many to list here, but we are very proud of each and every member of these outstanding teams, and we appreciate their dedication to safety and preparedness.
Jason Whitehead: Thanks, Todd and good morning, everyone I'm pleased to report that our teams continue to operate safely and efficiently in the second quarter.
Jason Whitehead: We have again achieved safety and environmental performance, that's better than the industry average.
Speaker Change: Over the last few months our mountain rescue teams have received numerous individuals on the team awards at competition throughout the region.
Speaker Change: Including many first place finishes.
Speaker Change: It's simply too many to list here, but we are very proud of each and every member of these outstanding teams and we appreciate their dedication to safety and preparedness.
Jason Whitehead: On our last quarterly call, I explained the process we're undertaking to communicate the current market conditions with our partners and suppliers. Since then, we've had a lot of good conversations, many of which have resulted in improved pricing agreements. In some cases, we have transitioned to new suppliers where viable lower cost options were available to better match our supply needs with market realities. As these changes take effect, we expect these actions to have a positive impact on our costs.
Speaker Change: On our last quarterly call I explained the process, we are undertaking to communicate the current market conditions with our partners and suppliers.
Since then we've had a lot of good conversations many of which have resulted in improved pricing agreements and some cases, we have transitioned to new suppliers, where viable whereby both lower cost options were available.
Speaker Change: As a matter of match our supply needs with market realities.
Speaker Change: As these changes take effect, we expect these actions to have a positive impact on our costs.
Jason Whitehead: Additionally, we continue to fine-tune our in-house manufacturing capabilities, which have allowed us increased flexibility and timeliness and replaced certain parts, and Safely Maximizing the Lifespans of Our Existing Equipment. We will continue to leverage the talent and the capabilities of our manufacturing teams to assist us in this regard. I will now turn the call over to Dan for an update on the market.
Speaker Change: Additionally, we continue to fine tune, our in house manufacturing capabilities, which have avoided us increased flexibility and timeliness and replacing certain parts.
And safely maximizing the lifespan of our existing equipment.
Speaker Change: We will continue to leverage the talent and the capabilities of our manufacturing teams to assist us in this regard.
Speaker Change: Now I'll turn the call over to Dan for an update on the markets.
Dan Horn: Thanks, Jason, and good morning. Weakened global demand for steel has persisted, resulting in continued metallurgical cold market softness over the past several months. Factors influencing steel demand include economic policies and conditions globally, as well as the health of national and regional economies, some of which have been very negatively impacted by geopolitical unrest and violent conflict. Additionally, more than 60 national elections are scheduled to occur or have already occurred across the world in 2024, including races for leadership in the United States, India, and many European countries, all important destinations for office.
Dan Horn: Thanks, Jason and good morning.
Dan Horn: We can global demand for steel has persisted, resulting in continued metallurgical coal market softness over the past several months.
Dan Horn: Factors influencing steel demand include economic policies and conditions globally as well as the health of National and regional economies, some of which have been very negatively impacted by geopolitical unrest and violent conflicts. Additionally.
Dan Horn: Additionally, more than 60 national elections are scheduled to recur or have already occurred across the world in 2024, including races for leadership in the United States, India and many European countries.
Speaker Change: All important destinations for office Kohl's.
Dan Horn: The higher than usual volume of elections across the globe has created additional geopolitical uncertainty, which affects consumer confidence and demand for steel. Metallurgical coal prices softened during the second quarter of 2024. The Australian Premium Logo Index dropped from $246.50 per metric ton on April 1st to $234 per metric ton at the end of the second quarter. The U.S. East Coast Low Vol Index decreased from $222 per metric ton at the beginning of April to $218 at the end of April.
Speaker Change: The higher than usual volume of collections across the globe has created additional geopolitical uncertainty, which affects consumer confidence and demand for steel.
Speaker Change: Metallurgical coal prices soften during the second quarter of 2024.
Speaker Change: Australian premium low vol index dropped from $246 50 per metric ton on April 1st.
Speaker Change: $234 per metric ton at the end of the second quarter.
