HCC - Earnings call transcript Q2 2020

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Operator

Good afternoon, my name is Andrew and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal Second Quarter 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] This call is being recorded and will be available for replay on the company's website.

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

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

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

Chief your Here company's Scheller, are today, Executive Walter remarks. discuss Scheller, Mr. results the you may Officer. Financial Mr. Dale begin Officer to Boyles, Chief and Mr.

Walt Scheller

and you remarks, Thanks, today us results. discuss to Hello and operator. will to will everyone, ask Dale taking review detail, After the time quarter questions. join for results have the our additional XXXX my then opportunity second you to thank our

second steel geographies lower challenging for We the material its Met in pandemic continued global our across impact environment with to US saw was very disruptive The COVID-XX spread economies. on cuts as that the a led key production quarter and Coal. demand

Met and it explain outbreak all in on financial will us results our detail. Coal low unprecedented point second factors impact significant as COVID-XX ways. in further a we of addition, pricing In four-year affected The key for hit a early new June. has had These in quarter widespread the

partners and would of in the adjust our mines as who've by are like thank our health to orders receive I adapted to ensure their to for comply critical taken all environment measures to customers social State challenging chain distancing this hard on our necessary during continue and their employees like our would business these maintaining to all also forth to work resilience. operations organizations personal the set time. operations. infrastructure pandemic guidelines while supply we operate workplace and While thank that of Alabama, I various Warrior's with hygiene our of We've times a their

of apparent. older rate the customers production the the measured global Steel full the steel idling taking of most The adjustments with production impact permanently and now data the decisive iron close were down to progressed, XX% efficient be from pig XX% The the markets to align through for furnaces their the levels some became lines. on average the global significantly. actions cases China regions less second steel to excluding COVID-XX from of reduced results varied actions down actions and in These World As operating simple producing to An quarter of blast production have intent the can quarter. these where demand. Association,

for the for of a valuation most metric by XX% down $XXX met before far cuts of was its production end On into for The its market, out losses metric losing a Xst, of from the major announced the of first production the ton. coal world correction pointing met onset gained supply metric met surprise translated being importance rapid the a the coal. outpacing over softening seaborne pig in met of It's per too trade was production, The ton XXXX. Despite at compared iron $XXX of down to its correction, XX% PLV resulting in was April quarter, year. by By last across price quarter year, response. production at index a upside, production period. is of the pig Global decline quickly to same steep to second on coal rate several almost to global worthwhile India's X.X% growing for Australian the China point $XXX while growing that of the simply the six seen which continue quarter per value iron months X.X% flow cuts Xnd, the closing was the suppliers, portion ton prior to coal June impacted a demand per since we retaining small not valued the

had and being cost that due increased producers coal regions prices, of by deep below doubt result to with times challenged relativities at global In pricing increased met trading into met a spot addition There cases levels to competition cut blend little lower costs. is customers producing or several fewer their as these curve adjustments coal also and made with opportunities, impacted index coking in were the some measures. on cash other by cost-cutting lower coal

I While the to for volumes quarter the Sales X.X compared a in at in second thinking minute Warrior. million provide was people million tons point. means which this tons short more what X.X take quarter, many quarters, short year's since detail let's know do they about look to quarter for second last an future quarter a were data in second record important results

South second in quarter Our to XX% XX% on quarter compared same tons tons were quarter the this period steel as short Japan a as the were geography the There in America. year Production Europe X.X to back was no sales Asia sales of South in last year. Korea. same in in million in production the XXXX in of customers and year result short second in and produced countries by million in such XX% volume X.X last quarter the cutting second significantly compared

than higher due million expected quarter, increased second tons short communicated, the first XXX,XXX end of the the short quarter to volumes. of were previously quarter the during sales X.X inventories inventories to second XXXX. at lower As tons and primarily

the us of become time. on available our reduce opportunities a inventory idled inventory We lengthy should risk capitalize outbreak to Also, normal demand that to periods our our will temporarily disrupted down measure result may workforce. shut being a as allow as elevated shut of precautionary COVID-XX expect market competitors by levels or by be down levels remain the for among to

