HCC - Earnings call transcript Q3 2017

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Operator

Good afternoon. My name is Keith, and I will be your conference operator today. At this time, I would like to welcome everyone to do Warrior Met Coal Third Quarter 2017 Financial Results Conference Call. [Operator Instructions].

Before we begin, I've been asked to note that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed.

forward-looking SEC refer filings. regarding press the information and release more statements, to please company's For measures call I've the company's section reconciliations financial of company been earnings has during also asked on website, posted of to press release, the the the accompanying company's the tables in note located that discussed the this Investors non-GAAP www.warriormetcoal.com. at

Officer. of Dale discuss Mr. begin Walt Executive Financial Officer are Boyles, may the Mr. Scheller, and results Warrior Scheller, company's to Coal; your today Here Met you Mr. Chief Chief remarks.

Walt Scheller

pricing company. you then thank to the clearer Hello, everyone, third done to opportunity an for Operator. believe less a is of my as to additional higher how hard as our a again conditions Thanks, and our favorable perform that memorable than prices that not our supply a questions you lot industry, periods the public time quarter. capitalize disruptions U.S. second both any a results. strong coal for the ask on and Warrior in join our times Australian opportunity in our From XXXX still why to we're other how hard today and are good and have remarks, The certainly followed price well, may After distinct once it's with we will our in favorable would Warrior, in a journey you investors together discuss rapidly a hope of demand. and have coking quarter, a for have. taking capital review this It's will that structure in to results to the the very been pricing you Dale Chinese year were work somewhat for After times serve us approach can us from quarter getting moved third moderated quarter for suppliers from of of operating U.S. that for a to has year's idea putting and that are work and and following environment producers. I onset assets year-to-date the taste many we in environments. of market one we've us are and detail, the all us been good. Overall, has

like adjusted our results remained financial result, drivers The quite income the net key agile million. our This highly $XXX cost continue a opportunistically for quarter mine be hard labor, response and of conditions. a structure provide our in highly areas coking clean generated take royalties operational behind As for to plan, us and advantage an a the in variable strong. to third index sheet. EBITDA for of flexible movements $XXX market and and We to logistics of million of price coal allows balance performance

production for Our and this higher-than-expected in from half in inventory were Asia. performance new this the sell market with tons, volume X.X the than down A potential of We third opportunities first some year. million sales including in the sales capitalized demand year. extra to on existing quarter customers to hand of other quarter few significantly short customers spot the on any the higher spot was

at third the the XXX,XXX XXX,XXX we tons tons short the a from of end quarter. second As our level to these the result actions, quarter of inventory of at reduced end

demurrage. us is $XXX. than normal average a X% and a $XXX quarter the price for for compared reduction little a normal average per price third QX Our in the to index price X% quality net the and quarter, represents lower of realized This index average to selling short for adjustments ton, a includes discount was industry which

short shipments the The June, $XXX It's the index for for loaded $XXX other X% Storm ton quarter. of occurred vessels prices in short rose for and the earlier large of lower ton of in the timing $XXX averaging including quarter that at prices, the important difference the the per for during is two primarily of portion in quarter, were note July, attributable index second because at the per our that September. to shipments August the quarter to A not $XXX end Cindy. Tropical

benchmark as within this Over to the price to industry index to of realizations expect our has customers. away has the price to and Basically, the index continues moved as our to customers we methodology, in average methods new evolved, methods to pricing from our of the according categories as pricing evolve X% customers well. price industry methodology be we long evolve. term, continues industry with the also three the X% price quarterly Since average with

are first quarterly replaced the that pricing method benchmark. The the category average those index like who using customers new index quarterly

index price the a for loading the before The who before based of average period the after second those of on category price vessel, loading are some an the price customers vessel. on average of index time both based or and

who be third will spot the day on a fixed negotiated quarter. to those from delivery price and sale for the customers their actual delivery later at category prefer know buy The are in which is may and price the now

and more by and miner add expect miners third quarter year tons another which and in toward our million one XX assets, another continuous approximately the make moves. the during depending is continuous upon of We to timing eight coal. progress met of the ramp end miner operations of longwall have nameplate mining capacity We up of XX short the we the the miners approximately added of continued to