Speaker Change: The U S East Coast low Vol index decreased from $222 per metric ton at the beginning of April to $218 at the end of June.
Dan Horn: The U.S. East Coast Highball A Index moved from $223 per metric ton at the start of the quarter to $212 per metric ton at the end of the quarter, and the U.S. East Coast Highball B Index decreased from $198 per metric ton to $190 at the end of the quarter. Since the quarter close, all four indices have decreased further. The Australian premium low vol and U.S. East Coast low vol indices fell to $215 and $211, respectively, on August 2.
Speaker Change: The U S East Coast Highball, a index moved from $223 per metric ton at the start of the quarter to $212 per metric ton at the end of the quarter in the U S. East Coast High Vol. B index decreased from $198 per metric ton to 190 at quarter close.
Speaker Change: Since quarter close all four indices have decreased further the Australian premium low vol, and U S East Coast low vol indices fell to $215 and $211 respectively on August 2nd.
Dan Horn: U.S. East Coast Highball A and Highball B indices measured 205 and 183 per ton, respectively, on the same day. In the thermal coal market, the API 2 index was $118.05 per metric ton on April 1, decreased to $107.10 per metric ton at the end of June, and on August 2nd, the API-2 index was at $122.20 per metric ton. In terms of office performance, we continue to ship contracted tons to our customers as planned.
Speaker Change: U S East Coast High Vol, a and high vol. B indices measured 205, and $1 83 per ton respectively as of the same date.
Speaker Change: And the thermal coal market. The API two index was $118 five per metric ton on April one and decreased to $107 10 per metric ton at the end of June and on August 2nd the API. Two index was at $122 20 per metric ton.
Speaker Change: Yeah.
Speaker Change: In terms of office performance, we continue to ship contracted tons to our customers as planned in.
Dan Horn: In Q2, our sales, operations, and logistics teams were able to hit some internal shipping milestones, recording 4.6 million tons shipped within the quarter. This is even more impressive considering that we worked around a planned week-long period in May where one of the DTA stacker reclaimers was down for maintenance. I'm proud of how our team has risen to the challenge and continued to focus on the controllable aspects of our jobs, performing well despite the current poor market conditions.
Speaker Change: In Q2, our sales operations and logistics teams were able to hit some internal shipping milestones recording $4 6 million tons shipped within the quarter.
Speaker Change: This is even more impressive considering that we worked around the planned week long period in May we're one of the DTA Stacker reclaimer was down for maintenance.
I'm proud of how our team has risen to the geology and continued to focus on the controllable aspects of our jobs performing well despite the current poor market dynamics.
Dan Horn: As you recall from our Q1 earnings call back in May, we spoke about the market deterioration that we were seeing, which has only intensified since then, with periods of very little or no spot. As we look ahead to the balance of the year, we remain confident in our ability to meet our full year 2024 shipment volume guidance. Looking a bit further to 2025, the customary domestic solicitation process has begun, and we are in early discussions with North American customers regarding 2025 business.
Speaker Change: As you will recall from our Q1 earnings call back in May we spoke about the market deterioration that we were seeing which has only intensified since then with periods of very little or no spot demand.
Speaker Change: As we look ahead to the balance of the year, we remain confident in our ability to meet our full year 2020 for shipment volume guidance.
Speaker Change: Looking a bit further to 2025, the customary domestic solicitation process has begun and we are in early discussions with North American customers regarding 2025 business as.
Dan Horn: It's much too early in the process to speculate about where volumes or pricing will land, but we will provide an update on Alpha's sales commitments at the appropriate time. Finally, I'm pleased to say that rail performance has been solid, and we have not experienced material indirect impacts from the Baltimore Bridge collapse. As a reminder, with a majority ownership stake in DTA, Alpha does not utilize the Baltimore terminals to export our coal.
Speaker Change: It's much too early in the process to speculate about where volumes or pricing will land, but we will provide an update on alpha sales commitments at the appropriate time.
Speaker Change: Finally, I'm pleased to say that rail performance has been solid and we have not experienced material indirect impacts from the Baltimore bridge collapse.
