Q3 2025 SunCoke Energy Inc Earnings Call

Good day and welcome to the Q3 2025 suncoke energy, Inc, earnings conference call.

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I would now like to turn the conference over to shanton new Agarwal, vice president, finance and Treasurer. Please go ahead, sir.

Thanks Nick.

Good morning, and thank you for joining us to discuss. Senco energies, third quarter, 2025 results with me today are Katherine Gates, president and chief executive officer and Mark Moreno, senior vice president and Chief Financial Officer. This conference call is being webcast live on the investor relations section of our website and a replay will be available later today. Following Management's prepared, remarks will open the call for Q&A,

If we do not get you a questions on the call today, please feel free to reach out to our investor relations team before I turn things over to Katherine. Let me remind you that the various remarks. We make on, today's call regarding future expectations, constitute forward-looking statements, the cautionary language regarding forward-looking statements in our 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 Catherine.

Good morning, and thank you for joining us on today's call.

This morning, we announced some Coke energies and our third quarter results. I want to share a few highlights before turning it over to Mark to discuss the results in detail.

We delivered Q3 2025 Consolidated. Adjusted Eva a 59.1 million representing a sequential improvement over the second quarter, although not to the extent we expected at the end of Q2.

We completed the acquisition of Phoenix Global on August 1st and are pleased with the progress we've made on integration activities, thus far.

We expect to begin recognizing synergies in 2026.

Phoenix's Financial results will be reported in our new Industrial Services segment which also includes our former Logistics segment.

During the quarter, we also extended our Coke making agreement with us steel, Granite City through the end of 2025.

With the Phoenix acquisition complete and an updated view of Market conditions driving, the balance of 2025 we are revising, our Consolidated adjusted Eva. Guidance range to between 220 million and 225 million.

Our updated guidance is inclusive of. The addition of 5 months of Phoenix results, partially offset by the impact of a deferral of the sale of approximately 200,000 coat tons, due to a breach of contract, by 1 of our customers.

Our revised Guidance contemplates. The production and storage and inventory of the 200,000 tons of coke until there is resolution of the issue.

Any changes to these assumptions could impact our guidance range. We are actively pursuing all legal means to enforce the contract.

earlier today, we also announced a quarterly dividend of 12 cents per share, payable to shareholders, on December 1st, 2025,

This is our 25th consecutive quarter announcing a dividend.

While the dividend is evaluated on a quarterly basis by our board, we expect to continue the dividend to reward our long-term shareholders with that. I'll turn it over to Mark to review our third quarter earnings in detail mark.

Thanks, Katherine turning to slide 4.

Net income attributable to suncoke was 26 cents per share in the third quarter of 2025 down 10 cents for the prior year period.

to decrease was primarily driven by the mix of contract and spotco sales, coupled with lower economics, from the Granite City contract extension in the domestic Coke segment,

Additionally, an 11 Cent per share impact, is due to the absence of the gain on elimination of the majority of Legacy, black long, liabilities recorded in Q3 2024.

Transactional. Restructuring costs had an impact of 9 cents per share in the court.

Of impacts were partially offset by a 32 cents per share, Improvement, driven by lower income tax, expense driven by capital investment tax credits.

Consolidated. Adjusted beta for the third quarter of 2025 was 59.1 Million compared to 75.3%.

the decrease in adjusted beta was primarily driven by the mix of contract and spot Coke sales, and unfavorable economic on the Granite City contract extension in the domestic Coke segment,

Lower transloading volumes at the logistics Terminals and the absence of the 9.5 million gain on the elimination of the majority of Legacy black on liabilities recorded in the third quarter of 2024.

Partially offset by the addition of 2 months of Phoenix Global results.

Moving to slide 5 to discuss our domestic Coke business performance in detail.

Third core domestic Coke adjustability, but that was 44 million and Coke. Sales volumes were 951,000 tons compared to 58.1 million and a million 27,000 tons in the prior year period.

The decrease in adjusted ebita was primarily driven by the change in mix of contract and spoke sales, resulting in lower pricing and lower economics, and volumes of Granite City from the contract expansion extension.

Lower cold Coke yields at Haverhill and a weather event at Indiana Harbor, resulted in lower production volumes during the quarter as well.

While this quarter's performance didn't fully meet our expectations. We did realize modest improvement over the second quarter with sequentially, higher adjusted ebit, da and Coke production and sales times.