last to second quarter costs Our June. primarily $XX the same and realization for on This XX% premium development XXXX gross million Company month FOB of million the and realization The quarter mine Australian the to the in The includes than price during was this costs the spent a panel Vol for index gross in year price $XX North capital longwall period of second amount portal. price expenditures the development year. during XXX% X the price higher compared Low the achieved prior-year was was higher due the period. falling environment

balance this liquidity and and maintenance address for against to discretionary I'll to ask continue Dale our free quarter of detail. in remainder will of the and value flow cash our projects second now the year. We long-term greater capital preservation spending capital results

Dale Boyles

Thanks, Walt.

results were of significant the primarily a market driven for in and discussed, in financial fairly a COVID-XX environment a compared last the by Walt to this quarter as the overall second global US the reduction activity of year spread robust economic quarter As result year. second

quarter. XX% offset volumes. sales prices, terms year's to for cost lower to both led In on Warrior quarter lower by in of second last addition, selling a volumes record slightly combined XX% lower compared These factors tighter and production sales was and year's quarter net second spending average last

in explaining period majority the result second structure, these to of company's cost variances quarter factors highly the year. As of the the financial a last the variable compared same

share XXXX loss of a share million volume diluted and XX% in For share same to of the as the $X.XX EBITDA driven XX% the of in a second in of diluted or second the The diluted net $XX by of sales or $X.XX recorded second GAAP a primarily approximately in loss net decrease loss $X.XX net company XXXX. the quarter loss quarter per prices. compared $X share compared to $X XXXX, quarter per the or compared basis was diluted $XXX per adjusted to of decrease quarterly selling decrease period quarter was a of on second million a of million income of was $XXX the average in Non-GAAP XXXX. net second XXXX. per Adjusted in a quarter income of for million million $X.XX

EBITDA XX% in in the million The XXXX. average in second volumes Total to in market impact second were second million and of second quarter the selling same sales a average XX% last approximately decreased in margin to due $XXX to the the short price environment period the XX% of Our COVID-XX. quarter in approximately revenues and the decrease of decrease XXXX. compared This XXXX $XXX the ton to per selling compared period due weaker in net adjusted compared primarily to same XXXX quarter of quarter XXXX year. was of was prices the net

to in year's per XX% demand were reduced cash ton Low-VolL the XX% may of selling of structure short or $XXX in is in decrease quarter X XX% to price the highlight higher XXXX or XXXX gross per the or mining A It management year. the $XX quarter tighter Premium price sales XX% revenues short net was other early you in $XX same to XXXX. Australian cash the in second year. and or of million quarter a price average the FOB stronger in sales volume, from compared factors; lower and of As quarter or first pricing. three to in XX% cost tonne, met saw and of company's low of recall, in quarter million the last four quarter $XX sales index had of a to averaged last million cost primarily coal cost second index year X, decreased Platts cost cost The XX% quarter per metric June. ton to of compared of second decrease period $XXX our of ton second was $XX per second the ton compared variable of price attributed the in a net of $XXX $XXX per mining revenues XXXX. an in The quarter X, same decrease million short in XXXX. sales metric Mining average noteworthy charges last realization Demurrage selling $XXX cash second prices,

XX%, XXXX. volumes same $XX prices port As were vary that wages, met due pricing. lower was of sensitive coal in an per The second transportation of short lower as with compared quarter by Cash ton costs FOB primarily is such sales sales period to cost net and selling XX% the in decrease to were average the price royalties $XX lower.