Speaker Change: As a reminder, with the majority of your ownership stake in DTA, often does not utilize the Baltimore terminals to export our goals despite the.
Dan Horn: Despite the disruption to other coal producers and transportation flows, our rail partners have performed well, and we have not experienced ancillary challenges from the aftermath of the bridge collapse. We remain grateful for the positive rail performance and look forward to continuing to provide excellent service to our customers around the world. Operator, we are now ready to open the call for questions. Thank you.
Speaker Change: The disruption to other coal producers in transportation flows our rail partners have performed well and we have not experienced ancillary chain challenges from the aftermath of the bridge collapsed.
Speaker Change: We remain grateful for the positive rail performance and look forward to continuing to provide excellent service to our customers around the world.
Speaker Change: And with that operator, we're now ready to open the call for questions.
Speaker Change: Thank you.
Operator: Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions. Our first question comes from Lucas Pipes with B. Reilly Securities. Please proceed with your question.
Speaker Change: At this time, we will be conducting a question and answer session.
Speaker Change: You'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Speaker Change: Our first question comes from Lucas pipes with B Riley Securities. Please proceed with your question.
Andy Eidson: Thank you very much, operator. Good morning, everyone. Really solid cost performance in Q2, and I wanted to ask about those cost reductions if you could maybe break out the contribution to the reduction from both sales-related as well as purchase coal and then any other kind of buckets that you could point to as major drivers and a little bit higher level. How much purchase coal do you typically blend into your shipments? Thank you very much.
Lucas Pipes: Thank you very much operator, and good morning, everyone.
Really solid cost performance in Q2, and I wanted to ask on on those cost reductions if you could maybe break out okay.
Lucas Pipes: Contribution.
Speaker Change: Two the reduction from both sales related as well as purchased coal and then any other kind of buckets that you could.
0.2.
Speaker Change: Two drivers.
Speaker Change: And a little bit higher higher level.
Speaker Change: How much purchase coal.
Speaker Change: And it's typically lend into your shipments thank you very much.
Dan Horn: Hey, Lucas, it's Andy. I'll hit the The breakdown on the cost reductions is roughly 50-50 between those two category items combined, and they may be less than 100%, and we may have 10% of other things. General Cost Reduction, Productivity Enhancement, that kind of stuff, but it's roughly split between those two items. As far as how much purchase coal we utilize on a given quarter, I'll let Dan jump on that one.
Speaker Change: Hey, Lucas, it's Andy I'll hit the.
Speaker Change: The first piece myself the the break down on the cost reductions is roughly 50 50 between those two there's two category items combined and they may be less than a 100%. We may have 10% of other just general cost reduction productivity enhancement that kind of stuff, but it's roughly split between them.
Ian: Two items as far as how much purchase coal we utilized on a given quarter I'll, let Ian jump on that one I guess good morning up there.
Dan Horn: I woke us up this morning. Typically, several hundred thousand tons a year. There's no fixed number, and a lot of it depends on market conditions. Some of it depends on what our own minds are doing, if we have some geology or quality issues. So yeah, I don't know the number off the top of my head, but it's in the several hundred thousand ton range. Just put a little more color on it. Some of those tons purchased are purchased against the indices. So, as the indices have slid down, our purchase coal costs have slid down as well.
Ian: Typically several hundred thousand tons a year, there's no fixed number at a lot of it depends on market conditions. Some of it depends on what our own mines are doing we have some geology or quality issues.
Ian: So I don't know the number off top my head, but it's in the several hundred thousand ton range.
Just want a little more color on some of those tons of purchased are purchased against the industry. So as the indices have slowed down our purchase coal costs without with it.
Andy Eidson: Thank you very much for that, Dan. And on volume, the midpoint of guidance implies that call it an 8% reduction or so versus the first half. So I wondered if you could maybe speak to that, is that reflecting current market conditions, just a degree of conservatism after a very strong second quarter, and kind of zooming out on the industry, what's your take on the supply situation more broadly? Is it improving in the sense that some higher cost lines are rationalizing, and then there was also a major supply disruption in North America? I wondered if you could maybe comment on that as well? Thank you very much for your perspective.
