HCC - Earnings call transcript Q2 2021

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Operator

Good afternoon. My name is Kaley, and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal Second Quarter 2021 Financial Results 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.

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

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

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

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

Walt Scheller

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

world. global second market COVID-XX the trajectory recovery the from were the continued around its steel of During and customers the from to see impact we demand pleased strong pandemic production quarter,

able As sales previously during quarter, met to groundwork reduce the coal the take inventories. established we prices of and were advantage increase improved we to

FOB through Australian result, a the to sales higher Chinese imports ban we compared customers coal to As were higher Australian able China's to on on at prices capitalize prices.

free and to EBITDA. manage CapEx we deliver spending, a quarter another to result pricing and cash capital adjusted As costs, were working our flow these and of successfully of dynamics able ability strong

UMWA to needs Xst, on to April to allowing which valued business continuity the We continue to began successfully execute plans strike, our meet in continue customers. us response of our the on

faith capital spending majority throughout to incurring on Steel by we've the strong the a strike. the second to across our noticeable good demand. with working demand in its results in with across microchip propelled reach While contract, costs unfortunately impact Steel production overall UMWA The on barely sectors of and of tight production regions. reported months market incremental manage shortage most global in strike, steel quarter, year, Even been strong to new on a able was increasing remained Despite remains this the X.X% market. the to for World associated of negotiate first supply iron production year-over-year we Association continue the strong deliver fundamentals automobile pig the China by increase six the X%. and

its steel China, of the at since coal world during strength made rest its observed The impressive the of market in grew quarter. second the Excluding an the the of the year markets finally, beginning pig rate way into the iron met production XX%.

we've Although, corrections of correction. level been were place, we the some nonetheless take pricing of surprised and by speed the upward expecting magnitude

at We've the per the in the XX During the FOB indices signs of June. met per per high seaborne China indices metric a on CFR remains gained end firmly April of to $XXX of Australian coals from place the per Australian its metric of low its of low short-term. illustrated change Chinese global Xst The $XXX coal per metric June. no per ton ton its adapted metric has to flows. trade second these the at Korea of the premium on $XX CFR ton into have conditions increased and in metric by to our rising increased experienced compared policy metric and as The the Taiwan on imports quarter changes high ton trade ton, gain quarter of ton second April its Australian and India, of $XXX some in as China ban in coals $XXX from quarter, $XX Likewise, same the quickly XXX% Japan end place. short with as price landborne its last Russia day from during of America. million into markets of also sale. to coal exports long million is on short the volume capturing successful Mongolia in of are Europe These America, while conditions they've North while China the year. X.X our X.X ban the South placing has on in Sales expected reliance was and to the been quarter continue second exported producers in more of China to from natural index imports tons their tons the

the of million purchased The Our decrease into attributed Mine during of being normal lower idle at driven operating sales volume sales is move we in upon primarily time results Mine the during last than accomplished to the year. of Asia. ago. is the to These XX% short quarter. ongoing South to by into higher the the in second quarter X% compared include X.X and quarter by having also geography longwall in second same which longwall quarter to XXXX were was that Europe, capitalized tons second demand Production zero-day The Chinese second due in strike and tons the shields at X X America by Asia short extra X.X some during second quarter. million the XX% we Mine quarter rates set X, was a

second index the for Australian XXX% Platts prior realization period. Low-Vol the gross achieved premium price XXXX same Our FOB was the and of was amount in price quarter the year

higher sales price. primarily, was Our the customers index CFR our gross of percentage price a Chinese to at realization to due

from XX%. our quarter of our in second the to approximately Dale, sales XX% in when in quarter approximately greater to results ask was compared XX% second first total the detail. address quarter expectation spot now volumes, normal of Our volume down I'll

Dale Boyles

and at met difference Mine our as peak reduced significantly quarter coal contrast, our steel UMWA Last the In second stages industries, run year's operations to year makes? even second What the at capacity. we of this saw tripled to impact Mine were Walt. a its and down Thanks, and a both which on quarter near results impacted COVID-XX X. year X negatively company continued we by in, strike mines the idled

executed inventory customers, generate we drew continuity business meet to results contractual of take advantage our EBITDA strong levels to free our plans down to strong we conditions to our our and commitments As of adjusted cash flow. market

a loss compared basis For $X quarter diluted the a the by company to GAAP was approximately loss of or a loss the compared EBITDA same quarter million volume of XXXX in a $X.XX primarily recorded share million net per net stock XX% year. same second selling of diluted $X.XX increase a diluted on per prices. driven in average second income $X.XX quarter in mine the second quarter as compared the interruption or sales in excluding million diluted of to quarterly per to of quarter was Non-GAAP for last The nonrecurring of business idle XX% quarter, and $X.XX the and of Adjusted XXXX. compensation incremental a last share $XX the $XX $X was share same year. expenses expenses, share million a adjusted XXXX increase per the increase in loss in net net

