Warrior Met Coal, Inc. — 2022 Form 10-K Summary
Business context and reporting period. This annual report covers the fiscal year ended December 31, 2022, not a standalone fourth quarter. Warrior is a U.S. producer and exporter of premium metallurgical coal used in steelmaking, operating Mine No. 4 and Mine No. 7 in Alabama. It also earns smaller revenues from natural gas and royalties. The UMWA strike, which began in April 2021, continued through the reporting period.
Key financial results
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Total revenue | $1.739 billion | $1.059 billion |
| Operating income | $801.4 million; 46.1% margin | $243.8 million; 23.0% margin |
| Net income | $641.3 million; $12.40 diluted EPS | $150.9 million; $2.93 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $994.2 million | $457.0 million |
| Coal sold / produced | 5.099 / 5.729 million metric tons | 5.699 / 5.084 million metric tons |
| Average net coal selling price | $334.89 per metric ton | $180.43 per metric ton |
| Cash cost of sales (non-GAAP) | $138.35 per metric ton | $96.43 per metric ton |
| Cash from operating activities | $841.9 million | $351.5 million |
| Capital expenditures | $205.2 million, plus $48.9 million in deferred mine development costs | $57.9 million, plus $13.5 million in deferred mine development costs |
Management reported record free cash flow of $587.7 million for 2022. Met coal sales revenue rose principally on a $154.46-per-ton increase in average selling price; sales volume fell by 0.6 million tons. The company attributed lower shipments and higher inventory partly to rail underperformance and mechanical problems at the McDuffie Terminal.
At December 31, 2022, cash and cash equivalents were $829.5 million and total available liquidity was $952.8 million, including $123.3 million of ABL availability. No ABL loans were outstanding. Total debt, including financing leases, was approximately $335.7 million; this included $310.6 million principal amount of 7.875% senior secured notes due 2028 and $33.1 million of finance lease obligations. The notes’ reported carrying value was $302.6 million after unamortized discount and issuance costs.
Material changes versus the prior year
- Revenue increased about 64%, while operating margin rose to 46.1% from 23.0% and net margin to 36.9% from 14.2%, reflecting substantially higher coal prices.
- Coal sales volume declined about 11%, despite production increasing about 13%; terminal and rail delays contributed to the gap and to coal inventory rising to $109.8 million from $24.2 million.
- Cash cost of sales increased about 43% per ton. Management estimated inflation added $24.3 million to 2022 cost of sales; royalties also rose to $138.9 million from $65.4 million, in part because of price-linked costs.
- Operating cash flow increased to $841.9 million. Investing cash outflow rose to $255.1 million, reflecting higher equipment spending and mine development; financing cash outflow was $153.1 million.
- The company repurchased and retired $39.4 million principal amount of notes during 2022. Year-end cash increased to $829.5 million from $395.8 million.
Outlook, management commentary, and risks
- 2023 operating outlook: Without a new labor contract, management expected production of 5.7–6.3 million metric tons and sales of 5.9–6.5 million metric tons. Management cautioned that strike-related, rail, terminal, and other disruptions could make quarterly results vary.
- Blue Creek: The company expects to invest $650–$700 million over five years. It forecast 2023 capital spending of $420–$450 million, including sustaining capital of $95–$105 million. First continuous-miner development tons were expected in Q3 2024, with longwall startup scheduled for Q2 2026. Management estimates average capacity of 4.4 million metric tons annually during the mine’s first ten years, subject to successful development and execution.
- Inflation and markets: Management expected inflation to ease in 2023 but continue to pressure steel, freight, labor, and supply costs. Coal prices remain exposed to global steel demand, supply shifts, geopolitical events including the Russia-Ukraine war, and changing trade policies.
- Labor and logistics: The unresolved UMWA strike continued to constrain operations. The company also cited rail performance and McDuffie Terminal mechanical failures as shipment risks and was pursuing terminal repairs and alternative routes.
- Tax and contingencies: The company had federal NOLs of $122.1 million, state NOLs of $951.7 million, and $23.4 million of general business credits. Management expected federal NOLs and credits to be substantially used and cash taxes to begin in 2023 or 2024. The DOL had reduced its requested black-lung collateral to $28 million, a decision the company appealed; proposed rules could require self-insurers to post security of at least 120% of projected liabilities. Estimated black-lung liabilities, net of trust assets, were $30.3 million.
- Capital returns: 2022 dividends totaled $1.54 per share, comprising regular and special dividends. The board declared additional dividends after year-end: $0.07 regular and $0.88 special per share. Future dividends and repurchases remain discretionary and subject to debt covenants and business needs.
- Other risks: Nearly all revenue came from metallurgical coal; the five largest customers generated 58.6% of sales revenue. Other material exposures include Alabama operating concentration, permitting and environmental requirements, mine safety and operating hazards, reclamation costs, surety-bond availability, and potential limits on financing or insurance related to climate and ESG concerns.
The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting as of year-end. Management stated that ordinary-course legal proceedings were not expected to materially affect the company.
Most important facts for investors to verify
- Whether the UMWA strike is resolved and whether production and sales meet the 2023 ranges, particularly given the shipment backlog and inventory buildup.
- Whether rail service and McDuffie Terminal performance improve, and the effect of alternative routes on delivery costs and sales volumes.
- Blue Creek’s updated total cost, funding plan, permits, construction progress, and expected development and longwall startup dates.
- Met coal prices, realized price versus relevant indices, cost inflation, and customer concentration as market conditions change.
- Liquidity and debt covenant headroom as capital spending rises; continued capacity to fund Blue Creek while maintaining debt service and shareholder distributions.
- Actual timing of cash taxes and use of NOLs and credits, including any Section 382 ownership-change implications.
- The outcome of the DOL collateral appeal and any final black-lung self-insurance requirements.