During our second quarter earnings call, we projected a more favorable mix of coke sales in the second half of the year with higher contract volumes driving improvement in the domestic Coke segment.

However, due to the breach of contract, by 1 of our customers, we had marginally lower sales volumes in the third quarter and currently expect a significant impact to results in the fourth quarter.

For that reason, we are updating our guidance to reflect the impact of approximately. 200,000, tons of unsold Blast Furnace Coke production which will be stored in inventory.

Our full year 2025 domestic coke adjusted IBA is now expected to be between 172 million and 176 million.

Now, moving on to slide 6 to discuss our new Industrial Services segment.

Our Industrial Services segment, which includes our Logistics business and our Phoenix Global business generated 818.2 million of adjusted Ava, and the third quarter of 2025 compared to 13.7 million in the prior year period.

The increase in adjusted ebit that was primarily driven by the addition of 2 months of Phoenix Global results, partially offset by lower volumes that are Logistics terminals due to unfavorable market conditions.

Going forward, the Industrial Services. Segment will report total volumes handled by our Logistics. Terminals and customer volumes service that our Phoenix Global sites.

The third quarter total Logistics. Handling volumes for 5.2 million tons.

Phoenix customer volume service where 3.8 million tons for the 2 months included in third quarter results.

Similar to the domestic Coke, segment the Improvement in the logistics, business during the third quarter. Did not match. What we previously anticipated due to persistent weak market conditions, while we expect to see further Improvement quarter over quarter, the full year Logistics, business contribution is expected to be moderately lower than previously, guided,

We are updating our full year Industrial Services, adjusted ebit that guidance to between 63 million and 67 million, perfecting 5 months of Phoenix Global results, and lower than expected volume Improvement at Logistics terminals in the second half of the year.

Now turning to slide 7 to discuss our liquidity position for Q3.

Sunk ended the third quarter with a cash balance of $80.4 million and revolving availability of $126 million, representing ample liquidity of $206 million post-acquisition.

Phoenix's management incentive plan and transaction costs. Cash payments, total 29.3 million.

We're included in the acquisition price but flowed through our operating cash flow as a use of cash.

Number 2, the timing of cash, receipts of 23 million a quarter end which are subsequently received in October,

Without the impact of these 2, 1 time items. Our operating cash flow would have been approximately 52 million higher.

Net borrowing on a revolver was 199 million cash acquired from the Phoenix Global acquisition was 24.3 million. And after factoring in the 29.3 million flowing through our operating cash flow, the net purchase consideration for Phoenix was 29 295.8 million.

We spent 25.5 million on capex and paid 10.1 million dollars in dividends at the rate of 12 cents per share this quarter.

SunCoke has a strong track record of generating steady free cash flow, and we expect the trend to continue with the addition of Phoenix Global.

It's Katherine mentioned earlier, we intend to continue utilizing our free cash flow to reward our shareholders with our regular dividend, which is reviewed and improved on a quarterly basis by our board of directors.

Let's move to slide 8 to discuss our updated 2025 guidance.

The summaries are full year 2025 adjusted our guidance. We now expect domestic Coke adjusted between 172 million and 176 million reflecting the impact of a deferral of approximately 200,000 Coke sales tons

We expect Industrial Services adjusted. I between 63 million and 67 million reflecting. The addition of 5 months of Phoenix Global contribution, partially offset by lower volumes at a logistics terminals, due to weak market conditions.

Consolidated. Adjusted ebit da is now expected to be between 220 million and 225 million.

Any changes to the assumptions related to the deferral of the coke sales could impact our guidance range.

We have updated our capex guidance to approximately 70 million dollars reflecting lower. Capex at our Coke Plants, Plus the inclusion of Phoenix's portion of capex.

Our free cash flow. Guidance has changed significantly due to several factors.

Last quarter, we updated our free cash flow. Guidance to include the favorable impact from tax law changes, and lower capex spend partially offset by transaction. And debt issuance costs

we are now also expecting a seventy million dollar unfavorable impact to our free cash flow for the full year, resulting from the deferral of cash receipts from our customers breach of contract,

This estimate is based on the information we have as of today.

As Katherine mentioned, we intend to pursue all avenues to recover our losses from this event and it is possible that we will reach a conclusion by later this year, or early next year.

