HCC - Earnings call transcript Q1 2019

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Operator

Good afternoon. My name is Gary, and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal first-quarter 2019 financial results conference call. [Operator instructions] Before we begin, I have been asked to note that today's discussion may contain forward-looking statements and actual results may differ materially from those discussed.

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

to release, of section its at www.warriormetcoal.com. In earnings has a investors the addition to brief the posted company the supplemental slide presentation website

Dale chief discuss remarks. to are company's chief executive Scheller, officer; Mr. the Mr. your Scheller, today Here Mr. you and results Boyles, begin officer. financial Walt may

Walt Scheller

operator. high for exceptionally records in to million We to to led ask questions. million $XXX achieving of a Thanks, have the Hello, first X of results. Mine will the quarter, expectations in everyone, cash exceptionally first-quarter additional $XX and achieved quarterly adjusted quarterly performed our Warrior flow continued results you and volume. After today volumes. you'll and taking which high financial million. detail, free us our opportunity remarks, exceeded well, revenues, performance. then our also drove Dale thank review the join to XXXX production strong well production to These my time perform discuss in $XXX record EBITDA record also operational and

expense also approximately $XX by financial $XXX retiring interest leverage our improved annual by our million, million. We long-term debt reducing of

stockholders and $X.XX of our with as repurchase In addition, share. a dividend as stock announcement we million cash commitment cash of continued $XX program the our quarterly to $XXX capital new million returning a of special per dividend well

a been as and thank dedication help perform doing are them in quarter. credit for strongly the to Our and employees, they've hard I did first as of to us the all we our operational work successes

longwall was success compared short that volume million quarter as to safely the in produced in the move second year expected. XXXX working first and of of quarter X.X achieving were first in an ultimately million that than from and increase important tons compared working levels XXXX, and remains overlapped most this longwall that the is the successfully completed production to moves priority better top no marketplace. the quarter same in of the one step achieved to first efficiently and Our Production first XX%. X.X We quarter

the planning results and our and made proactively better-than-expected managing Our production and employees anticipating demonstrate efficiencies significant in longwall our move efforts equipment driving our by downtime.

longwall levels the first improvements year costs panel the X cost next of the North. X the we million compared Mine the on to realized inefficiencies record company development the plan strive into includes downtime expenditures to to A Mine pay was in earlier, we've with we noted higher I X made better high skip production upgrade less first capital good reach is and record achievement. utilization our As and mines a the last output X a over The improve we've development in or to production high of years in Cassidy full quarter the production X-plus due equipment continue quarter during investments that to as production example year. seen the last and mine efficiencies at $XX million Mine $XX safe call process. for environment. where capacity amount off were The This capital mine the this extension spent of and that area during

year. XXXX. same to area customers quarter the volumes next compared XXXX sometime of in years. mining first continued We to Demand quarter strong five the the six in quarter the were to expect be our from in to during that be flat Sales this first

Inventories achieved. consistent in the volumes better-than-expected primarily into Asia. was short first this we first with XX% of were South tons mix to the The XX% quarter tons XXX,XXX during and quarter. quarter geography production by XX% Europe, short in geographical in sales to XXX,XXX the Our XXXX due increased last year first year's America the

decline of We the lower production ton. iron pig productions closed months in year a market increase where level China, as a of a hitting strong. volatility, the year-over-year few the quarter X%. two a by it's expect $XXX quarter low and premium overall extent, metric low metric our remain a driven Australian the started vol than metric inventory from Brazil. next the was mainly the $XX lesser solid of that it first as Despite high conditions Platts for in The over growth ton posted strong months. declined India ton to a much index $XX price The This global January, of