Speaker Change: Got it. Thank you. Thank you very much for that then.
Speaker Change: And on the on the volume.
Speaker Change: Midpoint of guidance implies.
Speaker Change: On the 8% reduction or so versus first half. So I'm wondering if you could maybe speak to that is that reflecting current market conditions are just a degree of conservatism master very strong second quarter and.
Speaker Change: Kind of zooming out on the industry, what's your take on the kind of supply situation more broadly as it is.
Speaker Change: Improving in the sense that some higher cost mines are rationalizing and then there was also.
Speaker Change: Makes a supply disruption in the quarter in in North America, and I'm wondering if you could maybe comment on that as well. Thank you very much for your perspective.
Andy Eidson: Hey, Lucas. I'll hit the first piece again. We'll let Dan cover the hard part of it.
Speaker Change: Hey, Lucas I'll I'll hit the first piece again, we'll let Dan covered the hard part of it.
Andy Eidson: As far as the cadence on the shipments goes, there's nothing really intentional there. It's just how the shipments have fallen. We did have very strong Production and Shedment Corridors in Q1 and Q2, and so I think that got us a little bit ahead of the curve. So it's really just taking the back half of the year, which will probably, I mean, looking at our forecast, it looks like it'll be kind of routable between Q3 and Q4 to get to that midpoint.
Dan Horn: Far as the cadence on the shipments there is theres nothing really intentional there. It's just how the shipments are falling we did have very strong production.
Dan Horn: Production and shipment quarter in Q1, and Q2, and so I think that got us a little bit ahead of the curve. So it's really just taking the back half of the year, which will probably I mean, it looks like looking at our forecast it looks like it'll be kind of ratable between Q3 Q4 to get to that mid point, so with with the.
Andy Eidson: So with, you know, the vast majority of the book being committed, um, it's really just a function of running through those commitments and getting those tons where they need to be. But as far as the broader market question, Dan, I'll let you answer that. Hi Sandy.
Dan Horn: The vast majority of the book being committed.
Dan Horn: It's really just a function of running through those those commitments and getting those tons, where they need to be.
Dan Horn: But as far as the broader market question, Dan I'll, let you answer that one.
Dan Horn: Thanks, Andy. Well, yeah, Lucas, I think... We've seen some supply coming off, you know, around the edges, I guess, due to high costs. But we've also, of course, seen a couple of large met mines idle due to the mine fires. Frankly, you know, even with these plots, some of that supply coming off the market can, you know, sort of still balance itself. In other words, you know, take some supply off, but there's also some demand gone.
Dan Horn: Thanks, Andy.
Dan Horn: Yeah, Lucas I think.
Dan Horn: We've seen some supply coming off you know around the edges I guess due to high costs, but we've also of course seen a couple of large met mines idled due to the fires and.
Dan Horn: Frankly, you know even with these what some of that supply coming off the market sort of still continues to balance itself. In other words, you know it takes some supply off that there's also some demand gone. So it's still net net.
Dan Horn: So it's still net net, kind of where it is where it is, you know, we haven't, I don't think there's been enough supply come off to materially impact the market. Having said that, we're shipping steady, our order book looks like we'd like it to look, and we're just going forward on that basis, kind of a week at a time. But we are seeing a little bit of take-up, you know, in India, for example, with them and, no surprise, the monsoons. The season's wrapping up, and we expect to see a bit more, resume a bit more shipments into India.
Dan Horn: Got to where you know where it's where it is you know we haven't I don't think there's been enough supply come off to materially impact.
Dan Horn: Impact the market.
Dan Horn: Having said that were.
Dan Horn: We're shipping stay we are.
Dan Horn: Our our order book looks like we'd like it to work in.
Dan Horn: We're just going forward on that basis with kind of a.
Dan Horn: Week at a time.
Dan Horn: But we are seeing a little bit.
Dan Horn: You know in India for example, with them and you know no surprise monsoons.
Dan Horn: Seasons, wrapping up and we expect to see.
Dan Horn: Bit more.