Additionally, the 29.3 million related to Phoenix's management incentive plan and transaction costs which were reflected in the acquisition price are now running through operating cash flow and impacting our free cash flow for the year.

We now expect free cash flow in the range of negative -10 million to zero.

And expect 62 million to 72 million in operating cash flow for the full year.

With that. I will turn it over to Katherine.

On slide 9.

While we're not in a position to give guidance for 2026. At this time, we are optimistic about what is to come. Next year. We continue to have a strong profitable long-term Coke business. Underpinned by the 3, pillars of Indiana Harbor Middletown and juwel Foundry, which have consistently delivered, excellent performance and results.

Our Granite City Coke plant is distinctly tied to us Steel's need for code as well as the granulated pig iron project. Our haberhill plant is tied to Cleveland Cliffs Aloma and the spot Market, which remains weak. We're an active dialogue with Cliffs on contract negotiations, but have not signed a final contract yet. We'll have more to say on these plants when we give our 2026 guidance,

Recovery expected in the logistics business next year.

As always, we take a balanced yet, opportunistic, approach to Capital allocation, on the back of our steady and healthy cash flow generation. We intend to continue our quarterly dividend as approved by our board, which has always been well received by our long-term shareholders.

We continuously evaluate the capital needs of the business, our capital structure and the need to reward our shareholders and we'll make Capital allocation decisions accordingly.

We're committed to maximizing value for all of our stakeholders, which means operating and investing in our assets in the best and most efficient way possible overall. We see the strong fundamentals of our business and expect our 2026 results to be an improvement over 2025.

Let's go ahead and open up the call for Q&A.

Thank you. We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone,

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At this time, we will pause momentarily to assemble our roster.

And your first question today, will come from Nick Giles with B Riley Securities. Please go ahead.

Thank you, operator, and good morning everyone. This is Henry hurl on for Nick trials today. Um so to start off following the deferral of the 200,000 tons. What is your level of confidence that incremental deferrals won't occur?

Um, and then also would you be able to um specify which facilities this deferral is from?

Yeah. So thank

thanks for, uh,

200,000 tons are tons that we anticipate making and putting into inventory for 2025. Um, so as you as you think about the guidance that we're giving for 2025 it contemplates the production and storage of that coke. Um, we don't talk about specific facilities and contracts in in detail, what I can tell you and what you do know is that, um, we we make and produce Coke for Al out of our Harbor. Health facility, we have flexibility to produce and make Coke for algo and other customers out of other facilities, but the customer that is in breach of contract and that is resulting in our producing.

And storing these tons and having the impact on our guidance for 2025 is Alma.

Okay. Thank. Thank you for clarifying that. Um, and then you also mentioned that you're pursuing remedies what do those currently look like.

So I I know you can appreciate that from a legal perspective, there really is very little that we can say. What I what I will say is that we absolutely think that we have an enforceable contract. We are working with Council. These are our, what we call long-term taker, pay contracts?

So without being able to get into litigation strategy and and talk about it in more detail. It's very important to note that we think that we have an enforceable contract. We're working with Council. We're pursuing all of our legal remedies. Um, in order to recover any Financial losses that have uh, occurred from their breach

Right. And if the contract cannot be enforced in the off, chance that happens. Where do you go next?

Well we I mean we think that the contract can and will be enforced and and we're pursuing the the proper legal legal Avenues to do that. Um and so, you know what we're doing now, including the our assumed production and storage of this coke and inventory doesn't impact our ability to recover those financial losses. So we expect to be able to recover and we're going

To be the process to do that.

Okay, and then 1 more for me before I turn it over. Um, so according to our math, if you analyze annualize, those 200,000 tons, you get 800,000 tons, and that 47 dollars per ton, that would be an ibida impact of around 40 million. And then this year, you've drawn 272 272 million year to date on your revolver and you're guiding to near free cash flow for a given. Even, um,

could you please walk us through your level of confidence in retaining the dividend and liquidity going forward?

Left for this year to Al so that's the extent of it. It's not that it's 200,000 on an, you know, annual basis or anything like that. That's just the exposure that we have to all Goma. That that is being, you know, currently being produced and stored. And that's what kind of the disputed amount is.

Okay. All right. Thank you for clarifying. And um do you and the team continued best of luck?

