Business context and reporting period
Contura Energy, Inc. (NYSE: CTRA) filed this unaudited Form 10-Q for the quarter ended September 30, 2019. The company mined and marketed metallurgical and thermal coal in Central and Northern Appalachia. The 2019 results include operations acquired in the November 2018 Alpha merger; comparisons with 2018 are therefore not fully like-for-like. The company changed its reportable segments during 2019 and restated prior-period segment presentation.
Financial performance and position
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Total revenue | $525.9 million | $447.9 million | $1,791.2 million | $1,459.1 million |
| Operating income (loss) | ($26.2 million) | $23.8 million | $58.5 million | $176.4 million |
| Continuing-operations net income (loss) | ($43.6 million) | $14.0 million | ($11.3 million) | $147.0 million |
| Net income (loss), including discontinued operations | ($68.5 million) | $11.9 million | ($175.4 million) | $142.6 million |
| Adjusted EBITDA, non-GAAP | $40.0 million | $38.8 million | $264.2 million | $223.9 million |
- Q3 total revenue rose 17.4% year over year, primarily as coal sales volume increased 48.6% to 5.8 million tons. Coal revenue rose 18.3%; lower realized prices partly offset volume growth.
- For the first nine months, coal revenue increased 23.4% and tons sold increased 49.1% to 18.0 million. Average coal realization fell to $87.30 per ton from $98.90. Nine-month Adjusted EBITDA rose 18.0%, but this non-GAAP measure is not a substitute for GAAP earnings.
- Q3 coal margin per ton was $10.60, versus $12.25 a year earlier. CAPP-Met margin improved to $21.03 per ton from $18.53; NAPP margin declined to negative $2.54 from $0.01. Newly acquired CAPP-Thermal generated a $2.29-per-ton margin.
- Operating cash flow was $137.6 million for the first nine months, versus $176.3 million. Investing cash outflow was $167.6 million, including $144.2 million of capital expenditures; financing cash outflow was $64.1 million. Cash, cash equivalents and restricted cash totaled $383.1 million at period end, down $94.1 million since year-end 2018.
- At September 30, cash and cash equivalents were $152.6 million; total liquidity was reported at $354.1 million, including $25.1 million of unrestricted investments and $176.4 million of unused ABL commitments, subject to facility limitations. Restricted cash was $209.0 million long-term, in addition to short-term restricted balances.
- Debt totaled $592.8 million on the balance sheet, including $29.0 million current and $563.8 million long-term. The company reported no ABL borrowings and $48.6 million of ABL letters of credit outstanding. Its new $561.8 million term loan carried a 9.03% rate at quarter-end; the company was in compliance with debt covenants.
Material changes, outlook, and risks
- Compared with Q3 2018, Q3 2019 swung to a continuing-operations loss, despite higher revenue and slightly higher Adjusted EBITDA. Higher depreciation, depletion and amortization, accretion on reclamation obligations, SG&A and interest expense contributed. Interest expense more than doubled year over year to $18.8 million.
- Nine-month results included a $26.5 million loss on debt modification and extinguishment, mainly from writing off unamortized discounts and issuance costs during refinancing. Nine-month discontinued-operations loss was $164.1 million, primarily reflecting Blackjewel’s bankruptcy, remeasurement of reclamation obligations, and write-offs of related receivables.
- Following Blackjewel’s Chapter 11 filing, Contura continued to bear permit and reclamation exposure for former Wyoming mines at September 30, including $151.9 million of discontinued-operations asset retirement obligations. Subsequent to quarter-end, Eagle Specialty Materials acquired the mines and agreed to assume reclamation obligations. Contura agreed to pay ESM $90.0 million, pay $13.5 million in county back taxes, and make other specified payments. The company said its remaining reclamation obligation would be reduced to zero following the transaction and related payments, while the permit transfer process remained to be monitored.
- The company stated cash on hand and operating cash generation should fund working capital, anticipated capital spending, debt service and obligations for the next 12 months, but cautioned that deterioration in markets or incorrect assumptions could require additional financing. It accelerated construction of a Cumberland mine impoundment, estimated at $61 million, raising estimated 2020 and 2021 capital expenditures by approximately $29 million and $17 million, respectively.
- As of late October/early November, 2019 sales commitments were largely priced: 100% of NAPP, 96% of CAPP-Met, and 100% of CAPP-Thermal volumes, at average realized prices of $43.13, $117.65, and $58.26 per ton, respectively. For 2020, 97% of NAPP, 32% of CAPP-Met, and 92% of CAPP-Thermal committed volumes were priced, at $43.42, $102.88, and $55.90 per ton. These are sales-commitment disclosures, not earnings guidance.
- Material risks include coal-price and demand weakness, customer concentration, operating and transportation costs, regulation and permitting, reclamation and surety availability, and potential impairment of goodwill. The company performed an interim goodwill test after market capitalization fell below book value and metallurgical coal prices weakened; it recorded no impairment but warned goodwill could be at risk if conditions deteriorate. It also disclosed that the federal government might withhold some or all of certain tax refunds to assert bankruptcy-related setoff rights.
- The board’s $100 million stock repurchase plan was suspended effective October 1, 2019. The company repurchased 529,303 shares under that plan by September 30 and separately repurchased 500,000 shares from existing shareholders. The filing also reports an overarching capital return program authorization of up to $250 million, subject to board discretion and constraints.
Most important facts for investors to verify
- Subsequent filings on completion of Wyoming mine permit transfers, release of Contura’s collateral and bonding, and confirmation that reclamation liabilities were removed as expected.
- Liquidity after the ESM, tax, and related payments, including actual return of approximately $9 million in collateral and availability under the ABL facility.
- Coal-price trends and realized margins, especially the 2020 CAPP-Met volumes that remained largely unpriced at the filing’s November update.
- Actual 2020–2021 capital spending for the accelerated impoundment and its effect on operating cash flow and debt reduction.
- Any further valuation allowance, tax-refund setoff, Blackjewel-related loss, or goodwill impairment developments.