Dan Horn: Resume a little bit more shipments into India.
Dan Horn: But Dan, do you think the market is oversupplied today? And if so, how many tons is it? Is it possible?
Dan Horn: Dan do you think the market is oversupplied today and if so how many tons is it is it is it possible.
Dan Horn: Boy, that's a tough one, Lucas. I don't know. I'd say it's balanced. I can speak for Alpha. We brought our inventories down in Q2 a bit, so we're comfortable with our inventory situation. We're not piling the coal on. Yeah, it doesn't feel...
Boy, Oh boy, that's a tough one Lucas I don't know it.
Dan Horn: I'd say, it's balanced I don't think I was speaking I can speak for Alpha you know our inventories were actually we brought our inventories down in Q2, a bit so we're comfortable with our inventory situation, we're not on the call up.
Speaker Change: Yes, it does.
Speaker Change: Yeah, It doesn't feel that oversupply to me.
Speaker Change: What it's worth.
Speaker Change: That's helpful.
Andy Eidson: Thank you very much. I'll try to ask one last question. Andy, could you maybe speak to your strategic priorities at this time? Obviously, the market has changed a bit. Broader equity market, coal markets are softer. You are ahead of your kind of cash targets.
Speaker Change: Thank you very much I'll try to.
Speaker Change: Ask ask one last question.
Andy Headset: Andy could you could you maybe speak.
Speaker Change: To your strategic priorities at this time I always see that that market has changed a bit.
Andy Headset: Broader equity market coal markets are softer.
Speaker Change: You are ahead of your kind of.
Speaker Change: Cash target. So I'm wondering how you kind of think about everything and how how how you want to position Alpha optimally doing this time. Thank you.
Andy Eidson: Yeah, Lucas, that one's in markets like these, it's pretty easy, or our strategy is kind of defined for us, which is, as I said, in the prepared comments, protecting the franchise. And the fact that this market has lasted longer than it typically does when you're talking about the quote unquote shoulder season, you know, you've usually got a couple of three months of doldrums, so to speak. This has gone on for a good bit longer than that, and I don't necessarily see the end of it just yet.
Speaker Change: Yeah, Lucas that ones and in markets like these it's pretty easy or our strategy is kind of define for us which is as I said in the prepared comments protecting the franchise.
Speaker Change: And the fact that this this market has lasted longer than it typically does when you're talking about the quote unquote shoulder season, you know you've got usually a couple three months.
Of of Doldrums, so to speak this has gone on a good bit longer than that and don't necessarily see the end of it just yet I mean, we see as Dan said, we see some inklings that things may be on a turn but it could be like a battleship and it takes a while.
Andy Eidson: I mean, as Dan said, we see some inklings that things may be on a turn, but it could be like a battleship and it takes a while. So with that in mind, getting above our target liquidity number is more about just creating more of a buffer because We have operated, I think we've been most successful because we have operated so conservatively. I'm trying to protect the balance sheet. And I think that's going to remain our number one priority until we are comfortable that the market has turned in a more substantial fashion and for a longer period of time before we get too aggressive on anything but that.
Speaker Change: So with that in mind getting above our our target liquidity number.
Speaker Change: Is more about just creating more of a buffer because we.
Speaker Change: We have operated I think we've been most successful because we have operated so conservatively.
Speaker Change: Trying to protect the balance sheet and I think that's going to remain our number one priority until we are comfortable with that.
Speaker Change: The market has turned.
Speaker Change: For.
Speaker Change: In a more substantial fashion and for a longer period of time before we get too aggressive on anything but that.
Operator: Andy and team, you've done a great job managing this market, both in the good and bad times. So I'll be looking forward to that. And in the meantime, I wish you all the best.
Speaker Change: Andy and team has done a great job managing this market both in the good and bad times, So I'll be looking forward to that and in the meantime, I wish you continued best of luck.
Lucas Pipes: Thank you Lucas.
Operator: Our next question comes from Nathan Martin with the Benchmark Company. Please proceed with your question.
Our next question comes from Nathan Martin with the Benchmark Company. Please proceed with your question.
