Yahoo Finance Alpha Metallurgical Resources, Inc. (NYSE:AMR) Q4 2023 Earnings Call Transcript
Alpha Metallurgical Resources, Inc. (NYSE:AMR) Q4 2023 Earnings Call Transcript February 26, 2024
Alpha Metallurgical Resources, Inc. beats earnings expectations. Reported EPS is $12.88, expectations were $8.78. Alpha Metallurgical Resources, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings, and welcome to the Alpha Metallurgical Resources Fourth Quarter 2023 Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may begin.
Emily O'Quinn: Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's fourth quarter and full year 2023 earnings release and the associated SEC filing. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Alpha's Chief Executive Officer, Andy Eidson; and our President and Chief Operating Officer, Jason Whitehead. Also participating on the call are Todd Munsey, our Chief Financial Officer; and Dan Horn, our Chief Commercial Officer. With that, I will turn the call over to Andy.
Andy Eidson: Thanks, Emily. Good morning, everyone. This morning, we announced our fourth quarter results with adjusted EBITDA of $266 million. For the full year, Alpha generated over $1 billion in adjusted EBITDA which marks the second year in a row, achieving that milestone. While 2023 was not without its challenges, I couldn't be prouder of the way that we responded as a company to those challenges and finished the year strong. The team did an excellent job of identifying issues, building a battle plan and executing decisively to overcome whatever obstacle we face. We ended the year within or better than nearly all of our guidance ranges, having shipped a total of 17 million tons with $15.3 million of that being met coal.
Our overall met segment cost for the year were in line at $111.67, while costs in the all other category came in better than guidance. SG&A, idle operations expense, DD&A and tax rate all ended the year within our guidance range. CapEx came in at $240.4 million, which is technically below the low end of the given range. However, when adding the $21 million of carryover that we have rolled into 2023, that puts us nearly exactly at the midpoint of our issued guidance for last year. Another milestone we reached in the fourth quarter was exceeding $1 billion in the share repurchase program. Since the program's inception in March of 2022, we have returned more than $1.1 billion to stockholders in the form of buybacks, repurchasing over 6.6 million shares of Alpha stock.
We remain committed to our previously stated strategy of utilizing available free cash flow for the program as the preferred method of returning capital contingent upon minimum cash levels and market conditions. As we look ahead, the Board has set May 2nd as the date of our next Annual Meeting of Stockholders. And this morning, we announced a list of director candidates who will stand for election to our Board at that meeting. We also announced that following significant tenures with the company, two of our current directors have reached the age of which they may no longer stand for election per our corporate governance guidelines, and they've retired from the Board effective today. Al Ferrara is our longest serving director, having been with us since 2016.
Al has set the template for how an audit committee should be led, and we appreciate how his influence has particularly impacted the finance and accounting functions of the company. Mike Quillen, and what can you say about Mike that hasn't already been said, he started this whole thing back in 2002 when he founded Alpha Natural Resources, and he's devoted much of the last two decades to building this company and seeing it through to its current success. It's hard to imagine the Board without these two long-standing directors, but we've been blessed to have them in Alpha for as long as we have. And as we announced this morning, Liz Fessenden has also retired from the Board effective today. We will miss Liz very much. She's been a director since 2021 and served as Chair of the Board's Safety, Health and Environmental Committee.
She's overseen a time of great accomplishment in environmental and safety awards, better than the national average performance across the portfolio and back-to-back company records in 2022 and '23 for NFDL and TRIR, respectively. I personally want to thank Liz for her support over the past year, in particular. She's been a great source of encouragement and a wonderful mindset coach during my first year in this seat. We appreciate her leadership and wish her all the best. The good thing for me is that all these folks are still on my speed dial list. The bad thing for them is that all these folks are on my speed dial list. So I will be making frequent use of that list. In connection with these departures, the Board size has contracted from nine to seven seats, and we are excited to welcome a new and highly qualified individual to our Board with the appointment of Shelly Lombard.
Shelly comes to us with more than 35 years of experience on Wall Street and in other areas of the financial sector. She will be a variable addition to our Board and audit committee, and I can't wait to begin working with her. I'll now turn it over to Todd for a discussion of our fourth quarter and full year financial results.
Todd Munsey: Thanks, Andy. Fourth quarter adjusted EBITDA was $266 million, up from our third quarter level of $154 million. We sold 4.6 million tons in the quarter, almost all of which came from our met segment. 42,000 tons came from the all other category. Quarter-over-quarter realizations increased for the met segment with an average realization of $183.76 for the fourth quarter compared to $154.73 in Q3. Export met tons priced against Atlantic indices and other pricing mechanisms in the fourth quarter realized $175.32 per ton, while export coal priced on Australian indices realized $213.41. These are compared to third quarter realizations of $136.76 per ton and $158.56, respectively. Realization for our metallurgical sales in the fourth quarter was a total weighted average of $193.54 per ton, up from $160.43 per ton in the prior quarter.