revenues met Cash costs lower in control. as of royalties in for primarily quarter vary in XX% $XXX last due last quarter was was depletion second million XX% margin $XXX adjusted with due the XXXX. the XX% that XX% of coal per Depreciation XXXX, costs the short average a back to $XXX were per increase in the averaged cost Total quarter per XX% variable with our to to selling was expenses million compared price-sensitive in offset transportation compared same on lower higher June average dollars Premium in to the quarter up an production. combined concerted same in revenues XXXX, compared of was and other XX% second reduced on lower were million quarter Our cost port the quarter, second the to ton wages of or revenues of the year. the of pricing and approximately compared compared are in year. second million Australian per of a and our of same a short million a ton were in these of such XXXX XX% and quarter million, $X to quarter in FOB approximately first of focus $XX as increase in the compared sales same year. mining line same quarter. This the FOB prices. $XX quarter gross of XX% same year. in month expenses total index sales the quarter index $XXX into $XX in ton Platts are in quarter, of second XX% EBITDA primarily year's increase to when cost million in sales $XX of were relieved increase last price quarter quarter-over-quarter of tons primarily to short higher metric $XX metric volume Cash to impact to second by Cash the or The the of last net period of net compared XXXX the The the increase in cost volume price The in the sales $XXX then and the costs $XX and second was due Low-Vol the to averaged $XXX second low capitalized keep for mining effort selling ton Demurrage realization price per quarter increase ton volume, in million The quarter $XXX the on XXXX, sold. alone. was with partially sales inventory XXXX. higher to and last charges price

normally this $X depreciation would capitalized addition, of Mine inventory that have quarter production. X million with included into In approximately been

SG&A to due an was to primarily about in year, X% $X accelerated incremental or revenues of expense, vesting stock directly higher expensed total X. retirement second Mine of that reached included associated to last and were $XX the eligibility. quarter individuals same the it of XXXX were expenses awards higher compensation with idling million which than of non-cash the due certain the million However, quarter

security, interruption the and These incurred incremental non-recurring business other million UMWA safety expenses. negotiations strike. quarter, labor nonrecurring and of directly were expenses $X the and legal During to ongoing second for primarily related incremental expenses we

Net primarily fixed the in of nature second operations electricity, Mine $X maintenance, April debt, at related equipment $XX credit were in leases. to We second new the interest cost a X. As during began income associated offset $X associated last quarter. Mine on the issuance outstanding benefit on expenses interest four second year. debt our million reduced income. incurred we cost our result of taxes. idling of about in million $X Mine included million the and quarter recorded plus insurance, was ongoing quarter UMWA an the labor Idled with by financing to equipment expenses increase of These primarily strike with of The slight amortization quarter, of XXXX, partially was interest our We financing and quarter-over-quarter interest expense the leases, on for of tax same X in benefit that compared a million Xst, facilities

export subject state sales taxes due longer of that operating of was February as to therefore, loss quarter value Alabama income result the and state, state second year-to-date, beginning a valuation a of law gas additional benefit the This our marginal deferred of year charge tax the pretax to change net have this state been our became our in income The and down. a included assets. the effective against of million the The establishment Alabama non-cash tax a In recognized due upon year. of losses are to expense credits. $XX no tax include allowance essence, written well in

lower XXXX, development $XX working cash free Thus Turning capital. impacted $XX was $XX net second the to Free cash production. lower capital cash quarter was of cost used the collections capital to from of cash XXXX operating and decrease the in decrease due in mine working in quarter in higher accounts of and production volume investing The flow by coal quarter. million $XX decrease cash expenditures in were million primarily used second flow, costs XXXX, during Cash year. of to of during decrease flow, positively capital second quarter offset the provided due sales expenses a million net the in volumes million. payable last quarter a of to same in accounts in expenditures $XX the million for resulted for which flows development inventory, of by from and receivable mine Higher compared and we activities second partially generated accrued million. $XX activities

times. We these during to rationalize spending unprecedented continue

spend keep financing primarily million million the used $X XXXX the of activities to were capital and dividend by quarter Cash expect of do the in payment and more dollars well-capitalized. the XXXX to we in for of However, of second $X half million. leases $X the flows second payments mines quarterly of of consisted

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

continue manage sheet enabled balance landscape. position uncertainty and of structure of Our adjusted maturities. to uncertain notably, to and a sheet a us continued combined we gives a liquidity this has And has no near-term balance variable cost We X.X EBITDA. the to strong low leverage through period have ratio with times weather and believe debt us flexibility our

our ongoing disruptive COVID-XX providing Chinese union coal, and at our the ban XXXX Australian full related Now, on year outlook. the be we uncertainty will negotiations time. with other potentially to pandemic, the guidance to to turning not Due the factors, this

