HCC - Earnings call transcript Q3 2020

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Operator

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

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

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

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

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

Walt Scheller

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

economies. third presented The environment its global disruptive challenging as impact quarter on market and U.S. pandemic COVID-XX the the a continued

restock their Although, the markets higher began coal operated the customers normal inventories. key our to increase as to their in quarter, industries steel the started to yearly operating compared sales well and we third below levels, in and rates met see volumes second their quarter

free achieving on on cash quarter. well positive demand since us CapEx on pricing, flow lowest the liquidity these steel same benefit a At and We've pricing. our positioned were Despite we met balanced realized However, publicly-traded the same cash, the from of per price particular the and to control, to for remained once we ton met since pricing in we again keep we headwinds experienced public. eventual cannot say becoming uniquely time, coal investments spending in coal longer focused be the pleased challenging average we business preserving cost cash term the on met going coal as short our recovery lowest aspects carefully can managing that our to production, company.

our necessary to distancing hygiene continue various operations. take health while to the our and set comply our to adjust health social employees measures forth maintaining environment, guidelines and with to workplace organizations safety personal protect the of We by

behind and are see furlough sales worst of well volume, expected employees work While be we operate continue customers. mines, like Alabama, our demand line to are our call and business the to these hard their visibility unprecedented and last we as that to to from that steel times I in in others performing said third of and as people the to challenging to for We've as critical to most We're state their have in quarter resilience. expected been terms the employees. earnings whereas our We in pleased on geographies our times, related operations a us with sectors bring had of expectations. all higher our during infrastructure would fortunate and industry idle the these thank these employed keep better

the Association, last compared World by X.X% year's maintained reported pig first production the year, rose a the iron quarter. X.X% produced Steel has for Chinese quarter third strong above production having nine iron months. As the for by pig to throughout second performance

improvement in pre-COVID-XX Warrior mostly quarter their for in from to output lower appears the majority be previously due displayed the quarter, last regions near noticeable Although, year-over-year the earlier by were stronger month-over-month continuous remains sales their in to in made third lows second mentioned. had production the a XX.X%. India iron the and the China pig the of months of outside volumes production rates. has demand, three as growth increase

sales However, are did believe our also customers of restocking level the low taking some not prices. quarter. curtailments advantage restocking from that be by we that had market the of quarter volumes earlier expect benefited the our We to as fourth repeated in third this year we in overshot production

As well-stocked most customers be into appear to year-end. heading

Our fourth second the low between expected are quarter of sales in quarter. volumes to the point third and the be quarter

concerning Index turned Chinese We ton quarter. for to $XXX the also Australian reservations pricing, Price absence tightly of Low-Vol XX Platts the about oscillated The quarter well the per The Premium as of for indices ton with all third third as $XXX market, supplied weeks true. first the quarter. most a between FOB metric well and out range-bound of perception import which metric entered the quotas, kept major per be clarity of

the per increased $XXX of recovering outside around in the and quarter high following a China in further activity demand However, China, well broke as as metric closing indication buying India, through of their at level of resistance ton. mid-September, indices

quarter chose we to tons of the compared year’s pricing steep a in last million Sales were X short in X.X in second threshold. failed the quarter, to in capture volumes quarter, in several our of experienced ability challenges As the this occurred decline meet we the that the back to rise million opportunities to spot our in quarter. profitability third the tons benefit our pricing. realized end limited the third climb Similar short to

sales by XX% South Europe, were into the volumes quarter XX% quarter. low the higher volumes in XX% nice America rebound the into Our geography a and from in were into These Asia. third second

and we second demand. of second our If worst reduced be production terms in the met you that steel said remember coal call, should quarter the from earnings quarter

in tons pricing the short Production third the X.X for remainder of year. in million also concerned the we of tons However, was volumes XXXX. sales the volume compared quarter last last said earnings match thinking production million XXXX X.X in remain we our half about where better of to aligns and call, of the quarter with same This to our year. on we second expected our short

previously XX,XXX X.X to the and elevated remained at million the during Inventory third short the communicated, tons quarter, tons quarter. planned to inventories compared short end of the slightly third second quarter. As decreased