FOB in quarter somewhat the The ton XXXX. of spending. the volume Our per change cost of was second distorts first higher total quarter port in compared picture the to

year about the million volumes. primarily of XXXX to lower were by million during tax are cash period, benefit quarter last facility XX% income in $XX and second last incremental compared volumes in quarter million expense and year, The of lower was fees debt pointed and to a than period and higher expenses associated first interest Net the in the or XXXX on total lower quarter to same our primarily the were earlier, depletion year. due about of of facilities, sales tax to outstanding As quarter second on primarily million spending $X of sales period borrowings than the the prior I of our on recorded XXXX was last lower. income lower due and Depreciation partially period cash out $X and the XX% declined decrease issuance same the amount $XX with XX% $X of cost cost expense our debt This same million total returns lower from plus offset on our credit balances. SG&A were of the due million was X% our expenses second professional XX% non-cash ABL for and revenues amortization $X We interest quarter-over-quarter compared year. interest income. second to included quarter expenses. employee-related were

by to the primarily to partially average sales flows selling cash net receivable, Free cash of provided the to Cash lower activities $XX used significantly the second flows higher XXXX, with due quarter was by lower compared expenditures Turning of flow for flow, for capital million development the were last cash capital during XXXX Operating positive, lower second quarter prices. compared of result cash for second cash operating and XXXX the was during $XX free to were which million. net in mine expenditures activities year. inventory. lower same in in of investing capital. volumes decrease period quarter cash was working by mine was in a of the due XXXX, of $XX development second million positively capital primarily million impacted used costs and decrease offset quarter to in flow and accounts $XX of costs XXXX net The working

of While we by to market this million second repayment consisted rationalize in $XX of primarily facility spending million, environment. of $XX flows payment continue million of activities of of payments sheet EBITDA. $X X% adjusted in ratio the our for But with by X.X million. the $X was spending note, and this XXXX ABL strong were and the capital times the year, our leverage leases quarterly used challenging financing of balance lower Cash a quarter on dividend remains

addition, in In cost structure have we legacy maturities. debt light today adequate and and a shared no fact, fixed and near-term low we have variable liquidity, the of liabilities, our have cost

our of under approximately $XXX quarter ABL $XXX of net liquidity letters and Our million. XXXX million consisting was and of cash million equivalents of and borrowings of facility, $XX credit total available outstanding at $X the available of of cash million $XX million of end the second

balance on back us to cost our ABL in liquidity facility sheet low. to million strong interest keep $XX Our allowed position total the pay

Now focus the remainder turning the XXXX outlook July it's the on the on and the to Blue part preserving changes and company's value of COVID-XX project development impact now of until delayed not on short-term economy full-year delayed withdrew rather the had of initially least global duration XX, our the liquidity. the the in the is based This of that light decision operations, cash project On we pandemic, April uncertainties at our of in the and of regarding until year. but X, XXXX. Creek overall of We guidance. at our perceived the project, least for early further

We also temporarily suspended our stock repurchase program.

Blue our evaluate and of business fiscal development the during remainder pandemic for to continue and the on will quarterly of financial further our year COVID-XX updates provide expect outlook project our earnings impact Creek the the of to the We next for call. the

adjust expenses, final working I'll comments. his to We liquidity. appropriately our operational flows management capital, also needs, to back including and it for turn are continuing cash capital expenditures, now Walt

Walt Scheller

Thanks, Dale.

on Before comments. we make to more move a Q&A, like I'd to few

different demand, While visibility we ended quarter limited quarter high with about uncertainty with expectations. now the third and we enter the second customer

terms steel and production We name Most as show time, have reasons production the in of believe have sectors to At remain positive the pricing improvements such recent most levels. reduced few of steel that from the to same with the us. behind we worse a major demand likely lows. to is started automobile concerned construction

As have rates, a slowly measured result, several producers operating made albeit and plans to increase adjustments. with

also cannot is pre clear and us their customers to it the our However, COVID-XX levels. will products return when to predict still for demand

our optimize profitability for third threshold. customers Hence, continue to to steel quarter demand by due prices iron the addition, our on customers volumes opportunities and keep with sustained that lower In order close challenged in this and we'll optimistic our to orders cautiously contact and our low capitalize period, are for sales cost. meet most of during ore margins, thin products, we multi-year higher remain

current that remain for will in with we in to we year-end would more intend disruption to inventory decrease have opportunity if mentioned, covid-XX. Obviously, risks manage see accordance through as inventory rates previously we levels. to materializes, our levels a adjust expect elevated due potential rapid we volume we production and additional demand sell our to expect the As as