Nathan Martin: Thanks, Operator. Good morning, everyone.
Nathan Martin: Thanks, operator, good morning, everyone, maybe just dig in a little bit more on Lucas's last question, obviously market is experiencing quite a bit of turmoil right now and you just touched on that I mean.
Nathan Martin: Maybe I could dig in a little bit more on Lucas's last question. Obviously, the market is experiencing quite a bit of turmoil right now. Andy, you just touched on that.
Andy Eidson: It sounds like that's where your focus is. The market's looking for signals there. But at what point do you feel like you could get comfortable restarting the buyback? Is it a bigger buffer in cash? Is it the stock price? I'm looking opportunistically there. Just any other thoughts would be great.
Speaker Change: It sounds like that's where your focus is you know the market's looking for signals there.
Speaker Change: At what point do you feel like you could get comfortable restarting the buyback does it is it a bigger buffer in cash is at the stock price I'm looking opportunistically there just any other thoughts would be great.
Andy Eidson: Yeah, I think that and good morning, Nate, by the way. I think to put a finer point on it, it's really going to be driven by the coal market because as long as we remain in this band that we're bouncing around in, because if you look at right now, at roughly 215 PLV, we're at the lowest point we've been in two years. And if you exclude, by my math, about an 11 an 11 day period in 2022, it's this is the lowest price in three years.
Speaker Change: Yeah, I think that in.
Speaker Change: Good morning, Hey by the way I think to put a finer point on it it's really going to be driven by the coal markets.
Speaker Change: Because as long as we remain in this band that we're bouncing around and because.
Speaker Change: If you I mean right now at a roughly $2 15 P O V where at the lowest point we've been.
Speaker Change: In two years and if you exclude by my math about on 11 11 day period.
In 2022 this is the lowest price in three years.
Andy Eidson: And so we're back into some territory we haven't had to deal with for quite some time. And that's, as long as we remain in that band, I think we're going to have to stay focused on keeping the balance sheet strong, giving us plenty of buffer because, you know, another turn down, and you could quickly go from producing some cash to producing no cash or consuming cash. And that's going to be the real indicator of when it's time for us to start jumping back into the capital return.
Speaker Change: And so where we're back into some <unk>.
Speaker Change: Territory, we've not had to deal with for quite a while and that's as long as we remain in that band I think we're gonna have to stay focused on keeping.
Speaker Change: The balance sheet strong, giving us plenty of buffer because.
Speaker Change: You know another turn down and you could quickly go from producing some cash to producing no cash or consuming cash and that's going to be the that's going to be the the real indicator of when it's time for us to start jumping.
Speaker Change: Jumping back into the capital returns.
Andy Eidson: Make sense. I appreciate those thoughts, Andy.
Speaker Change: Makes sense I appreciate those thoughts and then I guess thinking.
Speaker Change: Thinking about the cost side of the equation.
Nathan Martin: And I guess, you know, thinking about the cost side of the equation. Where do you guys think that marginal cost level is? I think, Dan, you mentioned maybe we've seen some tons kind of being left in the ground at this point. Are you guys considering any of that at this point, given where the PLV price is or where the U.S. indices are? You know, also, any more commentary on your inventories? I think, Dan, you said you're pretty comfortable at today's level. Any opportunity to draw them down more, or are you looking to build at this point? Thanks.
Speaker Change: Where do you guys think that marginal cost level as I think Dan you mentioned, maybe seeing some tons kind of being left in the ground. At this point are you guys considering any of that at this point given where the P. O V prices are where the U S embassies or are there also any more commentary around your inventories I think Dan you said.
Speaker Change: Pretty comfortable at today's level any any opportunity to draw them down more or are you looking to build at this point. Thanks.
Andy Eidson: Nate, I'll get the first piece. As far as marginal cost and the cost curves, I know there's been a lot of conversation about that. I do think that the cost curve number, the You know, call it 200 to 225 zip code, is probably reasonable for where the all-in cost is sitting globally. But I don't think that kind of data is terribly predictive of how companies are going to behave because it doesn't take into account the relative strength of their balance sheets.
