Warrior Met Coal, Inc. — Q2 2023 Form 10-Q
Business and period: U.S. producer and exporter of premium metallurgical coal for steelmaking, operating underground mines in Alabama. This unaudited report covers the quarter and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods.
Financial results and position
| Metric | Q2 2023 | Q2 2022 |
|---|---|---|
| Total revenue | $379.7 million | $625.2 million |
| Operating income | $90.4 million; 23.8% margin | $372.5 million; 59.6% margin |
| Net income | $82.1 million; $1.58 diluted EPS | $297.0 million; $5.74 diluted EPS |
| Coal sold | 1.613 million metric tons | 1.400 million metric tons |
| Average net selling price per ton | $230.03 | $445.21 |
| Cash cost of sales per ton | $141.95 | $135.60 |
| Segment Adjusted EBITDA | $140.6 million | $432.2 million |
Six-month results: Revenue was $889.3 million versus $1.004 billion; operating income was $300.1 million versus $559.4 million; and net income was $264.4 million versus $443.2 million. Coal sales volume rose 40% to 3.381 million tons, while the average selling price fell to approximately $257.8 per ton from approximately $415.2. The filing’s six-month average-price figures vary slightly between tables.
Cash flow and liquidity: For the six months, operating cash flow was $317.4 million (prior year $399.7 million), investing cash outflow was $232.4 million ($100.8 million), and financing cash outflow was $87.1 million ($49.9 million). Cash was $827.4 million at June 30, compared with $829.5 million at year-end. Disclosed total liquidity was $950.7 million, including $123.3 million available under the ABL facility. No ABL loans were outstanding; $8.7 million of letters of credit were issued.
Debt and balance sheet: Long-term debt carrying value was $295.3 million, representing $302.6 million principal of 7.875% senior secured notes due 2028, net of discount. The company repurchased and extinguished $8.0 million principal during the first half. Total liabilities were $582.8 million and stockholders’ equity was $1.661 billion at June 30.
Material changes and business developments
- Q2 coal sales revenue fell about 40% year over year: the 48% decline in selling price more than offset a 15% increase in sales volume. Management attributed lower prices to a softer metallurgical-coal market.
- Production increased 15% in Q2 as both mines operated at higher capacity than in the prior-year period. Improved rail and Port of Mobile terminal performance also supported higher shipments.
- Cost of sales rose to $230.5 million from $191.1 million in Q2, reflecting increased volumes and inflation in supplies and electricity. Cash cost per ton also increased.
- The labor union announced the end of its strike on February 16, 2023; the return-to-work process was substantially complete. Negotiations for a new contract continued. Strike-related business-interruption costs were $3.5 million in Q2, down from $6.3 million; there were no idle-mine expenses in 2023.
- Capital expenditures were $204.3 million for the first half, versus $78.7 million a year earlier, mainly reflecting Blue Creek development and Mine No. 4 portal work.
Outlook, risks and unusual items
- Capital spending and Blue Creek: 2023 total capital expenditure guidance was $420–$485 million, including $95–$105 million sustaining and $325–$380 million discretionary spending. Blue Creek development spending was estimated at $250–$300 million in 2023. Revised transportation plans are expected to add approximately $120–$130 million to Blue Creek project capital costs over the remaining development period. Project timing remained on schedule: first continuous-miner development tons expected in Q3 2024 and longwall start-up in Q2 2026. Inflation impacts at Blue Creek were not yet quantified.
- Market and operating risks: Management cited weakening global conditions, coal inventories, inflation, steel demand, transport performance, weather, and geopolitical developments as factors affecting prices, costs, shipments and results. Management expected inflation to continue pressuring mining costs.
- Labor and financial assurances: A new collective bargaining agreement remained unresolved. The Department of Labor’s black-lung self-insurance collateral determination was under appeal; proposed regulatory changes could require security equal to 120% of projected liabilities.
- Cyber incident after quarter-end: On July 29, 2023, the company discovered a ransomware attack involving its on-premises IT systems and theft of certain company data. The investigation was ongoing. The company reported that mining, transportation and shipping operations were not disrupted.
- Contingencies and capital returns: The filing reported no accrued environmental matters beyond mine-reclamation obligations and no accruals for miscellaneous litigation. The company paid a $0.88-per-share special dividend in March and $0.07-per-share quarterly dividends; a further $0.07 quarterly dividend was declared after quarter-end. Future dividends and repurchases remain at the Board’s discretion.
Important facts for investors to verify
- Whether coal prices and realized selling prices stabilize, and how the company’s sales volumes and customer mix evolve.
- Progress on labor negotiations and any effect on staffing, production, costs or operations.
- Blue Creek’s updated total cost, inflation exposure, transportation scope, funding plan and schedule.
- Available liquidity and required collateral for black-lung, reclamation and other obligations.
- The scope and financial or operational consequences of the ransomware incident as the investigation concludes.