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

prior quarter included price a Australian was in and environment. Index realization period, rapidly third Our Low-Vol gross FOB of Platts lower price year Premium which XXXX decreasing XX% Price XXX% for achieved the the the of was than

higher Our gross the rising of of spot of fundamental XX% due over price primarily in realization price lower to was to being month and rapidly a the September supply exposed to in sales sales our lower marketplace. percentage a with relativities the environment due

the X longwall third same was capital includes Our North costs compared to in company quarter a approximately sales amount This during for $XX of the period mine spot the development million million quarter expenditures portal. the XX% third development on normal panel costs last expectation The and compared approximately the in year. $XX spent XX%. to

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

Dale Boyles

Walt. Thanks,

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

or Our make with employees priorities. laying-off mine significant costs third CapEx about to idling extremely investments. low while environment. depressed We results those balanced competing and without and We development our keeping quarter was the mines in challenging the continued price balancing ran

$XX our from cash Our act. for of quarter. total was third ability of the an by success our million outcome third free the flow quarter quarter at the liquidity the increased $XXX balancing for to important second end the remain positive to million Overall,

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

to primarily weaker environment same the last compared in in in in selling quarter due quarter revenues prices year. compared due million the in sales volumes $XXX third EBITDA to in a the net decrease was adjusted Our and approximately the was the year. to average XX% the XXXX, quarter of quarter to market the COVID-XX. X% XXXX, XX% last margin same were in This million of of third impact $XXX decrease X% decrease Total

in approximately of third cost in port, mining decrease The management $XXX decrease and merge remain quarter Platts was charges final compared last to the quarter coal FOB $XX $XXX the $XX factors. of month price cash attributable third our the As of in to short sales may pricing. sales lower quarter other last compared XX% compared the realization range net per of million an in or lower XXXX. the in a quarter XXXX. Premium cost ton selling quarter recall, in gross of of XXXX sales or you bound of compared averaged until quarter volume, million index in per X% ton same year’s of in revenues or Index period to the cash mining most in was met ton, cost quarter short per Australian primarily Low-Vol to The Cash reduced tighter to selling in year. XXXX. XX% three three, year, $XX cost or XX% the $XXX the of XXXX, demand ton third average metric average in to September. quarter, The million, FOB per same same of $XX price and and two higher XX% last sales of prices of stronger price The third XX% was saw revenues price short third One, of the $XX quarter, net decrease Mining the third third

were in sensitive lower that royalties Our vary costs, short primarily the such quarter decrease tightly mined to price environment. per due coal was mostly third and low public pricing tons coal third quarterly in a highly at met rates managing second lowest in quarter from challenging a quarter of since going The under sold met same cost reduction. XXXX. with transportation, focus costs price prices last wages, efficient our cash year’s continued in with cost amount sales the as mining ton The and the on was quarter

a than the of In fourth inventory the in coal hand due to sold expect mine levels addition, X on Low cost lower second We ton higher high primarily effect the a not quarter. of do in similar quarter year. volumes mentioned earlier. to we this quarter, the as is lower due Vol cash Walt third primarily lag expected percentage for short the costs This

The last debt was cost our facilities, of of plus interest amortization with partially compared was or total by first cash sales in about the total in X.X% credit debt third of expense interest volumes, basis. expenses of million income approximately third the benefit Net included $X We a our recorded was balances. a year, and same SG&A XXXX, million sales Depreciation million last in period our were incremental employee to $X than expense higher X.X% were quarter amount cost quarter on during our same same XX.X% of primarily same to third amount associated million due the the due non-cash cash year. to be service. cash and outstanding of will the facility $X ton due and and issuance and XXXX, of lower million offset related result on a compared quarter to income in cost income. depletion primarily $X about of lower on from lower quarter-over-quarter third the borrowings million the quarter ABL revenues $X return This than tax third of tax lower placed last were interest quarter We assets primarily we're short year. quarter $XX of higher last fees year, higher to quarter in on the sales dollars expenses. which professional expenses to quarter higher XXXX for and to the similar expect increase

