Ramaco Resources, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; filed May 12, 2021. Ramaco operates and develops metallurgical coal mines in the central Appalachian region. Financial amounts below are in U.S. dollars; dollar totals are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $43.5 million | $41.9 million |
| Operating income | $1.2 million | $1.1 million |
| Net income | $4.1 million | $2.0 million |
| Diluted EPS | $0.10 | $0.05 |
| Adjusted EBITDA (non-GAAP) | $11.5 million | $8.4 million |
| Operating cash flow | $0.5 million | $6.4 million |
| Capital expenditures | $3.7 million | $8.9 million |
- Revenue increased 4%. Coal sales totaled 422,000 tons, up 1%; reported revenue per ton FOB mine was $88 versus $93, while cash cost per ton FOB mine improved to $59 from $67.
- Operating margin was approximately 2.9% versus 2.7%; net margin was approximately 9.5% versus 4.7%. Net income benefited materially from non-operating other income, including the employee retention tax credit.
- Operating cash flow fell primarily because of an $8.4 million net working-capital use, associated mainly with inventory buildup. Cash and cash equivalents were $5.5 million at quarter-end; restricted cash was another $1.0 million.
- At March 31, 2021, total current assets were $57.3 million and current liabilities $33.3 million. Reported debt was approximately $20.9 million, including current maturities. The company had $13.6 million of remaining revolver availability and reported compliance with credit covenants.
- Net debt, using reported debt less cash and cash equivalents, was approximately $15.3 million. This calculation excludes restricted cash.
Material changes and notable items
- Net income more than doubled year over year, while operating income increased modestly. Other income rose to $2.9 million, principally reflecting $2.5 million of CARES Act Employee Retention Tax Credit recognized in Q1 2021; management expected a similar amount in Q2.
- Export sales (excluding Canada) increased to $23.3 million from $11.4 million, while North American revenue declined to $20.1 million from $30.5 million. Export shipments represented 54% of sales volume, compared with 27% a year earlier.
- Cost of sales increased slightly, partly due to higher transportation costs from a greater export mix. Depreciation and amortization rose to $6.2 million from $5.0 million, principally due to higher production volumes.
- Cash-cost improvement reflected higher production volumes and a $1.0 million severance-tax recovery at one mine. Management also cited lower cash cost per ton as a contributor to stronger results.
- Quarter-end inventory increased to $24.2 million from $11.9 million at December 31, 2020. Long-term debt, net, rose to $16.0 million from $12.6 million.
Outlook, risks and contingencies
- Management’s development plan targets production growth to more than 4–4.5 million clean tons of metallurgical coal, subject to market conditions, permits and additional capital deployment. The filing does not provide a specific near-term production or earnings forecast.
- For the remainder of 2021, outstanding performance obligations included approximately 1.2 million tons at fixed prices averaging $87 per ton and 0.3 million tons under index-based pricing.
- Management reported recovering demand from primary customers and sharply higher U.S. steel prices in Q1 as the global economy recovered, while continuing to monitor COVID-19 effects. It said existing cash, operating cash flow and available credit were expected to fund capital and operating plans.
- Key liquidity risks identified include transportation and customer-payment delays, equipment cost overruns, mine-development delays and adverse metallurgical-coal markets. The company also cited permitting, operating, regulatory, customer-concentration and commodity-price risks.
- The company had $7.0 million of contingent take-or-pay transportation commitments under contracts expiring in 2021 and 2024, reduced as contracted services are used. Reclamation bonding requirements were $15.4 million, supported by surety bonds.
- A trial was scheduled for June 29, 2021, in the company’s insurance coverage lawsuit concerning the 2018 partial silo failure at the Elk Creek plant. The filing reports no amounts accrued for litigation matters.
- The company’s PPP loan was approximately $8.4 million; KeyBank had approved the forgiveness application, which remained under SBA review. Management expected the principal and accrued interest to be forgiven.
Important facts for investors to verify
- Whether the SBA ultimately approves PPP loan forgiveness and whether the expected Q2 employee retention tax credit is recognized.
- Actual coal volumes, realized pricing, cash cost per ton and the mix of export versus domestic sales against management’s stated development objectives and contracted volumes.
- Cash conversion and inventory levels, given the Q1 working-capital outflow and substantial inventory increase.
- Available revolver capacity, debt maturities and covenant compliance as capital spending and operations evolve.
- Outcome of the Elk Creek insurance litigation and any related recovery or costs; also monitor take-or-pay commitments and reclamation obligations.
- Customer concentration: two customers accounted for approximately 66% of Q1 revenue and 65% of quarter-end receivables.