we well the potential producers continue ports. of forces any the in adequate pricing, change of believe, Two; In of structure Chinese we efficiently we of coal the impacting import our the important that strong we prolonged safely and needed as Three; highly met additional see seaborne met material customer unknowns, business driving portfolios the strong significant liquidity. as coals flow will economic and a on outlook have relationships. Four; of world's to a in view, many results. business highest variable to sheet enabled reasons Despite coal combination factors, well we've operations. the imports indices. long-term limit cuts our few and to order balance clarity a level there to talented our the challenge. are to workforce improvements some for our weather is in to free and Five; India, need short-term committed upside As investments supply quality maintain one now current environment. our low cost the from operations major market past restrictions major positioned reduce years, three the as is capital around made markets drive margins our cash high-cost most over us without allowing like across all high and in us expenditures significantly One; to

this I'm questions, ready for our factors. from long-term As growth like we'd that, of these call a we confident the achieve emerge potential. crisis open to With result will health operator? to

Operator

go Instructions] [Operator comes of First Gagliano Markets. from Please David BMO Capital question ahead.

David Gagliano

sorry the that I production in or 'XXs sense there, the up us that to the a back my a to little cash some to great, of be the third down inventory quarter expect given to to term, you level question. thoughts a right, -- can to thanks sense build Can second as do All we assuming upper and that XXs, volumes us noticed give the I the for the also market. it weak sales moving the it operating you regards to metrics, forward wanted just here and your what is half? ideally taking low drill we costs, give get and crept down the with should and expectations extent bit -- some near production for are on

Walt Scheller

think, said, I we QX. low we the as we to saw in intend think -- we point

match strengthening to our of of in but lower not demand, kind being we to see different of where QX bit significantly production would to a expect the from to drive going to production and little little and terms in always sales we -- a expect more cost be intend expect as cost closely that'll degree, terms our today. structure production, will expectations, so not extent So a of or are costs, be that we to strengthening to I our we a that say view little our in we huge see the QX,

David Gagliano

capital full with there? then, CapEx what's as XXXX, to the target latest year regards as the far And for Okay. change, allocation

Walt Scheller

at released North, well. target Yes, we're looking we and to is our we're we mine everything going lot X as capital a I into don't we're spending our future capital. what squeezing which is the doing, that mean, stop of haven't is, that want capital

Dale Boyles

a we rationalize Dale, is continue year, of going this looks all managing David, our all goal of we balance little spending but like volumes we with above are that, but of just remainder our and little or of and I'd we for think add, spending, projects, be free CapEx spending just to cash we the our we're just the just to by trying do that can to be look, to there continue, positive that the pricing flow want might with certain all below altogether. what

David Gagliano

Creek, at Blue -- mean, of sounds for like out beginning just And least it of I Okay. the the XXXX. pushed obviously

second obviously early do So happening something like or million to that's was million-ish I in not earmarked was XXXX, reasonable perhaps half, for so? I'm $XX maybe wrong, that there spending but that is now $XX XXXX, in think that,

Walt Scheller

year. Blue for had spending entire for That's Creek the correct. We minimal

David Gagliano

it that's All from right, Thanks. Okay. me.

Walt Scheller

you. Thank

Operator

from comes Scott question ahead. of next Clarksons. go Schier The Please

Scott Schier

afternoon, everyone. Good

to given quarter, at consider stage of any, if of this the try slow at build, I kind you capacity production what inventory kind would this last but point to anywhere inventory be or levels? rates asked and I manage you again. the Are to wanted to think to close forced try I

Walt Scheller

intend match said, this but are close volumes. We I've closely already capacity at point, to with as production to not sales our more we

Hopefully, So a I forward. would bit inventory expect an we'll not of little going build see reduction.