This well pre-tax the quarter’s our gas tax from gas to marginal benefit credits is and loss attributed additional businesses.

cash flow. Turning to

lower development the operating primarily activities, free to and third Operating were positive third quarter for capital, of expenditures during a used XXXX, Free the was during quarter the impacted income capital cash over costs During quarter cash XXXX XXXX, positively quarter flow same last net $XX the of in last due to to by of which mine $XX the mine decrease flows third third primarily the million, year, for of AMT of credits million. received million flow by was to in sales decrease and provided compared capital expenditures plus net was and cash of used quarter. lower lower result selling working refund due a tax Cash XXXX, working volumes compared net $XX prices. flows significantly $XX for $X investing in the cost cash development in for million a quarter activities was million, cash the year. $XX was average the capital and in million quarter same

by quarter the lower million. was for and million rationalize by quarterly challenging of $X dividend market of is environment. continued primarily the of consisted payment flow leases year, While spending financing XXXX spending this in XX% million payments used capital we this $X third Cash the the $X were of and activities to in

We focus remains ratio liquidity EBITDA. the X.X cash sheet our and total on continue balance strong of adjusted with quarter during a to preservation leverage and times

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

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

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

We stock also temporarily program. our repurchase suspended

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

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

Walt Scheller

Dale. Thanks,

like production move I'd to comments. factors, recovery. major Most we more encouraging a to construction show continue on such few Before and the of to as signs make demand steel of automobile Q&A,

repeat sales While with not improving for a the customers, quarter and volumes. better with we we third expect demand entered our quarter and do steel met fourth of expectations visibility coal

our period, our that quarter customers continue sales to be on on of keep of contains profitability our somewhere second optimize capitalize which volumes, and Therefore, by between to and and quarter the this restocking third we're quarter, quarter volumes optimistic We contact to in expect with we amount threshold. customers. fourth meet our sales the fourth cautiously our opportunities close worst orders order some during

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

proving provide on the environment third more we should pricing, than just the for positive As experienced a quarter. in met we what believe in fundamental coal outlook pricing

are dynamics that a example good recent the predict and ban movements recognize indication difficult a direction we to often is both without the of Australian imported indication of and/or However, price pricing The to China the are market quantify. us coals short-term. subject has left on clear a into for of

have that workforce talented efficiently Two, we many one met quality and across investments important and enables allowing higher despite positioned is cost before, One structure a capital years, relationships. the few free And coal we I sheet well strong world's margins the portfolios balance our three reasons to operations most have expenditures of the liquidity. our customer Three, past our significant to Four, highly our five, and environments. reduce are in significantly as business operations. a to variable us strong us economic low results. to safely is As adequate any and now drive stated made there weather we driving prolonged over committed our without maintain and challenge. flow needed cash unknowns, business impacting long-term

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

Operator

Thank Instructions] go BMO with from Please first you. Markets. [Operator today's question And Capital ahead. Gagliano comes David

David Gagliano

taking Thanks All right. Great. questions. my for

tons worded to third second is vague the little When simple million, it's or between X.X second couple of third X.X, of of saying a and me. as Just the quarter million say saying quarter as all. what the a was mean, quarter, is you quarter it of clarifications, worst first X.X kind you're I

quarter? worst clarify just by mean the you So of the what can you second

Walt Scheller

year, halfway was the we we in said the second what and expect is it that's the quarter were that in Well between yes, X. range, you worse to be so saying X.X David,

David Gagliano

Okay.