Realizations in the incidental thermal portion of the Met segment decreased to $89.76 per ton in Q4 as compared to $92.22 per ton in Q3. Fourth quarter realizations in the all other category were $70.14 as compared to $68.32 per ton in the third quarter. Cost of coal sales for our Met segment increased to $119 per ton in the fourth quarter, up from $109.95 per ton in Q3. The increase was primarily driven by higher sales-related costs and purchase coal costs, both of which were impacted by higher coal indices during the quarter. Higher labor costs were also a significant factor in the increase for the quarter. Cost of coal sales in the all other category was $60.07 per ton as compared to $84.73 per ton in the third quarter 2023. With regard to costs, there are a couple of items creating some real-time pressure on our 2024 cost guidance.
First, with the indices remaining above the levels indicated by futures trading back in November when our '24 guidance was issued, we're seeing higher sales-related costs than were budgeted. Also, we have had opportunities to purchase a higher volume of clean coal to add to the portfolio than was budgeted and to the degree that these purchases continue at material volumes this will also create pressure on our published cost of coal sales guidance. SG&A, excluding noncash stock compensation and nonrecurring items increased to $16.9 million in the fourth quarter as compared to $15.1 million in the third quarter. Q4 CapEx was $61.5 million, up from $54.7 million in the third quarter. Moving to the balance sheet and cash flows, as of December 31, 2023, we had $268.2 million in unrestricted cash, down from $296.1 million at the end of the third quarter.
We had $94.1 million in unused availability under our ABL at the end of the quarter. Alpha had total liquidity of $287.3 million as of the end of December, which is net of a $75 million minimum liquidity ABL covenant. Cash provided by operating activities increased quarter-over-quarter to $199.4 million in Q4 as compared to $157.2 million in Q3. As of December 31, our ABL facility had no borrowings and $60.9 million of letters of credit outstanding, which is unchanged from the prior quarter. Turning now to our committed position for 2024, 35% of our metallurgical tonnage in our Met segment is committed and priced at the midpoint of guidance at an average price of $171.33. Another 55% of our Met tonnage is committed but not yet priced. Thermal by-product portion of the Met segment is fully committed and priced at the midpoint of guidance at an average price of $77.14.
Pursuant to our share repurchase program, we repurchased approximately 500,000 shares at a cost of $137 million in the fourth quarter of 2023. Since the beginning of the program, we have spent approximately $1.09 billion to acquire roughly 6.6 million shares of Alpha's common stock at a weighted average price of $164.87 per share. The outstanding share count has been reduced by more than 30% from the time the program began. As of February 19, 2024, the number of common stock shares outstanding was approximately $13 million, which includes the impact of 220,067 net shares issued in December 2023 and January 2024.The shares issued in these periods resulted from vesting of previously granted equity awards under the company's long-term incentive plan.
The remaining authorization permits approximately $410 million in additional repurchases, contingent as always, on cash flow levels and market conditions. We are planning a reduction of the cadence of share buybacks over the next few months up to potentially pausing the program for a bit to build our cash balances back to our targeted levels. I will now turn the call over to Jason for some details on operations.
Jason Whitehead: Thanks, Todd, and good morning, everyone. I want to start by recognizing the outstanding safety and environmental compliance performance from our teams in 2023. We've maintained our 99% water quality compliance rate for many years now, and we'll continue expanding our beyond compliance initiatives. For safety, we followed a 2022 company record in NFDL performance with another company record this time for TRIR in 2023. I can't say enough about our team members making this top priority day in and day out and that focus has resulted in performance that is consistently better than the national average. We work hard every day to continue this positive trend into the future. While we're highlighting outstanding performance, I also want to publicly congratulate the winners of Alpha's 2023 Best-In-Class Awards.
The competition was tight and we had record-setting teams that didn't end up winning the overall award, that's how difficult it is to claim the top spot. For 2023, the Midwest Virginia surface region, one, in categories of deep mine; surface mine and preparation plant, those winners are Kingston number 2, Kingston South surface and Kingston processing, respectively. Kingston South surface mine, also known as Bishop, has won two years in a row. Jimmy Wood and his Midwest Virginia surface team deserve all the accolades they have received for sweeping those categories, which is very difficult to do. In the load-out facility category, Marmet River Dock won best-in-class, while Marfork claimed top honors in underground belt transfer system. Both of those are back-to-back winners two years in a row as well and I want to thank all the teams for their determination and commitment to exceeding expectations.