Speaker Change: Nate I'll get the first piece as far as marginal cost and the cost curve I know theres been a lot of conversation about that I do think that the cost curve number though.
Speaker Change: Call. It 200 to 225 ZIP code is probably reasonable for where the all in cost is sitting globally.
Speaker Change: I don't I don't think that.
Speaker Change: Kind of data is terribly predictive on how companies are going to behave.
Speaker Change: Because it doesn't take into account the relative strength of their balance sheets. It doesn't take into account their ability or their desire to capture market share, while they might be losing a little bit of a sack.
Andy Eidson: It doesn't take into account their ability or their desire to capture market share while they might be losing a little bit of sacrificing some EBITDA. And it also doesn't necessarily take into account fixed and variable cost splits, which can become pretty important when you're looking at thinking about idling or shutting down an operation. So at this point, you know, we're still comfortable. We're moving the tons that we're producing at margins that we feel are acceptable. So we'll just continue doing that until, you know, the situation dictates otherwise, but as far as inventory levels are concerned, Dan, do you have anything else on that?
Speaker Change: Sacrificing some EBITDA and it also doesn't necessarily take into account fixed and variable cost split which also can come.
Speaker Change: <unk> become pretty important when youre looking at thinking about idling or shutting down an operation. So at this point, we're still comfortable we're moving the tonnes that were producing at margins that we feel are acceptable. So we'll just we'll continue doing that until.
Speaker Change: You know the situation dictates that dictates otherwise, but as far as inventory levels. Dan do you have anything else on that not particularly India.
Dan Horn: Not particularly. Nate, we're certainly not looking to build inventories. I would say that if we don't find the market to our liking, we're not afraid to build a little bit of inventory, particularly at DTA. We've just been able to move along maintaining the inventories we have. I'd say we're comfortable with it, but we don't have any specific plans to build or reduce more than we already are. Our guidance is our own. We hit that will maintain comfortable inventories. Yeah, and Nate
Dan Horn: We're certainly not looking to build inventories I would say that.
Speaker Change: If we don't find the market.
Dan Horn: Our liking, we're not afraid to build a little bit of inventory, particularly of DTA, but.
Speaker Change: You know, we've we've just been able to move along.
Speaker Change: You know maintaining the inventories we have I'd say, we're comfortable with it but we don't have any specific plans to build or reduce more than we already are you already you know our guidance is our guidance.
Speaker Change: We had that we'll maintain comfortable inventories.
Nathan Martin: I appreciate that, guys. And then, maybe, Jason, one for you, not to leave you out.
Andy Eidson: Yeah, and Nate, to add one more thing to that, that's just offering my appreciation and congratulations to all the 4,000 plus employees of Alpha for what I believe actually was, I call it, a solid quarter. It was better than a solid quarter from execution. With this kind of market, it's easy for people to lose focus. Sometimes, you see. Unknown Speaker Your injury rates creep up or your, violations, environmental, something goes sideways usually when we're in these markets like this because people can feel the stress, and both the sales and the operations team have done an incredible job maintaining a sprint pace just to keep things moving along, and you know it's a shame that the market is not giving us something that can really show what that kind of performance looks like from a financial standpoint. But that being said, the people doing the work have done an incredible job, and I just want to make sure that's not lost.
Speaker Change: And they are to add one more thing onto that and that's just often my appreciation and congratulations to all the 4000 plus employees of Alpha for what I believe actually was I called it a solid quarter. It was better than the solid quarter from execution with this kind of market, it's easy for people to lose focus.
Speaker Change: Sometimes you see.
Speaker Change: Your injury rates creep up or your your.
Speaker Change: Youre violations environmental something goes sideways, usually when we're in these markets like this because people can feel the stress and both the sales and the operations team have done an incredible job maintaining a sprint pace just to keep things moving along and.
Speaker Change: It's a shame that the market is not giving us something that can really show what what that kind of performance look like from a financial standpoint.
Speaker Change: But that being said the people doing the work you've done an incredible job and I just want to make sure that's not lost.