was amount, then the a the So commentary total same – cost dollar and basically is lower. cash volume

mean much average is the it I is pricing that. XX% that's and pretty have at know of came the differences. other the And or I only So for timing I there question then in whatever,

So it's think it should the of past? discount in to about than the wider fourth other how the in terms the is bit we quarter, been the question average short-term, quite has a for relative only

Walt Scheller

going market. on to XXX a rising see or Well, we down now what's in in expectation is My I XXX. think falling falling and market market, you need in the are market a back watch we're and we hit to

with So for first can't tell a of based lower higher up to least my it and the before on timing. my lag expectation the the we'll I XX we number if part then of the quarter be having days what's the would given fourth at point, just up, that the that a going happen up to you because we at for To XX vessel loads. would sell go number rest back prices end quarter be period, back end expectation the

David Gagliano

yes. And understood. then I Okay. –

Walt Scheller

The was quarter third the higher had face spot at normal XX-XX. the we that other we happened thing in that were than sales

little fourth Our to that's even XX-XX start like for number to that expectation price little the that down little thing a and that. closer, bit. hopefully the of drove learn in But other a of North a better more kind is the quarter get a

David Gagliano

in is And just of in you a terms spot terms weak going now. itself, adjusting the basis impact? actual are I'm positioning past Okay. market going now? the cetera Obviously et in right a the in in your heading any if in of the day-to-day and your What bit in in have of a direction on market, obviously you've The on views towards market that change policy and on terms do done you your hearing with on we're market wondering And quite China, in then volumes? that of again. the China similar thoughts having what's

Walt Scheller

or actually with that that weren't The they pricing products. market, there needed for has the had said been demand of Asia. weak of those we'll dozen to out you vessels our when strong And not those customers until our Australian our placed coal marketplace, China all a some a I that the continue vessels customers see to take very so immediately issue South depressed, don't of seeing any gets still America, taken – going are been be the weakness even until around in demand and but to floating are our drove customers, down. prices has think Europe, in We see or the we out out floating

David Gagliano

That's helpful. Okay. Thanks.

Walt Scheller

you. Thank

Operator

with our today next go Riley Please question Pipes comes Securities. Lucas And B. ahead. from

Lucas Pipes

good afternoon, everybody Creek. the managing Hey, environment. this side Blue job on and ask wanted and to good cost I on

project if if is in understood delay the the of think places the here prepared of market a not just been I back the due little we that other this uncertainties commented because because of the are the remarks, And bit. you be when capital, itself, further the on you there put from of merits standpoint. So are project environment rethinking the pretty broader trading, a comes to as the there has kind maybe may a of market even equities really to to about correctly, COVID pricing depressed but where project,

on would your you. thoughts appreciate So Thank that.

Walt Scheller

Yes.

direction, finance we the started how do at ready commitment for moving once do looking company. do what the think out. a because past on we're we anywhere when another marketplace matter project, the how project. we've currently, Frankly, fantastic based us of it, is we what And near in in America it. that I was it get in want be a on a think we this it's was don't do that that on to of And It's in sure just we project. to said think has the that project going this build it's there's start I North we the still big value

we payback very at think ton, a not have the confidence even I lost high. So very, on this $XXX is project

not that's our our what's own – not project. are we driving So decision-making

Lucas Pipes

I often your hear to is that. capital for in things record the That's of then track efficient very from one of a helpful. you form. shareholders investors returning Thank And

you commitment kind company recover, of still of prices a think the really investors you this disclosed cycle example the think as shift project that forward. as so being leader in could or that attractive, regard. say what follow priorities last within that of I Historic the going you with would

Walt Scheller

said return we And I to the excess be shareholders and past is sticking will in looking another that at at cash by is in form excess always the determined think as will what time it. what one still or we're we've that. cash we're

Lucas Pipes

Okay. helpful. That's

Dale Boyles

this look Lucas, to is it is altogether. while our Dale. as – But would everybody small I said, we quarterly cut would just mostly a to, we point stipend, out pay do. dividends period their continue we dividend