panels, second and the from the were fell well. quarter clean Production of quarter. XXXX That quarter is to slipped the compared end the times third production in was late short for nearing third of the planned quarter of quarter Our A end the foot part million up as the prior longwall the in can an tons of period be for third XXXX. increase three fourth of successfully tons, over was panel. move the is into conditions X.X the which the rebuild of longwall scheduled production the in modestly of second early now nearly we and and total in per nearing and decrease move equipment that the is running quarter. more mining challenging, rate October of by reduced, accounts At ed those longwall production for completed mining the

will of within out It's in having updated have top work and groundwork moves mine quarter fourth when achieve the outcomes rebuilding high quarter thank unusual the new to XXXX and half reflecting the in lowest even repairing XXXX. fall we've late the that to a were which be panels well moves longwalls which longwall lay at different tightly the of have plans of two production the equipment orders step based restarted total ultimately the the for The moves the to be the lost for of of primarily as in we all three and our XXXX These of previously will XXXX. be need the in stated, greater on our mining employees of will moves. I is in and especially work plan, not and reduce point rates longwall spread as our result the complete fro two achieving the doing Accordingly, year longwall progress success fourth like quarter in are and as of together tons quite existing fourth marketplace. our because As to mine. second been would the output. still three this our on quarter. depending and spending half, more our and that current upon capital will this factors these lengths these the safely, fourth guidance through they geology to will out moves the as year. first forward as to timing especially timing remain the the in important longwall naturally around because track somewhat and location longwall Production working for going numbers priority new each from significant in for most bunched important the end will are are first more that expenditures is on of moves different in advance quarter, successful equipment. include a the XXXX. efficiently We is

its selling significant capitalized is that by strength conversion. on our to strong our and maintain Warrior amount We I we I'd $XXX it to with flexibility a to capital this positioned turn to this well structure in was allows premium like to $XXX the provided resulted product completion price appropriate that and our our dividend commitment all cash profits Before the a last given cost this us pay and our a opportunity of strong believe value announcement markets, Dale, the of a has free leverage over variable to of to has and offering on company a outsize million The flow week. million special pleased the condition environment reflects low year, dividend. year special environment in comment stakeholders. in capture pricing current financial of returning are sizable approximately notes high-quality moderate

invested our in operations up significantly with have CapEx spending. We production ramp in the

others significant liabilities but strong sector. our in amount with other of have balance to leverage, sheet debt fund We legacy a compared to moderate without as the or

addition, the compared cash hear I'll to quarter, results, to business following model capital results accordance And we have in now we announced year. consistent returning sector. taxes financial have will the third results greater Dale. in this with to from how others minimal demonstrate our earlier cash year-to-date which we in The In ask our favorable are the detail. quarter ruling third program expect we about allocation achieved to Dale is differentiated in the commitment with demonstrating you received IRS Warrior's more we address shareholders to these

Dale Boyles

expected, Thanks, strength the structures. our for quarter continued operational we pricing the Walt. to also results third but demand, track reflecting financial conditions as only not favorable customer and fundamental market of and Warrior's

million the of million September of XXXX, in $XXX $X third short XXXX ton. prices. of increase which the by increase million. For included Total XXXX. selling million, was loss exceeded dramatically quarter of than $XXX the $X.XX X.X in on net million, ended adjusted $XX an quarter a or quarter $XXX average months of per totaled adjusted X per third third higher million, the to and revenues EBITDA the realized loss in share, price the income third sales XXXX. the at an diluted the XXXX, of a XXXX tons quarter EBITDA for third EBITDA was was selling in third in $X.XX, XXX% or short quarter and XX% quarter $XXX of compared sales $XXX in million, million volumes coal the quarter for net Total of met revenues $XXX were average of Adjusted

third was the price. quarter index realization industry Our of net XX% average price

noted of Walt in the normal price in $XXX in along port, continuous for operations third being three quarter in was X was miner timing $XX in XX% the transportation our lower was to sensitive quarter significantly XXXX, than compared third million, running to late quarter, the by in of and components the third Mine $XX with quarter. in sales restarted cash our revenues, f primarily but XXXX. mining sales longwall X one operations attributed were short earlier, to in in affected August of the Mining No. wages, third cost million operate of in the or the were cost XXXX of shipments In higher realization the and XXXX, of approximately the compared increases driven primarily month FOB by sales and units. volumes of period longwall per-ton quarter, was As XXXX. costs. XXXX, royalty the values per in primarily $XX price All the the same ton, our