Turning to some operational updates. As I mentioned last quarter, we celebrated the first development cuts at our newest high wall mine Checkmate Powellton in Q4. Also during the quarter, we completed renovations to the formerly retired Chess Processing Plant which is now online and serving this mine. Together, Checkmate Powellton and Chess Processing Plant solidify Elk Run as a new complex for Alpha. Also want to mention a couple of non-injury incidents we experienced in January at our McClure processing plant and Road Fork 52 Deep mine. On January 17, an ignition occurred near McClure and ignited by a shorted electrical installation. Again, no injuries, and our team members acted quickly and appropriately to make necessary notifications to agencies and assure there was no fire.
Investigations occurred and no contributing citations have been issued. While the exact cause of the ignition is still being analyzed, the silo has been examined and is structurally sound and designs are underway to make repairs. Due to the swift responses, we were able to reroute belt conveyors within the first few days to exclude the clean coal storage silo as to enable continued processing and shipments at normalized run rates and did not experience any material impact from the non-injury ignition. On January 30th, 2024, Road Fork 52's number three section started retreat mining, the fourth and last panel of their active district. Then on January 31st, 2024, a non-injury ignition occurred in by the pillar line in gobbed area of the number three entry.
And gobbed area is a term that we use to describe fully depleted and mined areas similar to those areas that are left behind a longwall. Investigations revealed a roof collapse in the gob of the number four entry, exposing an overlying coal seam, and we believe it's likely that coal bed methane entered into the gob from that exposed seam. Other than reports of miners hearing a roof bolt break immediately before the event, an ignition source has not been identified. Investigations resulted in zero related or contributory citations. And personally, I want to thank the team at Road Fork 52 for their actions on the night of January 31st, but more importantly, and in my opinion, their high standards regarding housekeeping and rock dusting that prevented any more serious issues.
Despite the tedious nature of investigating in this incident like this underground, our team and regulatory investigators concluded in about four business days. Of the five CM sections operating at Road Fork 52, number three section was the only section idle during that time. I will now turn the call over to Dan for some information on the coal markets.
Dan Horn: Thanks, Jason, and good morning. Throughout 2023, metallurgical coal markets generally showed strength with periods of volatility in the face of economic pressures, geopolitical uncertainty, and global recessionary fears. Macroeconomic conditions around the world remain inconsistent, with some economies like the United States exhibiting continued resilience to these external pressures, while others like the European Union have experienced significant downturn. While central bankers in the United States and Europe are expected to lower interest rates within the 2024 calendar year in response to easing inflation, uncertainty remains regarding when those actions may be taken and how quickly they may impact overall economic conditions.
Organizations such as the International Monetary Fund and the World Bank have issued muted expectations about global growth prospects for 2024 and 2025, citing a slower-than-historical average pace of expansion and downside risks related to geopolitical shocks, supply disruptions, or prolonged tight monetary conditions. Geopolitical strife, namely the Russian war in Ukraine and the violence in the Middle East, has impacted coal markets by upending natural trade flows and, at times, causing shipping delays due to violence stemming from these conflicts. While we have not been directly impacted by the well-publicized attacks in the Red Sea, we believe that continued volatility in metallurgical markets is possible as these macroeconomic and geopolitical circumstances evolve.
Metallurgical coal indices ended the fourth quarter within a few percentage points of October, but since then all four indices have softened. The Australian premium lowball index decreased from $333 per metric ton at the start of the quarter to $323.75 per ton on December 31. U.S. East Coast lowball index increased from $258 per metric ton at the beginning of October to $268 per metric ton at the end of the quarter. U.S. East Coast highball A index slid from $288 per metric ton at the start of the fourth quarter to $281 per metric ton at the end of the year. And lastly, the U.S. East Coast highball B index increased from $238 per metric ton at the beginning of October to $252 on December 31, 2023. As of February 23, the U.S. East Coast indices of lowball, highball A, and highball B indices measured $265, $255, and $215 per ton, respectively.
The Australian premium lowball index has decreased from its quarter-level close to $314 per metric ton on the same date. In the thermal coal market, the API2 index moved from $124.85 per metric ton at the start of October down to $103.85 per metric ton at the end of the year, and down even further to $90.30 as of February 23. Despite some of the challenges we faced, Alpha finished the year strong, as you've heard. I want to specifically commend my team for their outstanding efforts to close out the year on a high note. We worked hard to meet our internal goals, which we were successful in doing, while even setting some new logistic records within the company. The accomplishments of last year are impossible without a dedicated team, and I am proud of what the Alpha sales team achieved.
Of course, we're hoping to continue the good work in this year. And with that, operator, we are now ready to open the call for questions.
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