Hallador Energy Company — Q1 2021 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2021, compared with Q1 2020. Hallador produces steam coal at mines in western Indiana. The interim statements received an accountant’s review, not an audit.
Financial performance and liquidity
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Total revenue | $46.7 million | $62.5 million; down 25% |
| Coal sales | $45.9 million | $61.9 million |
| Operating loss | $0.9 million | $0.2 million loss |
| Net loss / loss per share | $1.0 million / $0.03 | $3.7 million / $0.12 loss |
| Adjusted EBITDA | $11.4 million | $13.9 million; non-GAAP |
| Operating cash flow | $3.0 million | $16.3 million |
| Capital expenditures | $5.7 million | $6.0 million |
| Cash and restricted cash | $7.6 million, including $3.8 million restricted | Cash and equivalents alone: $3.9 million |
| Bank debt | $136.1 million gross; $130.5 million net of issuance costs | Gross debt was $137.7 million at year-end 2020 |
| Liquidity | $27.9 million, including $24.0 million additional borrowing capacity | At March 31, 2021 |
Operating metrics: Coal shipments were 1.174 million tons versus 1.526 million tons; average realized price was $39.08 per ton versus $40.58. Production costs improved to $28.88 per ton from $31.67. Coal operating margin was $10.20 per ton versus $8.91, although total coal operating margin declined by $1.6 million, primarily reflecting lower sales volume. Gross margin percentages are not separately reported.
Material changes and drivers
- Management estimates about 180,000 tons of shipments were delayed by February cold weather and transportation disruption; it expects those shipments to move later in 2021. Inventory increased during the quarter, including an approximately $6 million coal-inventory increase cited by management.
- Revenue and operating cash flow fell year over year. Management attributed lower shipments to weaker demand and weather-related transportation issues. Average price per ton declined as contracts expired and the contract mix changed.
- Interest expense fell to $1.9 million from $5.7 million, principally reflecting a favorable year-over-year change in swap fair value and lower bank debt.
- Total assets were $384.2 million, essentially unchanged from December 31, 2020; stockholders’ equity was $184.5 million versus $185.3 million.
Outlook, risks, and notable items
- At March 31, contracted sales included 4.5 million tons for Q2–Q4 2021 at an estimated $39.25 per ton and 5.1 million tons for 2022 at $39.35 per ton. Customer options and force majeure can affect volumes. Fixed-price remaining performance obligations were approximately $455 million; contracts with price reopeners represented an estimated $237 million, expected to be recognized beginning in 2022.
- Management projected $17 million of capital expenditures for the remainder of 2021, including about $7 million of maintenance capex; it expected $9 million of G&A expense for the remainder of the year. Management said operating costs were within prior guidance of $29–$30 per ton and expected operating cash flow to fund maintenance capex and debt service, including as inventories are reduced.
- The credit agreement’s March 2021 maximum leverage covenant was 3.25x; the reported ratio was 2.78x. The debt-service coverage ratio was 1.13x against a 1.05x minimum. Covenant thresholds tighten later in 2021 and again in 2022. The revolver matures September 2023; term debt amortization ends March 2023.
- The $10 million PPP note remained recorded as debt. The lender approved the company’s application for full forgiveness and forwarded it to the SBA; final SBA approval was pending, with no assurance forgiveness would be granted. If unforgiven, monthly payments of about $1.1 million were expected to begin in August 2021.
- COVID-19 could still adversely affect operations, customers, suppliers, results, and liquidity. Management reported no significant critical-supplier issues to date and said customers were expected to honor contracts.
- No Q1 2021 long-lived-asset impairment was recorded. The Hourglass frac-sand plant had ceased operations in August 2020 after prior impairments. Reclamation obligations are supported by $24 million of surety bonds; restricted cash supports workers’ compensation claims.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It reported no material market-risk changes from the 2020 Form 10-K.
Key facts investors should verify
- Whether the weather-delayed shipments were completed later in 2021 and whether inventory declined as management expected.
- Whether the SBA granted forgiveness of the $10 million PPP note, and the effect on repayment needs if it did not.
- Future compliance with tightening leverage and debt-service covenants, available revolver capacity, and liquidity as debt service and capital spending continue.
- Whether shipment volumes, realized prices, per-ton costs, and projected cash generation met management’s stated expectations.
- Changes in COVID-19 effects, customer demand, coal-market conditions, and the status of the idled Hourglass operation and reclamation obligations.