We expect to return these providing guidance further clarity there issues. on is once to

working our We needs expenses, and capital expenditures, continue including adjust to cash capital, our flows. appropriately liquidity, operational managing

remains of addition, it final Blue repurchase turn to stock delayed comments. project his also Creek our for now Walt and the the we suspended. In development back I'll program have temporarily

Walt Scheller

Dale. Thanks

to final Q&A, some on move like we Before to comments. I'd make

to monitor the of continue As our also the opportunities XXXX market the with production contractual Chinese levels as at the closely. UMWA obligations balancing same conditions the and We've the to various the we We quarter met many those you expect of continue look the the of to for that Unfortunately, uncertainty situation we'll negotiations, forward, changes At trade possible any the about on coal customers this by and in government's created steel reasons. status outcomes, questions by to the mandate and topics favorable limit third spot we we customers. we time by long-term XXXX potential have estimates transitory understand created to recognized contract our time, speculate our indicated of timelines. throughout are flows. cannot seaborne

say hourly work employees. Let the our appreciate that and we me hard of value just

with Our long-lasting priorities a ensuring always have been employed in market. company volatile keeping careers particularly and stable financially people coal remains the

in the good to While strike, we we to are resolution. continues disappointed reach union continue that a with the faith negotiate

than headwinds continuity execute to contractual X.X approximately be tons million through business Mine assume short volume X.X our of plans customer believe of Finally, and we to million of these continues as at closing, the continues to commitments. X, expected rest coal at to existing we we meet commitments are a navigate during production the production for Those through will that Mine year. combination customer In idle continue our although rates. X that numbers to lower usual and we well-positioned XXXX fulfill our inventory

shipment may With vary activities we'd While XXXX. from production and that we call quarter-to-quarter continuity open Operator? for of cause questions. still strike to for the the and significantly in to business disruption remainder place, the have like may the plans plans

Operator

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

David Gagliano

taking for just my thanks ones. questions. of a Hi, couple I quick have

of a sense First related of sold China give you the couple inventory And note on for netback better of of And those get us sales the the China if the tons? quarters just of the the uncertainty are just is strike price that then sense given tons two and then just all, you XXX,XXX sales volumes? around any down parts number the for direct direct was for third your can second give what the into us to a expectations on in of and to overall, were next quarter? tons expected the to can a into quarter what duration

Dale Boyles

Thanks, David. This is Dale.

about there's China. For quarter, the second tons into short sold XXX,XXX

rest into So tons production. of more China opportunities, normal we million as get million to selling some I'm have that we still customer X.X the down about if the will It's X.X of much year. the to rest on our how to But be inventories going for we can you year. in see depend we drew this commitments as sure, level, not

try it extent, of this on forecast So it's get we capitalize to point, can. we'll as the that. to But best to at kind the difficult we opportunity

David Gagliano

Okay.

quick Just – so just a follow-up.

– basis? XXX,XXX probably of directly what I that I'll on probably and the guess, can. netback were tons into So sold it, back get a China What but – tons actually was price the into was average

Dale Boyles

Well, the we on on of the capitalized CFR the price typically day sale.

not benchmark to achieve gross of the details was I'm particular into sorry us the up netback gross in did – quarter. going the it But really the drove the we're XXX% help transactions. So profit for of kind realization what the those get price that realization – of

David Gagliano

you just quick, what mentioned Okay. volumes assuming we million left X.X sell second X.X commitments. real to And Is sales million then to for effectively customer under overall? half should be that

Dale Boyles

quarter that's produce To the the more second during help half positive our then each would any extent, there. we from generate us upside that Well, minimums.

David Gagliano

Okay. turn else. Thanks. someone it I'll to over

Operator

Nathan next with Co. question go from Your Martin Benchmark ahead. comes Please

Nathan Martin

Hey, good thanks afternoon, my taking question. the And guys. quarter. Congrats for on

X.X sticking in about in just thinking to even like that X.X maybe already off, Dave's are million follow-on as tons sold million repeatable X.X XQ X.X with X.X during million year. There XQ was million. you are I the the some quarter. continues? you're some just it strike production be And minimum. sales in you far you've concerned maybe or point of maybe correctly? X.X first obviously, Dale your comments, your customer caught nearly think Thanks. got for could with fulfill tons your of as the people we looks commitments First like the That's sounds plan number think surprise. It by commitments maybe left if half, but mean, quarter to Do to in I to production million upside. the at second guys the X did million Mine looking that's And you

Walt Scheller

This is Walt.