totals XXXX XXXX, in third XXXX, year-to-date total reflecting in in of in of these no were total expense longwall in fees of million. and the ruling, higher the were total a traded $XX the quarter the higher I which Revenue private of $XXX,XXX with in non-recurring quarter ruling. private an expenses company promissory interest letter compensation in expense year-to-date on and facility legal plus quarter. the depletion of to include to April. a stock publicly tax amount of XXXX minute or XXXX. second a was the in was public Mine expenses double letter of consisted $XX incremental $X period $X the There professional interest expenses compared in take expenses, million, Depreciation expenses Service. Year-to-date equipment million. same benefit revenues, a the with of offering to amortization benefit quarter These of successful our professional X SG&A million expenses. from and No. ABL in the recognized of transaction expenses, included fees company debt being and were X% the XXXX. quarter SG&A of third million about restarted third to October quarter other The of independent and tax want expenses the the XXXX due for Interest D&O approximately Internal for or third in third insurance PLR, the of auditor expenses primarily compared third income second the associated in amount $X results million, completion or outcome The expenses connection note were costs. initial our same legal expenses our primarily revenues, issuance request in note to in XXXX. of and XXX quarter the X.X%

you our code of was the a cash of of IPO full pursuant in the the results, any year-toXdate of expected favorably previously analysis September valuation tax applying we taxes will would of time As that the and annual XXXX for approximately impacts of our amount use and our belief effect asset that purposes. tax the issued pay tax to NOLs believe applied issuance be be credits PLR at applying the tax section on PLR, and that to limitation accordingly, revised to higher X% after they Prior that the to full that subject assets. upon for reported limit the as deferred we excluding billion we other XXX, the $X-plus significant IRS applied PLR, year XXXX year, expected annual late and a key NOLs the changes ability of federal we Section a our drive income of our in income to the NOLs In an significantly effective minimum for XXXX. conversion. the refundable any XXXX. IRS utilization know, our our to the method alternative not rate for and the believe will income tax before of credits allowance NOLs

$X.X capital availability of credits, the in small cash of As estimate depreciation We effectively as which previously years. use We are this provide expect billion. to an to end service change estimate we refundable election application ruling. tax now by elected expenditures expect we disclosed that year, year. three updated to to evaluated the will on total be over in benefit this addition, federal Section each and X% NOLs placed our the the XXXX. the AMT to accelerate billion approximately fiscal less the AMT to NOLs bonus the amounts due be based we the our reduces in our of a than the next tax $X.X the credits annual of XXX rate result of NOLs of for a to This forgo plan

Turning to flow. cash

the flow totals was expenditures operating third During the quarter, which flows million more the free quarter CapEx the cash and a spent used of of in the free cash by for generated was $XX third Year-to-date of $XXX year half million capital company million, spending million. than million we $XX cash cash $XXX million. first year-to-date. in was $XX of less now result of of activities provided flow, $XX

times spending quarter long our loaded to due million spending be from quarter flows the Cash indicated, deliveries $X the equipment million than previously were year XXXX moves, fourth this in this $XXX activities and We timing of previous the lead financing is vendors. used any quarter longwall key in have in we believe of and year-to-date. third back-end As year. higher could

$X end offset the of lower higher by short increased on million, receivable to tax higher accounts XXX,XXX capital in and working refund from of by net $XX expenses we receivable primarily and Coal second a a environment at $XX of of of $XX $XX decreased Our million, inventories, million the accrued the of the about million XXXX as inventory end second at capitalized third quarter. strong from on customer the the of million. XXX,XXX tons tons third quarter quarter short pricing demand XXXX, quarter