Thanks. Thanks.

And your next question, the day will come from Nathan Martin with Seaport Global, please go ahead.

Thanks operator is actually with the Benchmark company but uh, good morning everyone. Um you know sticking with the domestic Coke business for a second. You know, can you guys talk about your strategy for 2026 if you're unable to renew, Granite City in aberhill production, under a long-term contract?

Yeah, absolutely. I mean, we're really um, you know, as I sort of said in my remarks we're really at optimistic for, for 2026. So, you know, if you think about the different pieces that we have going into the year first, you know, we're going to have a full year of the Phoenix results, um, and we expect to have the synergies that we talked about when we announced the transaction. So that'll be flowing through in 26. I mentioned that when we sort of build our 26 with Logistics, we see that that some of the challenges we had this year, in terms of just the marketing,

Imbalanced domestic having higher prices than International. We had 2 customer Force, measure events there. Those really, you know, caused us to be lower than what our expectations were at the time of Q2. But as we look to 2026, we see, we see, you know, modest recovery in in that, uh, portion of our industrial s, uh, Services segment. So then, you know, when you think about Coke, you really have the, the the pillars of the coke business and those are Middletown, which is, uh, very profitable contract through December of 2032 Indiana Harbor likewise through September of 2035. And then you have our Foundry Coke business, which we continue to grow. And it's had very strong results for us out of juwel, um, with have hill, we are an active discussions with Cliffs, uh, for, uh, a contract with our anticipated.

Coat coming out of that facility. Although, as I mentioned earlier, we can supply out of other locations. So, there's an active dialogue with Cliffs. If we are not able to contract for the full capacity of that plant, then we would have to obviously look at selling into the spot market or selling to others in the North American market, seaborne market, what have you. If we couldn't do that profitably, then in that case, we would have to look at.

At rationalizing, our facility.

And then, with respect to Granite City, um, that is, as I mentioned, really a plant. That's very much tied to us steel. We're an active discussions with us steel, regarding the extension of that contract, but if we weren't able to extend that contract either because of, they're not needing Coke or not, moving forward with the GPI project in that instance, then then we would not expect to continue to run that facility because it's just so tied to us steel. But as I said before, we are an active discussions with us or with us steel regarding the extension of Granite City. We are an active discussions with Cliffs regarding the extension of, what, I'll call the Haverhill contract. Um, and you know, as we look ahead to 26 and we think about having that full year of Phoenix results, having the modest recovery on the logistics side.

And then really having that, that core Foundation of Middletown and Indiana Harbor and dual Foundry. We, we expect that our results in 2026 are going to be stronger than 2025.

Hey, Katherine, that that thorough rundown, just maybe any updates you can give on that. Granite City, GPI project, and those negotiations. You just referred to

I I you just said, appreciate that. Obviously, those are those discussions are confidential what they are ongoing. So we expect that we'll have more to say when we give guidance in early 26th.

Hey, hey. So, you know, kind of, when we announced the Phoenix acquisition, right? Like we laid out their LTM ibitta of around 60%, like you can divide it by 12 and take it a monthly number. So that's kind of a good proxy for what the Phoenix contribution is uh and going forward, right? Like because it's it's it's 1 segment. Now we look at it as like Industrial Services, they're similar businesses Logistics, formerly Logistics and and and uh Phoenix Global going forward, we are going to be reporting them together but that's a good proxy to use for these results.

Okay. And then like from a I guess from a customer volume perspective, right? The 3.8 million tons. You guys shift, um, you know, from the Legacy Phoenix business over the 2 months is that is that a good run rate for, you know, a monthly call, what 1.92 million tons? Will that kind of get you to that that 60 million dollar or even that number you just referred to? Yeah.

Yes, broccoli. I mean I think I think we'll give a more refined number when we give the 2026 guidance there'll be a yearly number but but it's in the ballpark you know, you know, the 1.9 million uh tons of customer volume service, we are calling it. That's a good monthly number to get to the 60 million annual beta

Okay, perfect. I'll I'll pass it on. Appreciate the time. Everybody invests a luck on the fourth quarter.

Thank you.

This concludes our question and answer session, I would like to turn the conference back over to Katherine Gates or any closing remarks.

Thank you guys again for joining us on today's call and your continued interest in sunk hope. Let's continue to work safely today and every day.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.