Lucas Pipes

navigating or Thank coal, thoughts, you. concerns a a really certainly – to threat appreciate of than you the in ESG done Would side, met you from of And it's hearing the the bigger see. met closer good sneak last substitution do question to companies, the this and steel your but just environment. about companies, good a That's and picture for that? or – steel Are ore that's in substitute being constraint XX-year to job world. some one that a iron very more something coal we're in, try production? albeit carbon trend on I'll or about you demand maybe some of this what is desire think

Walt Scheller

will coals do over well. think I period, you I a quality XX-year continue – very think high to very if especially look the the

continue I potentially we short knows, here short anything that think at replacement quality working longer hard to at see that the coals. the coals everybody's But is be for over medium demand ways the carbon the medium strong. very think of If you'll reduce PCI develop to footprint. least term, to over their term, I have who replacement to think will of Warrior I the to term,

Lucas Pipes

soon. I you much. very hope yes, best of Walt Dale, output appreciate return can optimal stronger and and And luck. to that levels very I pricing

Walt Scheller

Thank you.

Dale Boyles

the for questions. Thanks

Operator

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

Chris Terry

market. also company questions Dale, me, the the on and Hi, Walt of couple and for a specifics

Just of coal in terms market. the

there to you now I bans right increase now? percent into XX% Asia, place Asia Warrior? in think was said opportunity Is for into sold you right your the any

Walt Scheller

you Well, right ban again, now I Asia. think have into that

vessels North a floating bunch taking Asia would of in You've over than from America around Asia place places probably in other be easier got into products to there. that

We of sell, it we but is may years been gone vessel into into have Warrior China, actually have coal that but very not one sold little in was the – there coal Warrior last China. few didn't

product primarily Our into Japan moves Korea. and South

Chris Terry

is follow And similar January that expectation hard year to your is Okay. and something last we rolls or that in off tell? probably it ban

Walt Scheller

what, to they're what is with it hard know relieved tell with January, the going doing, so expectation to is it it's that hard just Chinese You whether tell are but our so do. gets or December what in it's to

Chris Terry

that level another if analyze Can you keep Okay. And at that you're for couple Dale, a you if months, don't XX for of questions just CapEx, it rebound? coal on roughly levels, prices $XXX million quarter.

Dale Boyles

costs think well keeping possible. low said, Well, investments as as coal pricing, keep I those met our we as long-term the to with tried them look, done as low trying and and we've balance, we've what to challenging

continue can will. as invest to we the to we have, extent, we So

managed that, discretionary the the sustaining, significantly, spent we've rest $XX of that to point have of and free of continue million year, this to call back invest that Just out that's it probably quite cash positive. $XX trimmed to but really be we flow is chosen million all could

balance as trying market short-term conditions and future the the to for priorities of and again, So meeting well. investing needs we're the those

where we are. So of kind that's

Chris Terry

over you you then remind couple And just if of quarters, maybe next sense. makes have us That Okay. can moves? the any longwall

Dale Boyles

or the of between QX at longwall sure and believe QX. the move end end it whether that hit just I We're crosses January. have early we'll a of not December

Chris Terry

what's from that, of thinking Okay. reassess just operations timing And financing latest last flow the – of the the $XXX early year, when you've I next the you liquidity, from Blue me, said one million Creek debt? cash the you'll obviously on using versus guess

Walt Scheller

the changed existing nothing's right It's options. of focused at look our on to preserving now don’t We market. liquidity really Yes, still Chris. in just, cash continue there, all and

Chris Terry

Okay. All the best, guys. you. Thank

Walt Scheller

you. Thank

Operator

this like final over are for questions. no remarks. conference to there the At time, back any turn Mr. Scheller I'd to further

Walt Scheller

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

Operator

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

You may now disconnect.

Warrior Met Coal (HCC) 28 Oct 202020 Q3 Earnings call transcript