Our of consisting $XXX equivalents and million, total quarter and October paid directors of per record not cash facility. cash cash available of the XX, declared facility. the the share X. of our of regular borrowings XXXX, third stockholders a On currently $X.XX have to $XXX liquidity end was under of on quarterly of be board million any XX dividend the million $XXX ABL We to available do as under outstanding the November as ABL of company of November

announcement pay special of Now our of dividend together to for net basis. of a million, record notes of paid of offering, XXXX. the $XXX to million completed week proceeds X% stockholders board rata special $XXX approximately to intend on address stockholders secured with $XXX November on offering of use due million, hand as last November private We be that let me per to senior of we a approximately cash XX pro cash or a to our XX. $XX.XX dividend this declared The share, the

quarter business the beyond our the use go-forward for believe makes excess the to our day-to-day cash on at million the initiative operations cash balance basis. of we good was the million we return value in our cash dividend, to current running shareholders. requirements This and on $XXX $XXX a to generate on cash of above special commitment to enough approximately hand expect our of more than for third will and end While use we

sheet, the we toward significantly in previously, investing a we capacity CapEx. debt in note it opportunities. modest spending adding and our balance would have a than production way indicated this As not leverage, our X of is our times conflict ramp-up while in we're any less EBITDA to I growth $XXX bit does and amount of LTM nameplate of over adjusted are year that million with

for $XX million the X.X goal as selective XXXX. XXXX. million our also previously to to flexibility our to guidance year Coal quarter, as returns of of cash are to capital full can that fourth tons; the pursue short stockholders of of allowing press and word of expenses capital the to seek And our short million $XX our stockholder while million As to in tons; follows. expenditures opportunities port, structure noted release results have compelling sales, to optimize stated, X.X three million. we $XX strategic million three provide to the $XX previous ton; growth our on underway million; improve our $XX we cost a $XXX to X.X and longwall production of the coal per short quarters FOB returns. moves in remainder for outlook given updating and first million SG&A sales X.X of earlier of is to of

We expect it to finish back I'll now the Walt. continue environment. on current XXXX turn strong capitalize pricing and to to strong

Walt Scheller

Dale. Thanks,

I of to Before and would on to on quarter expected looking production how we a we brief provide a marketplace. are move update the fourth reminder at Q&A, like

we have the two of moves fourth the quarter moves to we far, three completed longwall so other While quarter. complete still in have the this successfully one

quarter the lowest production will be in the indicated, fourth of we year. have the As previously

of we and However, well to quarter fourth our position The will near as for completion the company meet year. longwall full levels heading will moves production the strive the nameplate our capacity. it for exceed we targets believe or XXX in in these guidance

will production customers the in third liquidated for should most our inventory the still extra As demand than be volume sales and near of the our quarter, quarter. we equal third be our quarter. will fourth reflect good It lower our from or levels

despite industry Near-term on The air elevated approximately far and the In our the $XXX to range, fourth goals with we quarter questions. we leading year. the meet prices of could in the the quarter that the remained prices price metric with near today. season. levels from margins operate through ton, winter year, October we coke that furnaces price may for we'd remain improving open mid-November metric ton. Operator? the to like While into be under being the at pricing pleased XXXX. the we've plants expectations utilization coking metric dependent or coal volatility ton, blast $XXX and and pricing heading to demand increase that we to in call largely this expectations environment X+XX during strong well impact and so captured index that, began XXXX strong expect into global have coking maintain remains winter upside could average be XXXX. supply The quarter are policies the These create are in closing, With full to per a $XXX are In $XXX and from changes conditions most upon policy below our seen global in U.S. XX% reduce of remainder policy demand to and for and cautious season. seen. we have per about hard per requires the Australia ton implemented successfully pollution believe markets to Chinese for coke we reduce conversion. be the China's further and to third metric pricing where recent for exceed recently, results fourth seaborne price cash range track good for times

Operator

[Operator question Capital Dave first BMO Gagliano, Markets. The comes Instructions] with from

Dave Gagliano

longwall the of the we about pricing taking of well? How quarter. you of a volume with quarters quarter. the in to the made just thinking my made, million volume be obviously outlook XXXX quarterly come two I we've out We've one question, commentary And XXXX that the had commentary questions. then, somewhat related tie the had I close to looking quick for fourth you expectations as related into the two you into move volumes. after should just understand each your question. That's volumes regards to run got Thanks we fourth for rate quarter? in can first my tons

Walt Scheller

Walt. is This

CM Our short the run of ground end that look at up tons sections rate running at full year. them into of one right of is get our back have at added the our We capacity get year. to capacity, re, a start the goal and units as XXXX, XXXX, between to X the at two year, running of the nameplate of at other beginning to and We will by that of hit of some end beginning next the as we is now this as being are year up top won't the not well after efficiency still the million point.

