WARRIOR MET COAL, INC. quarterly report, Q1 FY2022

Warrior Met Coal, Inc. — Q1 2022 Form 10-Q

Reporting period: Three months ended March 31, 2022; comparison is the three months ended March 31, 2021. Amounts below are in U.S. dollars; financial statement figures are in millions unless noted. The company produces and exports premium metallurgical coal for steelmaking from underground mines in Alabama.

Financial performance and position

Metric	Q1 2022	Q1 2021
Sales	$382.4 million	$207.0 million
Total revenue	$378.7 million	$213.8 million
Operating income	$186.8 million	$11.1 million
Net income (loss)	$146.2 million	$(21.4) million
Diluted earnings (loss) per share	$2.83	$(0.42)
Operating margin	49.3%	5.2%
Net margin	38.6%	(10.0)%
Net cash from operating activities	$70.1 million	$45.2 million
Capital expenditures	$10.5 million	$9.5 million

Average met coal selling price rose to $374.20 per metric ton from $116.88. Sales volume fell to 1.022 million metric tons from 1.771 million, while production declined to 1.395 million metric tons from 1.970 million.
Cash cost of sales was $131.48 per ton versus $86.67. Management attributed higher costs per ton partly to transportation and royalty costs and inflation; royalties were $25.2 million versus $12.7 million.
Segment Adjusted EBITDA was $247.1 million versus $52.6 million; Adjusted EBITDA was $243.8 million versus $47.1 million. Both are non-GAAP measures.
Cash and cash equivalents were $434.0 million at quarter-end, up from $395.8 million at December 31, 2021. Total liquidity was $556.7 million, including $122.7 million available under the ABL facility.
Long-term debt, net of discount, was $340.1 million; the company had $350 million principal amount of 7.875% senior secured notes due 2028 and no ABL borrowings. Finance lease liabilities totaled $46.8 million. The company reported compliance with applicable ABL covenants.
Operating cash flow included a substantial working-capital investment, primarily from higher receivables and inventory; the filing reports a $159.0 million increase in net working capital. Cash generated was therefore materially below net income.

Changes versus the prior-year quarter

Higher coal prices drove the improvement in revenue and earnings, more than offsetting lower shipments. About 100,000 metric tons of expected shipments were deferred to Q2 because of port congestion, maintenance, and equipment failures.
Other revenue was negative $3.8 million versus positive $6.8 million, largely reflecting a $13.2 million loss on natural gas swaps as gas futures rose. The swaps are not designated as accounting hedges; the quarter-end fair value was a $7.6 million liability.
Q1 2022 included $6.7 million of strike-related business interruption expense and $3.0 million of idle-mine expense. SG&A rose by $6.3 million, primarily due to stock-based compensation, including accelerated expense for retirement-eligible employees.
Q1 2021 income tax expense included a $47.8 million non-cash valuation allowance, partly offset by a $22.9 million non-cash tax benefit from remeasurement of state deferred tax balances. Q1 2022 tax expense was $33.5 million; management said federal NOL utilization principally offset cash taxes.

Outlook, risks, and notable items

The UMWA labor agreement expired in April 2021 and negotiations remained unresolved; the union was on strike. Mine No. 4 restarted during the quarter, but reduced operations at Mines No. 4 and No. 7 continued to result in idle costs. Labor resolution and production levels remain important uncertainties.
Management said inflation was expected to weigh more heavily on 2022 profitability, including through steel, freight, labor, supplies, and equipment costs. It also cited global steel demand, met coal price volatility, COVID-related supply disruption, the war in Ukraine, sanctions, and trade and logistics constraints as market risks.
2022 capital expenditure guidance was approximately $75–$80 million for sustaining needs and $90–$95 million for discretionary spending. This includes a $45 million Blue Creek development budget for 2022.
On May 3, 2022, after quarter-end, the company announced the relaunch of the Blue Creek project. It expects to invest approximately $650–$700 million over five years; expects first development tons in Q3 2024 and longwall startup in Q2 2026; and projects average production capacity of 4.4 million metric tons annually over the first ten years. These are forward-looking expectations, not achieved results.
The Board declared a $0.06-per-share regular dividend in February, paid in March, and another $0.06 dividend in April for payment in May. On May 3, it also declared a $0.50-per-share special dividend for payment on May 20, 2022. Future dividends remain subject to Board discretion.
Other exposures include reclamation and mine-closure obligations, black-lung claims, surety and letter-of-credit requirements, minimum transportation and throughput commitments, and dependence on global steel and met coal markets. Management said it believed liquidity and expected cash flows would cover debt service and planned operating and capital needs for at least the next twelve months.

Most important facts for investors to verify

Whether UMWA negotiations resolve and how strike-related constraints affect production, shipments, and costs.
Whether exceptional met coal pricing persists, and whether deferred shipments are completed in Q2 as expected.
Whether working-capital needs, especially receivables and inventory, convert to cash in subsequent quarters.
Blue Creek’s updated cost, funding plan, permitting and construction milestones, and projected production assumptions.
The financial and cash-flow impact of gas swap mark-to-market movements, inflation, and the declared special dividend.
The filing contains a potential presentation inconsistency: the statements list dividends per share of $0.05 for Q1 2022, while the notes and MD&A describe a $0.06 quarterly dividend declared and paid. Verify the applicable declaration, payment, and per-share reporting details.