Ramaco Resources, Inc. — Q1 2018 Form 10-Q
Business context and reporting period. Unaudited results cover the three months ended March 31, 2018, compared with the three months ended March 31, 2017. Ramaco develops and operates metallurgical coal mines in the central Appalachian region; commercial coal production began in January 2017. In Q1 2018, it sold 522,000 tons, including 403,000 tons produced by the company and 119,000 tons purchased from third parties. By volume, 58% was sold domestically and 42% for export.
Financial and operating performance
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Revenue | $55.9 million | $11.5 million |
| Operating income (loss) | $5.6 million | $(3.2) million |
| Net income (loss) | $5.3 million; $0.13 per diluted share | $(3.1) million; $(0.10) per diluted share |
| Adjusted EBITDA (non-GAAP) | $9.2 million | $(0.8) million |
| Net cash from (used in) operations | $3.4 million | $(6.2) million |
| Cash capital expenditures | $12.8 million | $11.4 million |
Cost of sales was $44.3 million, and total costs and expenses were $50.3 million. The resulting gross profit was approximately $11.6 million, or 20.8% of revenue; operating margin was approximately 10.0% and net margin approximately 9.4% (calculated from reported figures). Depreciation and amortization rose to $2.4 million from $0.2 million as operations expanded. SG&A was $3.4 million versus $3.6 million; the prior period included $2.1 million of IPO-related accelerated option-vesting expense.
At March 31, 2018, cash was $7.3 million, current assets $44.3 million, current liabilities $41.1 million, total assets $173.3 million and total liabilities $54.1 million. The company reported a $6.0 million six-month secured credit facility borrowed in February to manage receivables; its balance-sheet carrying amount was $5.8 million net of issuance costs. Interest is at 8.5% or 30-day LIBOR plus 6.9%, whichever is greater; principal and interest were due August 31, 2018. Management anticipated obtaining another facility before maturity.
Operating cash flow improved from the prior-year quarter, but was affected by a $16.3 million increase in accounts receivable, partly offset by higher payables and accrued expenses. Investing cash outflow was $7.6 million, including $12.8 million of capital spending and $5.2 million received from maturing investments. Financing cash inflow was $5.5 million, principally reflecting the credit-facility borrowing. Cash increased $1.4 million during the quarter.
Material changes versus the prior comparable period
- Revenue increased by $44.4 million, driven by substantially higher coal sales volumes and realized prices. Produced-coal sales revenue was $36.9 million on 403,000 tons, versus $3.7 million on 53,000 tons. Purchased-coal sales revenue was $19.1 million on 119,000 tons, versus $6.1 million on 35,000 tons.
- Q1 2017 included $1.7 million of third-party coal-processing revenue; Ramaco stopped that activity in April 2017.
- Produced-coal cash cost was approximately $65 per ton, up from approximately $58 in Q4 2017; purchased-coal cash cost was approximately $89 per ton. The filing attributes higher produced-coal costs to geological challenges and winter weather.
- Three customers represented approximately 47% of Q1 2018 revenue and 62% of period-end accounts receivable, indicating customer and collection concentration.
Outlook, risks and other notable items
- Management forecast 2018 capital expenditures of $29 million to $34 million and estimated a further $72 million would be needed through 2022 to fully develop current projects. It believed cash, investments and operating cash flow would fund plans through 2020.
- Planned Elk Creek haul-road paving is intended to reduce costs and improve trucking reliability, particularly in winter. Management cited rail and port delays, export demurrage, geological challenges and weather as operating pressures.
- Management described metallurgical coal markets as strong in Q1 2018, with Australian supply constraints supporting U.S. exports. It said the effect of U.S. steel and aluminum tariffs on domestic demand, foreign customers and longer-term coal pricing was uncertain.
- Liquidity risks identified include delayed customer payments or transportation, equipment cost overruns, mine-development delays and weaker metallurgical coal markets. The company has exposure to global coal prices; export sales are generally denominated in U.S. dollars, but currency movements can affect competitiveness.
- Q1 income tax expense was $743,000; management expected 2018 cash taxes below $400,000. Take-or-pay transport commitments were $184,000 and were satisfied in the following month. Asset-retirement obligations were $12.7 million, supported by $12.5 million of surety bonding. The filing reported no material pending litigation accrual and no material off-balance-sheet arrangements.
- Management reported effective disclosure controls. A new financial reporting software system was implemented in Q1, with related control changes reviewed by the company. No material change in risk factors from the 2017 Form 10-K was reported.
Important facts for investors to verify
- Whether the company refinanced or repaid the $6 million facility by its August 31, 2018 maturity, and the resulting borrowing cost and collateral terms.
- Whether receivables converted to cash on schedule, given the large quarterly receivables increase and customer concentration.
- Whether production, sales volumes and produced-coal unit costs improved after the geological, weather and transportation disruptions.
- Progress and actual spending against the $29 million–$34 million 2018 capital budget and the longer-term development funding estimate.
- How realized coal prices, export logistics and the effects of U.S. tariffs evolved; the filing provides no quantified tariff impact or detailed forward earnings guidance.