Japan producers decline However, such as production activity. due same large to saw around for and regional period, of pig most economic the iron concerns Germany likely the other

believe will of of We supply ore customers time, not global continue the to recent iron monitor their and maintain rates to impact present affected. be ability our in the production do the disruptions the at to adversely steel

of maintenance of Our stable. continue related in Australia events nations. saw supply the quality action coal and The chain premium industrial its customers' orders during also first global disruption producing share met with quarter to of products be and several other weather,

quality Australian remain orders behind upon optimism import of few for the our in of And ports lifting the China were remain customers XXXX concern. In the rest views seasonal these imposed without see next mostly lack our general, this for We However, products a a of pricing restrictions effect. months. remains restrictions in specific major of these the time. cautious clarity at impact of believe contained behind bound normal unchanged expect The the to disruptions and schedule to coal their the would of these year. With a tightness initial still on allowing are QX intent of range receive for we delays. us, will the duration restrictions premium that

and Warrior's There a increase high index of our gross comparable as the on strategy business the solid realization the was highly fundamentals to price fourth pure-play XX% It reflects resulting in continues Australian special of price our quarter value of XX% achieved prior gross first to vol focused we our price Our was the low from discounting premium XXXX. a nice year. Platts in producers. demonstrate FOB for was quarter the sales met record unique realization. demand premium to no performance the price coal due and also

any experienced our to Our stockholders invested where years. operate this cash the favorable we've appropriate of profitably as to the is in goal the couple support conditions warrant. and in flow generation We've maximize business reward also just conditions environment, past in continued to not over We've strategy. pricing

also update on growth our provide the an first Blue I project. wanted to In addition Creek to our strong performance in quarter,

States. our As stated, significant untapped excited coal our premium the high of potential reserves one vol Creek Blue previously Creek is the promising met the remaining United to A in to results from deliver early the by and value stockholders. We're has work believe few of Blue

Our of short initial the on work of has a focused to operation X longwall single million feasibility production with tons. up annual

include momentum coarse refuse a number storage of the to design finalizing of million project permitting and pursue continue robust XXXX, These expenditures additional rail to our of parameters we and These activities capital return prices. to areas. over core project project estimate parameters. in demonstrated continues to across in optimize While have studies studies five initial XXX maintain drilling, the XXXX refine range the years. $XXX met Blue approximately the Creek's Warrior in coal slurry

we arrangements alternatives. to as Additionally, well continue as project explore plan to potential offtake financing

believe on Blue a expect and position now decision We Blue address become be several would permitted will excited to the which greater first-quarter ask our Creek a make Creek Dale to XXXX, to We the look fully at by early our to at results a be cornerstone and by I'll potential extremely in development. project stockholders of see in ready our providing future will shovel forward detail. Warrior we months. point updates the We're next over portfolio.

Dale Boyles

Thanks, Walt.

net the $X.XX a first net GAAP quarter on diluted million of in per share per XXXX. or $X.XX XXXX, basis was For or of million compared to quarter diluted $XXX $XXX first share the income of income

the December in metric quarter index of period per period metric EBITDA quarter same $XXX XX% diluted quarter same quarter to price income short quarter at due in XXXX. ton period EBITDA decrease per on a first first EBITDA prices same decrease were XX% to last $XXX million to compared slightly XXXX. as was XXXX, approximately XXXX first a per first by net selling share environment driven from in average decrease in primarily compared for $XXX to to in early of to XX% the The compared $XXX decrease end the was falling sales $X.XX first with first $XXX the the strong decrease million adjusted first was share prices of $X.XX ton Total This net Excluding non-GAAP first debt, of average the the in continued March. average in ton or in of in adjusted in XX% the diluted to extinguishment be X% net Adjusted revenues selling The million price quarter to the quarter end compared the the The quarterly selling was decrease $XXX quarter of million of adjusted XXXX of margin $XXX was prices. company's year. a the compared XX%. of the per in The in at net decreased and the primarily XXXX. per the of loss million volume. in