Scott Schier

your what little demand. Can just you're gears that's the what areas more any I you're us and sales was kind split weak of seeing, was market remain on then what over quarter? then a of hoping color you bright Okay, switching bit. in bit about a helpful. And little spots you give seeing terms currently talk could

Walt Scheller

Our the moving in we'll historically, sales don't - were the Asia we'll quarter. toward XX% America -- Europe, the the which XX% and Asia. I split think in to to move In as of into of be the move quarter, in there we remainder XX% was where get one a period start South we we'll didn't back Asia, get America, in will but anything in some call in quarter second back couple expect same Europe, historically, the to quarter, where get XX% South into I I back over so levels a we think we the were XX% over into I was third think going said, quarters,

America, I but and areas the it seen business, all to in in not maybe back seen were levels in we've do normal know to our think kind that's demand everybody I move and Europe, we've of QX. coin hunker into which in think higher across they levels, customers the down some are because And Asia we pick this South of is we demand the we in up, the quarter. of I going were on Asia all said, than that as QX,

Scott Schier

of and color. the I great. questions taking my best for Thanks appreciate luck. all Okay,

Walt Scheller

you. Thank

Operator

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

Lucas Pipes

questions, of follow the share afternoon your good can volume second slightly Hi, for on it and the commitments maybe To year? differently, purchase up everybody. half you earlier the

Walt Scheller

volumes, to of would well committed that normally I XX% XX% you expect in it can get spot I QX. move don't closer year, the may go end in we what to -- would that's the drop, I there would XX% second committed back of of volumes was volumes the not level normally quarter, by north the that, generally do and to been that the was below You would of with numbers like normal, those but really a we XX% sales know we more XX-XX, normally expect in what, we expect that to had spot and tell in XX%

Lucas Pipes

of to helpful. of range gradual the a XX% back the typical half? that's ramp-up more over Okay, XX% towards Kind

Walt Scheller

Yes.

that's I think reasonable. I so, think

Lucas Pipes

I sense I commodities. on recover what to you wanted like moving the spot prices the get But, expect that for then appreciate and evolving, pricing, that QX obviously some target just were what's of your mix and X that on kind mine special into the you is that or pretty here. have items any given for of X, No. we terms this account inventory uncertain take ground, plain very that, it are a of vanilla better other will environment between reach in should QX

Walt Scheller

in said, significant terms in as to of going mean changes significant to to I pricing, us some I be there pricing. have is for changes see

I think a XXX we'll be I know, saw kind of [ph]. bound. of don't range we low

about I we where today. think are that's

that being go kind I see this see I reason at any bottom. think significantly we're to up point. going to for don't prices around the of

muddling So least kind through see in fourth for what the type quarter. this think I we'll and happens of of then be at pricing a quarter we'll

move where quarter shifts to see I don't inventory had dramatic differences which the been from that past. we'll think calls any of mix, we quarter. in terms In in

Lucas Pipes

Really the best luck, Okay. color. And appreciate time. this especially during of

Walt Scheller

Thank you.

Operator

go Alex comes question of Citi. next The Instructions] Please [Operator Hacking from ahead.

Alex Hacking

Hi, thanks for call. the

on follow-up April were what any I time, way you've that the July question, improvements one Thanks. you there and can in of quantify seeing is kind sales you from a June in maybe and seen May. more may, if Just the

Walt Scheller

what are and commitments vessels No, when couple terms looking are made things. at it's in those -- a what nominated as of and were really we of we months go

significantly that will had we've between July the for the believe, to terms at in commitments QX difference versus we to yes, the commitments July, just move August, and demand. seen as direction we lower, reason So of and have right in is, June for start we look our [indiscernible] where what

Alex Hacking

guess, I then to that's cycle be going volatile. project on And just following up Creek. have and met a going a prices is coal are long This thanks. Okay, Blue development to

kind the forward-looking know are get you the need would to ahead, now project, or with the question sense just back plummet flexibility you very I'm started very coal able yet, into trying to affect. on project seriously of guys how stage, I again, project three of on into push for do the still you prices like and even Thank kind met a is going to development the or because future kind early push the hasn't development of to You're two in but volatility that to postpone once you is a years weeds have you. know, a this guys it's

