Ramaco Resources, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. The company operates and develops metallurgical coal mines in West Virginia, Virginia and Pennsylvania. Financial amounts below are in millions of dollars unless otherwise noted.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $154.9 | $43.5 |
| Operating income | $52.9 | $1.2 |
| Net income | $41.5 | $4.1 |
| Diluted EPS | $0.92 | $0.10 |
| Adjusted EBITDA | $64.1 | $11.5 |
| Operating cash flow | $77.4 | $0.5 |
| Capital expenditures | $19.7 | $3.7 |
- Revenue increased 256%; management attributed the improvement primarily to higher coal prices and sales volumes amid a recovery in metallurgical coal demand. Sales were 583,000 tons, up 38%, and reported FOB-mine revenue per ton rose to $236 from $88.
- Cash cost per ton sold (FOB mine) was $110, versus $59. Management said higher sales-related costs associated with stronger realized prices contributed to the increase.
- Operating margin was approximately 34.1%, versus 2.9%; net margin was approximately 26.8%, versus 9.5%.
- Cash and cash equivalents were $71.5 at quarter-end; an additional $1.0 was restricted. Cash increased $49.7 during the quarter. Operating cash flow benefited from working-capital changes, including higher accounts payable.
- Balance-sheet current assets were $141.6 and current liabilities $76.2. The company reported $39.6 of availability under its revolving facility and no revolver borrowings.
- Balance-sheet debt, net of discounts, totaled approximately $42.3, including $32.5 of senior notes and $9.8 of other long-term and current debt. Senior-note principal was $34.5, bearing 9% interest and maturing in 2026. Financing lease obligations were another $10.0. The company reported compliance with credit-agreement covenants.
- Q1 dividends paid were $5.0 in the cash-flow statement. The balance-sheet equity statement reports $2.5 of dividends; the filing text does not explain the difference.
Material changes and developments
- Compared with Q1 2021, stronger pricing and 38% higher sales volumes drove substantial growth in revenue, operating income and net income. Q1 2021 other income included a $2.5 employee retention tax credit, which did not recur.
- Cost of sales rose to $81.3 from $31.2; SG&A increased to $11.8 from $4.7, reflecting higher stock compensation, incentives and professional services. Net interest expense increased to $1.1 from $0.2, primarily following the 2021 senior-note issuance.
- Property, plant and equipment increased to $245.9 from $227.1, with Q1 capital spending primarily supporting growth projects at Berwind and Elk Creek.
- On April 29, 2022, after quarter-end, the company closed its acquisition of Ramaco Coal, a related party. Consideration is $10 initially plus $55 deferred: $15 in quarterly installments during the remainder of 2022 and $40 in quarterly installments during 2023.
Outlook, risks and contingencies
- At March 31, the company had contracted obligations for the remainder of 2022 of approximately 1.5 million tons at an average fixed price of $188 per ton and 0.2 million tons under index-based pricing. Management expected favorable steel and metallurgical coal market conditions to continue in the next quarter; the filing provides no formal earnings or production guidance.
- Management cited potential effects from COVID-19, Russia’s invasion of Ukraine, commodity-market volatility, inflation, higher supply and equipment costs, transportation availability, customer payment delays, mine-development delays and weaker coal markets. It reported no meaningful direct financial exposure to Russia or Ukraine and noted the EU ban on Russian coal could tighten metallurgical coal markets.
- Take-or-pay transportation commitments totaled $12.8 under contracts expiring from late 2022 through March 2024; amounts decline as contracted transportation is used. Reclamation bonding requirements were $20.8, supported by surety bonds.
- A jury award in the company’s insurance dispute over a 2018 silo failure was reduced by the court to $1.8, including prejudgment interest. The company appealed on April 1; no amount was recorded in the financial statements.
- Disclosure controls were deemed ineffective as of March 31 because of a previously identified material weakness in IT general controls, including user access and dependent business-process controls. Remediation was underway but not yet validated; the company reported no related material misstatement for the quarter.
Important facts for investors to verify
- Whether elevated coal prices, realized revenue per ton and margins persist, and how much contracted volume is fixed-price versus index-based.
- The cash-flow effect and funding of the $65 acquisition consideration, alongside capital spending and dividends.
- Whether higher costs, inflation, transportation constraints or working-capital reversals pressure cash generation and per-ton costs.
- The status and outcome of the insurance-litigation appeal, and the final recoverable amount, if any.
- Progress in remediating and validating the IT-control material weakness, as well as customer concentration: the top four customers represented about 70% of Q1 revenue.