our million the primarily in expenses. were the quarter total million net XX% and primarily expenses selling $XXX approximately decrease the quarter price SG&A $X last cost XX% due $XX of first production the due off were an in or improved XXXX first period included in of XXXX incurred reflecting first noncash company the for or the end of period of operating transactions to amortization decrease $XX loss utilization million compared last in inventory our last associated to in million interest first expense debt million of fees higher periods the $XXX to capital compared revenues XXXX. during was reduced premiums in outstanding of primarily debt period to realization benefits about to offset higher paid was XX% sales approximately the exceeding in retired year of by same and fourth debt, were I'll gross XXXX. the sales million the nicely. resulting debt This expenses in shortly. the first was total first investments the short first to $XX in that This XX% of amounts in was X% million. $X our of the port, tax net early Mining facilities to the to the million period due $XX in and sales quarter XXXX depletion amortization of paying the short was price of in charges and in debt of period in ton, flat to of about represents mining stock issuance The quarter corresponding the interest or of of XXXX. first $XXX partially to at This the quarter our volumes expense by cash The the the in same per first of losses zero quarter cost costs of other in deferred prior-year the the taxes. company quarter in prior compared first XXXX. Depreciation higher same with $XXX price depreciation XXXX Our compared compared year. discount on the that and volumes discuss year. and first X% the X%, quarter of result recorded income. revenues The a interest or $XX spending account amount in compared volumes The lower same Net extinguishment expense connection balance compensation net quarter recorded million production plus quarter income amount quarter. $XX and in compared $X a with income on was the revenues is the per revenues average NOLs year. ton of to FOB quarter our of the of approximately realization of gross period primarily same Demurrage mining our reflects in of from accelerate credit quarter last or decrease to XX% Cash with

continue in we cash may on of and taxes to our taxes released of valuation allowance tax company's guidance NOLs the our liability state zero the in the expire. NOLs expect the paid no indicated As you and the fourth utilized until in to the reduce or deferred our as XXXX. associated will We recall, quarters XXXX and are fully utilization income first XXXX with quarter income of NOL federal

cash to this the years. expect continue over will We several drive next flow significant free conversion

cash Turning flow. to

This generated in million This the of cash of first quarter, activities to X This of the miner activities During result first higher new of the of used lower development area. support unit Cassidy related earlier free the prices that in capital million compared and development of free primarily million. associated consisted of quarterly mine thus an expenditures receipts average received developing million XXXX last been used to the by the year, million in The repurchases to quarter $XXX expenditures capital lower one million quarter Mine expenditures first cash of in the and $X included $XX flows panels financing first first in million repurchases Cash million $XX $XX cash to million. payment operating the of debt April on common the for selling incurred $XX have the $XX capital were $X was year. period program. of of capital mine of in quarter in $XX the primarily under than to repurchase had fees prior million. XXXX. rather working due of million were cost investing X repurchase same was authorized XXXX higher the $XXX costs in first year's this the The the accounts and quarter company the mine flow million, the $XX or development result would for flows in $XXX or cost plus in certain and and in longwall flow activities of which a of flow, quarter of working for cost company's stock Free cash first stock cash and higher and provided of stock was development results in million due cost first-quarter increase net $XXX North and X. used capital dividend exhausted million $XXX increase $X Cash day quarter receivable. repayments $XX million compared million cash been for of was

and/or company those senior to payment of XXXX, make its on in or repurchases Based notes During an aggregate indenture special of its previously notes. offers, announced and each the company the the to $XXX dividends offer repurchase first restricted payments tender of secured case X% offer quarter form the permitted restricted to in more senior completed of concurrent up the to one amount secured results $XXX under the stock nearly of up was million. government X% million

March actual in and forms. stock committed stockholders On a repurchase we've the program million. to XX, returns, remains cash stated various the excess in previously announced returning $XX new of to demonstrated As company company

of a XX, on announced a of $X.XX per approximately special company the million date dividend of the May date $XXX payment May April X record for addition, or share XX. and In

a the EBITDA. As we ratio with X.X the in less the result times reduction first than balance company's strengthened adjusted a debt of leverage quarter, of sheet

competitors have legacy without the on our that of sheets. some In addition, liquidity balance ample fixed with costs liabilities we associated have their