in second began of the tons both we mind quarter. before on of week mines. X X.X the didn't had out production of both full production, Mine strike million First one we out Actually, mines the

not of production just quarter strike-related really it's So a volumes. complete

– we're think I that QX that's placed feel confident is think QX hopefully, and little expectations our coal inventory at So number can trying just we looking customer to levels assuming some are and have to just extra make and in where that reasonably On our think and are, I the we to probably what a – production taking aggressive. correct sales, our we commitments, a we're hit sell other opportunities. little

Nathan Martin

Yeah. I got apologize, is have as the Mine production. Walt did that idled. you before forgot well tons I four XXXXXX fair that from in about

guess again X inventory you play I forward some this have Mine going guys the shifting continues cost maybe guess started the sold quarter. So what at operating at assuming based a And seen look you any those to out? before of point the would on cost on think could decent this just And as obviously over do like tons. full of for impact I about numbers side And workforce peers we been have year your from strike chunk inflation you how cost to reduced as mentioned have levels? based

Walt Scheller

impact of a seen inflation deal from yet. haven't great We

the costs I But and been in the manageable we've end higher we'll up going think the level. pretty see everything balance after a of little costs. the we're to think place, and fact some prices all in transportation quarter of in We're strike going terms think quarter I cost you still little all up around that a have higher that costs. in royalty of see gone issues our to quarter-to-quarter once I additional same

Nathan Martin

Okay. -- picture for Great. Walt bigger Thanks maybe for and color. just then me. final that one question

slightly production? thinking miners continuous guys strike How looking we X assume you commitments. now X, workforces that reduced your be that You time think ahead Just about this the back. if production you how working team about had before at you've to should the plan possible think let's full the mentioned Mine and But to next changes do XXXX etcetera? with and fulfilling might been mine be based that ended there lead enough there year on about for with set just at anything Mine year a has has we

Walt Scheller

enter with we production back My full achieved and expectation be we last production, the to if normal strike at ended we've next -- would year expectation get full would would that years. we were my back few that over the volumes

Nathan Martin

that So somewhere X million -- million Is maybe X.X in range. fair? kind that of

Walt Scheller

Yes.

Nathan Martin

Okay. for Perfect. your and the thanks appreciate second time thoughts love Dale watch to in Walt, half. Great. and

Walt Scheller

Thank you.

Operator

Our with Farwell next question comes from Capital. Matt Roth

Matt Farwell

morning. Hi, good

us capacity know of idea to could further idea just talked get or running? XXX,XXX? understanding give continuously some about X. question? I -- Mine mined it that If of clarification is me tons productive capacity is And that some on you of Is XXX,XXX? you an we've but it longwall just is that some what gave productive I wanted all the is

Walt Scheller

first units are I Both something been what like actually by on now about that something week in how operating. Several longwalls that have we XX,XXX. based would I look But be the the we back and QX -- as of CM don't operating. off at folks that are many know you like number Productive right is I XXX,XXX have capacity probably the or said, variable would currently been if have. might out currently

Matt Farwell

That’s very all now. you Thanks. Great. much. I have for Thank

Walt Scheller

you. Thank

Operator

Lucas Please Riley from B. [Operator with Pipes comes Instructions] next ahead. Your question go Securities.

Lucas Pipes

much question very and Thanks, just have there. a everybody. question I follow-up good Matt's afternoon to

kind that the longwall Thank terms units? Mine CM pace the to panels very you, they units, the would catching longwall keep of cut, able development or much. getting at up with X you of number In are CM that the is to are say

Walt Scheller

in at to are any units about We're we where CM this longwalls have pretty relation our standpoint. confident our don't time point. We where from a concern are with lead

Lucas Pipes

bigger And helpful. question. Got it. picture Very

price impressive helpful. there prepared but sure you'd you sure the this answer back negotiations, say obviously, I'm current market remarks would turnaround. let's of could terms this -- you. I'm pretty where factors In get be a to noted you share is people you conditions, directly, in like in your how but any thoughts Thank to in factors can't it as work? market environment

Walt Scheller

over We've of the XX look in XXs. so million I in when happening prices the just at when see look can't the down it's quarter seen last at where Lucas, focus the the we $XXX or And seen quarter. market next volatile. and the we've we years, on current things we prices market

at sure for employees cost We a very look that call X,XXX keep at as one we hourly make company duration compensation we the care make various have to our they and last folks we're to that people the look to -- and contract. where of did five-year those employees. at And so sure the protecting we contract, we to at sure XXX what throughout points. making five working And or take we're trying and have have years, that's same every focused. these be fair ability our market the the in And we had this of are goal have it to entire salaried would also It's that's is time.

Lucas Pipes

Thank luck. I and of best appreciate that. you

Walt Scheller

you. Thank

Dale Boyles

Lucas. Thanks,

Operator

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

Walt Scheller

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

Operator

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

now disconnect. may You

Warrior Met Coal (HCC) 5 Aug 212021 Q2 Earnings call transcript