Suncoke Energy, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. SunCoke produces coke in the U.S. and operates a coke facility in Brazil, alongside a coal and aggregates logistics business. Its U.S. coke sales are largely under long-term take-or-pay contracts with Cleveland-Cliffs Steel and U.S. Steel.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $359.9 million | $382.7 million |
| Operating income | $38.2 million | $28.0 million |
| Net income | $18.2 million | $5.9 million |
| Net income attributable to SunCoke | $16.5 million; $0.20 diluted EPS | $4.9 million; $0.06 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $70.6 million | $62.1 million |
| Operating cash flow | $64.8 million | $26.8 million |
| Capital expenditures | $20.1 million | $22.8 million |
Operating margin was approximately 10.6%, compared with 7.3% a year earlier. Revenue declined $22.8 million, mainly because lower coal prices passed through to customers and Domestic Coke volumes were lower. Costs declined more than revenue, supporting higher operating income. Logistics revenue increased on stronger export coal volumes through CMT; Logistics Adjusted EBITDA rose to $10.9 million from $3.3 million. Domestic Coke Adjusted EBITDA was essentially flat at $63.5 million, and Brazil Coke Adjusted EBITDA was $4.5 million versus $4.1 million.
Balance sheet and liquidity
- At March 31, cash was $54.0 million; current assets were $244.3 million and current liabilities were $168.2 million.
- Total debt and financing obligation was $644.6 million carrying value, including $56.0 million drawn on the revolving facility. The company reported $331.9 million of revolver availability and $12.1 million of letters of credit outstanding under that facility.
- Net cash increased $5.6 million during the quarter. Financing cash outflow was $39.1 million, including $32.3 million of net revolver repayments and $5.1 million of dividends.
- The company was in compliance with debt covenants. Its maximum net leverage and minimum interest coverage covenant thresholds were 4.50:1.00 and 2.50:1.00, respectively.
Changes, outlook, and risks
- Management said first-quarter results reflected strong performance, particularly higher Logistics volumes. It expected U.S. steel utilization to remain strong and coke facilities to operate at full capacity in 2021.
- Management said SunCoke was well positioned to achieve the high end of its 2021 Adjusted EBITDA guidance range of $215 million to $230 million. Expected 2021 capital expenditures were approximately $80 million.
- Foundry coke production and sales at commercial scale, and blast furnace coke exports using capacity beyond long-term commitments, began in 2021. These sales do not have the same pass-through protections as long-term coke contracts.
- The company cited COVID-19 uncertainty, steel and coal market cyclicality, customer and supplier concentration, aging facility reliability, environmental compliance, and debt-service and financing risks. Cliffs Steel accounted for $255.7 million of Q1 revenue.
- SunCoke’s estimated black lung liability was $65.5 million. The Department of Labor had proposed $40.4 million of collateral for self-insured legacy obligations; SunCoke appealed, and an unsuccessful appeal could reduce liquidity.
- Management reported no unusual events significantly affecting comparability. It stated that pending claims were not expected to have a material adverse impact; no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether the company achieves the $215–$230 million 2021 Adjusted EBITDA guidance and approximately $80 million capital spending plan.
- Progress and economics of foundry and export coke sales, and whether these new markets offset lower pass-through coke revenue.
- Logistics volumes and margins, given the importance of stronger export coal activity to the quarterly improvement.
- Outcome of the black lung collateral appeal and any resulting effect on liquidity.
- Customer concentration, facility reliability, and continued compliance with debt covenants.