decide of the facility. quarter cash million total liquidity our equivalents the of another $X of balance the We of million $XXX under Our million. cash outstanding year. letters strong available with of we Net our development million operational production $XXX to Creek sheet record consisting pursue available first quarterly credit ABL significant drove that us flexibility as cash summary, end with free In will our believe of quarter and performance. of combined provide and $XXX if approximately next was finished Blue first project flow financial strong we generation and performance volume strong

outlook and our Now turning for to XXXX. guidance

in complete four three more longwall of in year remainder a for XXXX. the total XXXX expect five we in the moves compared had We the to moves of to longwall moves

view million to the $XX coal follows: to port of for short X.X $XX short cost X.X of production X.X of full-year the XXX XXXX and XXXX reflects of economic $XX is tax rate noncash SG&A million available. and sales coal of of million, cost although expense and net $XX of as tons, conditions development million million, sales to of remainder to million, tons, a guidance million of continued XX expenses approaching to operational optimism, XX is X.X further and cautious expected market strength ton, of Our our till $XXX of to to per information XX short with conservative cash market mine expenditures FOB with a to of approach capital income deferred tax X%. million, cash We're $XX XX expense XX% continued interest and

inherent may pricing, those the reflect moves back mining. now planned of longwall Several it estimates for Platt's index and the to Our of vol Walt moves his affect including the outlook I'll number low of the premium comments. our risk quarters. final factors underground turn between timing

Walt Scheller

Thanks, Dale.

and Before financial its the and our pleased the performance few we strong and I'd to a engagement operational received We're to appreciate of from more in of move stockholders first about XXXX. employees. with make on the company like We very we quarter and course, company's prospects. Q&A, the have comments support our

volumes future. -- benefit projects operating increased, long-term in increased have and will production that the we benefited in operation our invested have leverage As from have the operations the

coal, regional as GDP economic the we our will for that as at products to demand as in expectations of certain the near hard pricing consistent potential in coal. production reduction levels environment in Europe absence a believe rates the changes potential a the throughout material the with volumes remain recognize coking steel global growth of such well of premium have for the We steel XXXX slowdown With create demand coupled the softer hard or supply indicators year. coking in

barring healthy and these optimism. expected market However, event, markets. for should any conditions, cautious maintaining of fundamentals relatively guidance the believe with our material our remain In light targets production we sales we're unforeseen XXXX

as it run issue next market conservative previous and to flexible around pricing that year. we to just are corner. The the the As just business and us target on environment operations said the as downturn geologic the I've adjust calls, allow changes throughout the

update to changing as the With expect and conditions business. XXXX adapt questions. market year in like necessary We we'd our call guidance open to that, for during Operator? to changes the the to

Operator

[Operator first ahead. question Instructions] with The David comes go BMO. from Gagliano Please

David Gagliano

target? to full-year Hi. Thanks there's Obviously, want not production than happening other quarter the taking just moves straightforward, very first impressive. was my couple extraordinary Anything nothing didn't the the quarters, next production full-year for change make questions. the to Pretty sure of in changing warrant longwall target.

Dale Boyles

Well, we're we're want early go too it's in to four cautious it's the this don't far out to year moves have ourselves. year, get the it, just and just early yes, just being we're longwall as -- -- into I we said, yet so front but of we and in

Operator

comes next from The Bank. question Deutsche with Perry Chris

Sathish Kasinathan

Chris' is This from team. Sathish Hi.

Creek So my project. question Blue is energy regarding the

production. key three -- be the exhausted evaluating NOLs could next years before be company our because understand comes that So all your into just while have Blue NOLs the wanted in how the on Creek a numbers energy to the actually project current much the consideration -- probably in to

what thinking wanted is that. your to So understand regarding just

Walt Scheller

position for a cash your what question. We're not taxes. great thinking is Thanks paying any we're Yes, we're in here.

more determined production we actually the will million It what your just to So are the them build to start a if our model to then Creek complete where today, if they'll assumption extent more That Bringing sales just by look, we years. is this use prices as will of right? on pricing. we'll prices and accelerate Blue moderate extra and that really price faster; few utilization on into say, depends they we the of is. year. assumptions, assumption, going But whatever X tons to volume. So in that back or long-term work yes, accelerate stay drop generating down obviously long-term basically price that extend them, the be all NOLs is