Jason Whitehead: I think in your prepared remarks, you called out some recent renegotiations with suppliers that should result in improving those costs even more. I mean, obviously, in the second quarter, the MET segment cost number was below your full-year guide. So any way to quantify how much those recent improvements with suppliers could help the costs for the full year? And maybe, if we take a step back, where in that full-year range would you guys expect costs to come in based on, let's just say, the futures price, which is around $240 a metric ton or so for the Aussie benchmark today? Well, I don't think so.
Jason Whitehead: I appreciate that guys and then maybe Jason one for you and not to leave you out I think in your prepared remarks, you called out.
Jason Whitehead: Some recent renegotiations with suppliers that should result in improving those costs, even more I mean, obviously in the second quarter in that segment cost number was below your full year guide so anyway to quantify how.
Speaker Change: How much those are recent improvements for our suppliers could could help the costs for the full year and then maybe if I take a step back kind of were in that four year range would you guys expect cost to come in based on let's just say the futures price, which is around $240 a metric ton or so if at all as a benchmark for that.
Jason Whitehead: Yeah.
Jason Whitehead: Well, I don't think I can answer all that at this point. But, you know, I can tell you that it's a grueling process. You know, our suppliers have, you know, they've dealt with the exact same problems that we have since COVID, you know, with inflation and just prices rising and labor shortages. And, you know, they have all the exact same reasons or excuses, if you will, as the coal companies do.
Jason Whitehead: Well.
Speaker Change: I don't think I can answer all of that at this point.
Speaker Change: But I can tell you that it.
Speaker Change: It's a grueling process.
Our suppliers have you know they've dealt with the exact same problems.
Problems.
Speaker Change: We have since Covid.
Speaker Change: With inflation, and just prices rising and labor shortages and they have all the exact same.
Speaker Change: Reasons or excuses as if you will.
Speaker Change: The coal companies do so.
Jason Whitehead: So, you know, there's a lot of back and forth or several meetings with each vendor, and they, you know, they have to go to their suppliers and kind of do the same thing. So it seems like a month-long process to gain an inch, but we are starting to see things move in a positive direction.
Speaker Change: There's a lot of that going forward. There are several meetings with each vendor and they you know they have to go to their suppliers and kind of do the same thing so.
Speaker Change: It seems like a months long process.
Speaker Change: Gain an edge, but.
Speaker Change: But we are starting to see things moving in a positive direction.
Jason Whitehead: Okay, appreciate that. Any thoughts around where pricing, excuse me, costs could land in that four-year range, just assuming kind of a flat 240 price?
Okay, I appreciate that and any thoughts around you know, where we're pricing or excuse me cost could land in that four year range, just assuming kind of a flat to 40 price.
Jason Whitehead: Yeah, I think, I think, you know, we're just going to stick with our guidance at this time, and, you know, if there's a reason to update it later in the year, we'll do that. Okay, got it. Yeah, just
Speaker Change: Yeah, I think I think you know we're just.
Speaker Change: Going to stick with our guidance at this time and there's reason to update it later in the year, we will do that.
Nathan Martin: Okay, yeah, just curious because again you guys did a fantastic job this quarter kind of coming below that range at that price, so okay, I'll leave it there. Appreciate the time, guys, and best of luck in the second half.
Speaker Change: Okay. Yeah, Yeah, just just curious because again you guys did a fantastic job this quarter kind of come in below that range at that price.
Speaker Change: Okay I'll leave it there I appreciate the time guys and best of luck in the second half.
Nate: Thanks, Thanks Nate.
Operator: We have reached the end of the question and answer session. I will now turn the call over to Andy Edson for closing remarks.
Nate: We have reached the end of the question and answer session I will now turn the call over to Andy Hudson for closing remarks.
Andy Eidson: Well, thanks, everyone, for joining the call today. We appreciate your interest in Alpha, as always, and we hope you have a great rest of the day.
Andy Hudson: Well thanks, everyone for joining the call today, we appreciate your interest in Alpha as always we hope you have a great rest of the day.
Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.
Speaker Change: This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.