Walt Scheller

things start for like thank for instance, CM but needs have easy want What need it that, project, to a would that of Blue of kind given the we that. at like stop, break that we've for do -- of of kind want it, items, of a project need slope to natural of it's kind becomes you sour, CM are some we be And did around it's the is that, time is time. the to forward you the still in turn kind there kind where But a if some lumpy you started it. it's again in they period initial kind that very project you Well, you development, plant. of development, a project, clear prep stop you it. few shaft financial if would start Few we've of things then the question. once point you lumpiness started about stage once said building that very Creek stop of a the there past where we of finish to It's you development to once wanted the to before something from the things At that and there. any we to relatively if cash and kind point going point, building finish start, the so easy project and

Alex Hacking

Any color potential more, absenteeism you concerned very How areas that know, Okay, moment? is operating? one there close by may, much. COVID, the you just facing obviously a at And get are much I --, you could about in that mentioned you how know thanks. the Thank How earlier, mine you're be helpful. then situation you if you are that? would the

Walt Scheller

closely haven't to We've those few and very, and we've going up. the any thankfully, had workforce Alabama, worked been hourly had our real we've of had numbers situations we would types here we with in very cases, positive address been the how a outbreak at operations, identify

we I be tomorrow, what we weeks, shut but said a situation will we're where we're inventory I few prepared if able up you prepared. the with end levels to tell So down to in And for happen can't need as that, that. to a do do

we for ran tried run So a situation the have hard if make it. to we're sure quarter, second arise, to when in that did can prepared we've of kind we we

Alex Hacking

appreciate color. good much. Thank And you I the very luck. Hugh.

Operator

The next Chris question comes Terry Instructions] Please go of Bank. [Operator from ahead. Deutsche

Chris Terry

of that Dale. about Walt number. just so little it quote related wouldn't that going that's you that on me, further. dollar talk there forward. a immaterial the what's bit Hi, from that the per costs Is actual quarter impact ton to impacts a or COVID it you'd willing and number starting and Couple second is questions to be Does actually

Walt Scheller

that. Yes. question. are Thanks for things It's the we for material. checks, cost incurring some not do, Chris like We temperature

the people rather so side in inefficiency in a staggered number [ph], of cost. say, direct buses I I seen our can on time with the down shaft think inefficiencies, shift fewer at probably, we've the main times, just more would more than go

Chris Terry

one, like coal had probably process just depend half XXXX, and you on you so it? to to then decision prices we start what's defer far, questions today, And it would where the if started and we again basically had go thanks. of still that that other then or lot actually of you through one are the know I will second Blue get XXXX the on Creek, you've but Okay,

Walt Scheller

we a Board the with where That of process where work the project. will we be budgeting into the through market will part do finance consideration that is, will our the how market and we and take where going, see

into carefully going look year next do we'll approach towards of end it we how the and early determine the So at things year.

Chris Terry

to the end Stream mines from one the not is I to Act. all just the final with thanks. impact to Okay, your And there into far too Protection related election away at me, one any of guess year,

understand operating a current of party, Just is in little if conditions want just bit to some the change government. under a there the better either

Walt Scheller

I in Act. Protection were you the asking about Well, terms, think Stream

all would me on, would so to what that. it, look would what just really as like though what that no impact would to any we from depend idea be and think would be have be I be whether it'd difficult speculate that for included, challenges all and to

Chris Terry

thanks. Okay,

by around year, of ideally. COVID over be any you've just period, use I circling the to you what what think through level inventory there risk once trying like and So number -- to that the, to on back guess the next inventory said, or is do good match time, what's that levels a the, your actual less you get do the is carry inventory side, the sort the you operation to number uncertainty would of like what etc. so

Walt Scheller

less XXX,XXX going than long-term, next and we've to makes early long always not sense. said, I say I'm that means think I term, think but year,

Chris Terry

guys. Thanks me. from it that's Okay,

Walt Scheller

you. Thank

Chris Terry

Thanks.

Operator

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

Walt Scheller

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

Operator

conference now presentation. Thank The has concluded. attending today's for you

You disconnect. may now

Warrior Met Coal (HCC) 9 Aug 202020 Q2 Earnings call transcript