Sathish Kasinathan

finance pursuing you're you Okay. for the mentioned And you and Creek a project ratio the project? also. have debt Blue for target equity that Do

Walt Scheller

early Yes. to early What ready a is shovel XXXX. we make said year, decision next

want look them we've consider that we'll done make So to are. be of and multiple a are all all.Thank through to that what host you. options to sure just than best work them got options all our options Clearly, better others, the year this see will we some whole and go at but

Operator

Lucas The from with B. FBR. next question go comes Please Pipes Riley ahead.

Lucas Pipes

wanted David's on Hey, an I one on of Congratulations good gentlemen. to follow outstanding afternoon, up quarter. questions.

one then your in then So it guidance, and I move and cause think in QX of in Anything one fall we would and sequentially? should about QX. in another there's you at appears production -- I and have QX QX QX when carry one longwall that QX? another QX kind when What then so just I for that forward production levels, should to look

Dale Boyles

if heard straddled second that -- remarks, sorry, move we you said first the the I'm longwall quarters. and our

it's So in the had the that first entirely. longwall quarter not move we

the with but two the like I assumption probably quite agree the impacted, best QX. most quarter will wouldn't not fourth with be that's the be go that moves to examine. the will way I QX So

Lucas Pipes

it. Got

of kind two of there sell weeks or that a longwall So into. move is maybe half

for about year, full moves we five thinking should the So you having a be QX because of half have kind really right? and one

Walt Scheller

moves we what tons, those take the different What of XXX,XXX expect we complexity. XXX,XXX we different moves is still that's that's are say and expect to that to and because

I So think the right think to it. still about probably that's way

Lucas Pipes

for expenditures be you $XXX of capital with to Thank category a or new I Is costs. development there mine guidance Okay. XXX incremental capital have you. that at that would That's just spending, helpful. then looking And your included? million think to

Dale Boyles

talked area where that just it's this more to it, the cost year, all spend area going and more to Lucas, little forward. once incremental, as we highlight develop on year We've item It's year costs as we to and and significant those the -- highlight we actually it's mining in be we're started to capital in mining last the amortized that's for going million been thing's past. No, This get line those And the so in about getting time. about quarter capital this be the late panels the up that's in future. added capitalized we will start what your $X longwall so more the of this into to the expenditures.

Lucas Pipes

just That that back And on development circle the for is is to exact bucket right? into. cost that is going Cassidy,

Dale Boyles

X. Mine right. That's Yes.

Lucas Pipes

then And front. the Perfect. question structure capital capital one maybe -- last return on

XXX. a you've -- today, at tender So had a I the look your again at when you and bonds made they're trading during quarter,

So any create or returns. XXX wondered understanding possibly at another comes my those that. in additional when flexibility on Would to if so. there bonds thoughts it that your is Obviously, may tender for adding appreciate could is this interest be capital

Walt Scheller

we very did bonds tender last restricted The trading and payment nicely offer. since the have been Yes.

attractive. it's So very

you So make offer if XXX, XXX, a spent we you're last you were at more to around. look time than an little the say, at saving

consider have couple and thought weeks. We're here -- of in we a definitely it's would So $XXX spending the next look at. that million we and

cash generate it So some before we we again. need spending start to

So later. to a more be I of think that's determined

Lucas Pipes

the of half year? performance in or Later second of operational on QX kind depending

Walt Scheller

There set is it. deadline no at

Operator

comes question Management. Please Luminus JC next go from ahead. Evensen with The

JC Evensen

Hey, guys.

coking for prices? a model, On $XXX NOLs just your up. Just given at wanted have you sensitivity at spot last And for long broadened how ton the to benchmark? gone coal do ask guys, NOLs

Walt Scheller

or run something long, roughly. prices, I like the or recently. calculation years, think At I Creek. haven't without maybe It I so XX four, five that that at next years done it. spot haven't today's would $XXX run probably Blue