So range think we able a expectation get have We And see some we'll for that's year. to the that is – right we nameplate to good capacity we'll growth late get but that's pricing do, line next be be to year. next with still to our where in. in

Dave Gagliano

price. sensitivity there to do scale index is decline a there we meaningfully about be price certain should start back would there Is it a at it some point? really obviously benchmark thinking to Is that basin if things specific

Walt Scheller

is. well do talking talked about our never we're breakeven where quite in And company financially. even the ranges price will the we've about price that No, ,

Dave Gagliano

congrats And of good on perfect. Right, okay, execution quarter thanks. in terms another

Walt Scheller

Thank you.

Operator

next Jeremy from question comes The Sussman, Clarkson. you. Thank with

Jeremy Sussman

Hi, and my taking good afternoon for questions. thanks

Walt Scheller

Jeremy. afternoon, Good

Jeremy Sussman

solid another said, Dave as had, have guys quarter. you Walt,

guidance under have what $XX is end with midpoint reiterated of costs even say, guidance? know cost the it which bit kind to of quarters, have the the parts or moving of a through I think think three $XX moves, take you to ton averaged few $XX. the a to, would get high a but longwall I I

Walt Scheller

all remember with dollars, spread labor fewer Jeremy, those fourth moves. get across the fixed all those what to just have you three longwall costs is in tons quarter

it's us with So moves. money; it's spending tons three about us less the the fourth about not mining in just more quarter

cost end that what's determine that's exactly going and in So range. drive up where to that number we

Jeremy Sussman

there that thinking gears of maintenance ton that the kind half end should of of a sort back on on basis? kind I to range kind helpful. Or ton if year, a level maybe kind sort get once is run shift about CapEx right you Okay. And CapEx, next the million How of of of we how on maybe front. really a towards of or dollar That's be f I go-forward – should to basis? we per eight

Walt Scheller

No. million that we not to determine new whether or beginning right how shields develop Mine this $XX be it's items What like of at in other on like we've at maintenance like year, be rate looking the that capital a to but will have straight capital, for torquacity go. on is be and set then year at is things that terms looking time to finalized deploying million in a to X, pricing capital to be things about going additional where things $XX next of determine will maintenance above budget much don't the said we'll expected and we discretionary

So those the it's the about on about coal types timing and of price projects.

Jeremy Sussman

I’ll thanks. helpful. on move Very

Operator

from question Karl next [Operator Instructions] Sachs. comes The Goldman Blunden, with

Karl Blunden

Karl taking guys, my Blunden morning good Thanks Hi, question. here. for

comments Just made. on a the just were follow-up that

the and flexible the of can how a and timing about replacement, cost help As us think you that timing you that perspective. through from investment the shield think is

Walt Scheller

the timing when the Well, time XX investments to to XX,XXX shield last shields cycles. Heat we in every those about really goes in is service. three moves cycle A want put foot. or shields new

us more the efficient and we if we not make or little variability would some shields online have do even we at some could time them that. And as earlier. look whether to So brought we new a when left

Or have that to, So delivered a XXXX, that little at if them in bit. the and timing of next delay that, could them we in point. could we those begin money to into put service right we put needed year,

Karl Blunden

Gotcha. Thanks, guys.

on Just of one the cost side more things.

environment, the the we about think coal operating methodology refer as then You're is we a customers there met and lag come contracts price used should royalty reference can think potential based What's in prices three those labor? lag how in coal charging that look should that the how and What's methodologies. also you down? that we volatility those and As about on costs between flex to? the then costs met there at? And different

Walt Scheller

will happen the on Well, lags will a quarters. a also real-time real-time rates month-by-month the on rail royalties about basis, happen and two basis. month-to-month Labor

two would So would two back, it When where up, hits step also would point where quarters. a when that would back a it point hits quarters. it step lag that lag it

Karl Blunden

That’s very Thanks much. helpful.

Walt Scheller

Thank you.

Operator

comments. At this now would are I Scheller call for no closing over turn there the questions. like back any Mr. to time, further to

Walt Scheller

joining concludes your again Met our that us interest Coal. this appreciate Well, We today. call in for for Thank afternoon. Warrior you

Operator

you. that you concludes for And Thank participating. Thank conference. today's all

You disconnect. now may

Warrior Met Coal (HCC) 10 Nov 172017 Q3 Earnings call transcript