Warrior Met Coal, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; unaudited. Warrior is a U.S. producer and exporter of metallurgical coal for the global steel industry. Comparisons are with Q1 2020 unless stated otherwise. Dollar amounts are in millions except per-share data and per-ton metrics.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $213.8 | $226.7 |
| Operating income / margin | $11.1 / 5.2% | $30.5 / 13.5% |
| Net income (loss) | $(21.4) | $21.5 |
| Diluted earnings (loss) per share | $(0.42) | $0.42 |
| Segment Adjusted EBITDA | $52.6 | $69.8 |
| Adjusted EBITDA | $47.1 | $62.0 |
| Cash from operating activities | $45.2 | $21.0 |
| Capital expenditures | $9.5 | $22.8 |
| Deferred mine development costs | $12.3 | $3.7 |
Coal sales were $207.0 million, down $14.3 million. Sales volume increased 7.6% to 1.771 million metric tons, while average selling price fell to $116.88 per ton from $134.47. Gross price realization improved to 95% of the Platts Index from 89%. Production was 1.970 million metric tons versus 1.904 million. Cash cost of sales per ton declined to $86.67 from $91.55.
Cost of sales rose to $154.4 million despite lower prices, mainly because of increased sales volume. Depreciation and depletion increased to $32.9 million, primarily reflecting assets placed in service. Interest expense, net, rose to $8.7 million. The company recorded $23.6 million of income tax expense, including a non-cash $47.8 million valuation allowance on Alabama deferred tax assets, partly offset by a $22.9 million non-cash tax benefit from remeasurement following a state tax-law change.
Balance sheet, debt and liquidity
At March 31, cash and cash equivalents were $221.9 million, short-term investments were $8.5 million, and total current assets were $477.1 million. Current liabilities were $161.0 million. The company reported total debt of $380.1 million, comprising $343.4 million of 8% senior secured notes due 2024 and $40.0 million drawn under its ABL Facility, net of debt discount. Total assets were $1.380 billion and stockholders’ equity was $700.3 million.
Cash increased $10.0 million during the quarter. Operating cash flow of $45.2 million less investing outflows of $21.8 million and financing outflows of $13.4 million produced that increase. Financing outflows included $8.2 million of finance-lease principal repayments and $2.6 million of dividends. Total reported liquidity was $272.0 million: $221.9 million cash plus $50.1 million of ABL availability. The company said it had adequate resources for debt service and planned operating and capital needs for at least the next 12 months. It reported compliance with applicable ABL covenants and was not subject to the springing fixed-charge coverage test at quarter-end.
Changes, outlook and material developments
- Revenue fell 5.7%; operating income and Segment Adjusted EBITDA declined substantially. Lower average coal prices outweighed higher sales volumes.
- Net income swung to a loss, principally reflecting the large non-cash state deferred-tax valuation allowance. Operating cash flow increased year over year.
- The company withheld full-year 2021 guidance, citing COVID-19 uncertainty, China’s ban on Australian coal, and unresolved labor negotiations. It said uncertainty could affect prices, volumes, costs, operations and project timing.
- The UMWA contract expired April 1, 2021, after the reporting period, and the union began a strike. At filing, Mine No. 4 was idled and Mine No. 7 was expected to continue at lower-than-usual rates. Management cited existing inventory of 1.1 million metric tons and expected production as supporting anticipated 2021 customer commitments of approximately 4.4–5.0 million metric tons; it cautioned that plans and quarterly activity could vary.
- Warrior delayed most of the first-year $25 million Blue Creek development budget to preserve cash. Blue Creek is a proposed growth project; the filing describes expected capacity and returns as forward-looking estimates, not current results.
- The stock repurchase program remained temporarily suspended. The company paid a $0.05-per-share quarterly dividend and declared another $0.05 dividend after quarter-end. Management said future dividends could be suspended if deemed necessary.
- XCoal accounted for approximately 50.9% of Q1 2021 sales, compared with 19.9% in Q1 2020, a notable customer/channel concentration change.
Risks, contingencies and unusual items
Key disclosed risks include global steel and metallurgical-coal demand and pricing, COVID-19 effects, labor availability and the UMWA strike, transportation and supply-chain disruption, customer credit and letters of credit, operating and mine-safety hazards, environmental and reclamation obligations, capital-market access, and substantial indebtedness. The company also faces variable interest exposure on the ABL borrowing; it estimated that a 100-basis-point rate change would change annual interest expense by about $0.4 million at the quarter-end balance.
At March 31, the company reported $60.7 million of asset retirement obligations and $34.5 million of black-lung obligations within other long-term liabilities. Surety bonds and letters of credit included $40.9 million for reclamation, $17.0 million as collateral for self-insured black-lung claims, and $3.6 million for other purposes. No environmental accruals beyond reclamation obligations or accruals for miscellaneous litigation were reported. Transportation agreements include annual minimum tonnage commitments; no liability for minimum-throughput requirements was recorded at quarter-end.
Investor verification points
- Track the strike’s duration, Mine No. 4 restart timing, Mine No. 7 output, shipment execution and ability to meet the stated 4.4–5.0 million-ton customer commitments.
- Verify subsequent coal pricing, sales volumes, customer mix and XCoal concentration, as well as the effect of China’s Australian-coal ban and global steel demand.
- Assess the Alabama deferred-tax valuation allowance, potential future tax-asset utilization and cash-tax consequences; the Q1 tax charge was largely non-cash.
- Monitor cash, ABL availability and covenants, debt service, finance-lease commitments, and whether dividends or repurchases change.
- Check Blue Creek spending, permitting and development timing against management’s stated decision to defer most planned investment.