Ramaco Resources, Inc. — Q1 2020 Form 10-Q
Business and period: Ramaco operates and develops metallurgical coal mines in the central Appalachian region. This unaudited report covers the three months ended March 31, 2020; comparisons are with Q1 2019. Amounts below are in millions unless otherwise noted.
Financial results and liquidity
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $41.9 | $57.5 | Down 27% |
| Operating income | $1.1 | $8.3 | Down 86% |
| Net income | $2.0 | $6.9 | Down 71% |
| Adjusted EBITDA | $8.4 | $13.7 | Down 38% |
| Operating margin | 2.7% | 14.4% | Calculated from reported figures |
| Diluted EPS | $0.05 | $0.17 | |
| Cash from operations | $6.4 | $(6.1) | |
| Capital expenditures | $8.9 | $8.2 |
- Coal sales were 416,000 tons, down 13%; realized revenue per ton (FOB mine) fell 11% to $93. Company-produced cash cost per ton was $67 versus $68.
- Cash and cash equivalents were $15.3 at quarter-end, with $13.5 of remaining revolver availability. Restricted cash of $1.4 was held for potential workers’ compensation claims.
- Debt was approximately $25.6 at March 31: $16.5 outstanding on the revolving facility and $9.1 on the term loan. The company reported covenant compliance.
- Inventory rose to $23.5 from $15.3 at year-end 2019. Net borrowings contributed $12.4 of financing cash flow; operating cash flow included working-capital use, mainly inventory buildup.
Material changes and operating context
- Revenue fell amid lower sales volumes and pricing. Domestic revenue was $30.5 and export revenue $11.4. No third-party coal purchases were made in Q1 2020, compared with 35,000 tons purchased in Q1 2019.
- Lower sales volumes and cash cost per ton partly offset weaker revenue. Depreciation and amortization increased to $5.0 from $4.1 as operations expanded. Other income rose to $1.2 from $0.3, primarily from third-party coal-processing fees.
- Three customers represented approximately 73% of Q1 revenue and 69% of quarter-end receivables. Two customers, together representing about 56% of Q1 revenue, notified the company that purchases might be delayed or curtailed due to COVID-19.
- Berwind development continued; management expected full commercial production from two deep-mine sections in 2021, subject to possible COVID-related delays.
Outlook, risks, and unusual items
- Management expected metallurgical-coal spot demand and pricing to remain weak through at least Q2 2020; it said the effects on later-period results could be significantly greater and could not yet be quantified. The company had about 1.1 million tons of fixed-price sales contracted for the remainder of 2020, averaging $93 per ton FOB mine, but warned volumes could be delayed or curtailed.
- Beginning April 1, the company furloughed 182 Elk Creek employees for roughly two weeks, reduced certain executives’ salaries by 30%, deferred their cash bonuses, and reduced or deferred non-essential capital spending. All furloughed employees had been recalled by May 1.
- After quarter-end, Ramaco received an approximately $8.4 million Paycheck Protection Program loan on April 20, 2020, at 1% interest; some or all may be forgiven subject to program requirements. The company disclosed risk that the loan eligibility certification could be challenged, potentially resulting in legal costs or penalties.
- After quarter-end, the company also obtained approximately $4.7 million of equipment financing at 7.45%, repayable in 36 monthly installments. It cited a long-term production plan of more than 4–4.5 million clean tons, subject to market conditions, permits, and capital deployment.
- Take-or-pay transportation commitments totaled $5.1 million through March 31, 2021. The company’s lawsuit seeking insurance coverage for the 2018 Elk Creek silo failure was in discovery, with trial scheduled to begin December 8, 2020; no related amount was accrued.
- Management stated that current cash, operating cash flows, and available credit were expected to fund operating and capital plans, while identifying coal-market weakness, customer payment delays, transportation, and mine-development costs or delays as liquidity risks.
Important facts for investors to verify
- Whether customer purchase delays or curtailments occur, particularly among the two customers representing approximately 56% of Q1 revenue, and the resulting effects on sales, inventory, and cash flow.
- Current realized coal prices, sales volumes, and the execution and pricing of the remaining 2020 contracted tons.
- Liquidity, debt availability, covenant compliance, and the impact of the post-quarter PPP and equipment loans, including PPP forgiveness and eligibility developments.
- Berwind development timing and capital requirements, and any further production or spending changes.
- The outcome and timing of the Elk Creek insurance litigation and any recovery. The filing reports no accrued amount for litigation matters.
Note: The filing’s results table reports Q1 2020 selling, general and administrative expense of $4.7 million; the MD&A discussion refers to $5.0 million. The source text does not reconcile this difference.