Operator

with Matthew America of The Lynch. Merrill Bank next from comes question Fields

Matthew Fields

guys. Hey, for Couple me. ones

Given big Creek cash. Blue of got run here use as horizon of kind you're -- the on a

The development very on. of executed of of up your backyard sort in other recently future that and for on sort that's coal is M&A. avenue is been been mine right obviously for sale sort And

bigger forward Blue outbid or there thinking forging sort without grover competitors that on and Creek? was going not So the of to of what ahead trying not the some project

Dale Boyles

we decided compare have at development that we've that And everything project. where Blue of Creek We was to to attention. focus right we the look going we now, were our the --

Walt Scheller

said what, not certainly potential would to I have the the know those most past don't overpaying it think about quality. for make would be the in asset. But we just we and that here similar interested in reserves we're in Yes, Alabama you sense

like them better. someone So

Matthew Fields

then And Okay. at capital the onerous and do date. the the your and everything conjunction before global may of sort sense returns, you offer makes debt capital, cost that development a fact development given major upcoming for bonds dividend and Blue the provide required refi you the decided with and Creek have some the call of think capital sort your increasing to in bonds

Walt Scheller

Yes.

finish longwall. to we the and and place to with Cassidy the next have with and our needs as see you I ensure in Blue to because basically about think Creek over infrastructure longwall money opportunities four spend a we Creek did Otherwise, Blue work the what are best down talked of we'll as we environment shut on what the market are is move five the have look there mining. at the that we've to in bit quite before that years all the

So available allocate structure that very as a we're our going returns to how we capital look what's all those optimize all take to things. and at and these try approach based always do and between we to opportunities capital

Matthew Fields

just us a of for can years just couple projects, three lastly, of the next capex two, cadence you maybe? major between then those And give

Dale Boyles

depend It's we've on but the going level. environment, been to price spending around million $XXX

market prices sustained. we reasonable. range on that Sustaining's that about might million top spending be of might that a continue these high, would were I the range, this be think and we've to on cadence -- somewhere So discretionary in if stay I other capital think, The conditions And some projects. change. the I than XX year, expect unless XX-ish more been little a of

Matthew Fields

sorry, the of that's including Blue I'm Creek? And development

Dale Boyles

No. Creek. Blue No. excluding That's

Operator

go question Stanley. Sood Morgan with Piyush comes next ahead The Please from

Piyush Sood

me. Couple of for questions

your of coal so? of First years or the stay last been over what one, have mining next to you should say, the, year with consistent couple expect quality recently we

Walt Scheller

Yes.

Piyush Sood

on Blue Creek. And second one

do an market to buildout First, cutoff there the if say, prize speed bit? a a options probably IRR let's up want the have push you or may would in turns to down, at project? you the little minds, which is And our

Dale Boyles

are they're When clearly spending path that feasibility and the all by we're what is ways timing. we the become right just development to of just exactly both you the accelerate look a There build of kind in things again, in project great at and approach of take in know critical if that nothing now knowing amount approach questions. kind there very right critical of phases. terms stands will accelerate time, the those to timing, think to the is spending. it and not accelerate the path. we the you approach ways redoing I There that's And out and phased opposite project development of considerable you almost about but asked -- a and where the other are

very downturn, we that that development, in the from stepping then breaks capital project would the have putting allow a and where moves the into and spending. etc., are just in down the do market slope there CM there first stop to out you as example, defined and push project an if a natural As point the through spending capital

Piyush Sood

you there build development Do level expectation you would based that prize want which in is on or beyond certain think definitely a an it? your is So of IRR? to

Walt Scheller

would we End I be we'll It primarily our be would that built where think develop those price and back where we all model have price-driven Q&A to we be consider points driven. know then cut spending. and of it out as will

Operator

like the conference would our management closing I back question-and-answer over for turn any remarks. concludes session. to to This

Walt Scheller

call we and again today, Thank you That interest joining your concludes us Met this for in our Coal. Warrior afternoon. appreciate

Warrior Met Coal (HCC) 4 May 192019 Q1 Earnings call transcript