Alpha Metallurgical Resources, Inc. quarterly report, Q1 FY2021

Alpha Metallurgical Resources, Inc. — Q1 2021 Form 10-Q

Reporting period: Three months ended March 31, 2021; unaudited. Financial amounts below are in U.S. dollars. The company mines and sells metallurgical and thermal coal, primarily from operations in Virginia and West Virginia. The former Northern Appalachia operations are presented as discontinued operations following their sale in December 2020.

Key financial results

Metric	Q1 2021	Q1 2020
Total revenue	$386.3 million	$402.8 million
Operating loss	$16.5 million	$19.7 million
Net loss	$32.9 million	$39.8 million
Net loss per diluted share	$1.79	$2.18
Cash used in operating activities	$19.1 million	$0.1 million
Capital expenditures	$20.4 million	$49.6 million
Adjusted EBITDA, non-GAAP	$28.9 million	$56.5 million

Coal revenue was $385.5 million, down 4.0%, while total tons sold rose 3.0% to 4.066 million. Met coal sales were 3.4 million tons versus 3.2 million; thermal sales were 0.7 million tons in both periods. The continuing-operations net loss was $32.7 million; discontinued operations contributed a further $0.2 million loss.

Met operations’ non-GAAP sales realization fell 11.6% to $82.00 per ton, while non-GAAP cost of coal sales rose 1.4% to $71.72 per ton. Met non-GAAP coal margin declined to $10.28 per ton from $22.09. Consolidated GAAP coal margin was negative $0.8 million, compared with positive $12.8 million. These company-defined non-GAAP measures are not substitutes for GAAP results.

Balance sheet and liquidity

• At March 31, cash and cash equivalents were $92.2 million; total cash, cash equivalents and restricted cash were $189.3 million. Restricted cash and other collateral are not all freely available.
• Total liquidity was reported as $108.5 million, including $16.3 million of available ABL commitments, subject to borrowing-base and covenant limitations. The company had no ABL borrowings outstanding, but $130.9 million of ABL letters of credit were outstanding.
• Total debt was $579.8 million, including $29.4 million current and $550.3 million long-term. The term loan matures in June 2024 and carried a 9.00% rate. Interest expense was $18.0 million.
• Total assets were $1.672 billion, total liabilities $1.501 billion, and stockholders’ equity $170.2 million. Working capital was $236.0 million, calculated from reported current assets less current liabilities.
• Cash and restricted cash decreased by $55.3 million during the quarter. Operating and investing activities used $19.1 million and $29.7 million, respectively; financing activities used $6.4 million.

Changes versus the prior comparable period

• Revenue declined 4.1%, chiefly because weaker Australian hard-coking-coal index prices reduced Met export realizations. Higher sales volume partly offset lower prices.
• Adjusted EBITDA fell 48.9% to $28.9 million; Met operations’ Adjusted EBITDA declined 52.9% to $32.6 million. The lower 2021 operating loss compared with 2020 occurred despite weaker coal margins, in part because Q1 2020 included $33.7 million of asset impairment.
• Depreciation, depletion and amortization declined 40.3%, primarily reflecting prior-period asset disposals and impairments. The acquisition-related-obligation mark-to-market item changed from a $15.0 million gain in Q1 2020 to a $3.2 million expense in Q1 2021.
• Operating cash use increased from $0.1 million to $19.1 million, while capital expenditures were substantially lower. Cash flow also reflected a $35.5 million use from changes in operating assets and liabilities.
• The company now reports one reportable segment, Met, after restructuring segment reporting to reflect its strategic focus on metallurgical coal; prior-period segment information was restated. The former NAPP operations are reported as discontinued operations.

Outlook, commentary and risks

• Management said it believes available liquidity, operating cash flows and expected tax refunds will cover working capital, anticipated capital spending, debt service, acquisition-related payments and reclamation obligations for the 12 months after issuance. It also cautioned that weak markets could mean further operating losses and cash outflows and that additional financing may not be available on acceptable terms, or at all.
• As of April 23, 2021, reported 2021 sales commitments were 14.0 million tons of Met coal, 67% priced at an average realized price of $81.35 per ton, and 1.5 million tons for All Other, 100% priced at $57.67 per ton. These are commitments, not a company earnings forecast. The filing gives no formal earnings or full-year production guidance.
• Management described improving global steel demand and increased spot interest, including some sales into China, but noted uncertainty from COVID-19 and continued weakness in Australian coal pricing. It said the domestic CAPP thermal market remained challenged and that the company was nearly sold out of 2021 thermal production.
• A $64.2 million federal tax receivable and $5.3 million related interest receivable were recorded for an NOL carryback claim. The U.S. government could seek to offset some or all of the refund against bankruptcy claims.
• The Department of Labor’s black-lung self-insurance reauthorization was contingent on $65.7 million of collateral, substantially above the approximately $2.6 million previously provided. The company appealed; an adverse outcome could materially reduce liquidity. The filing does not establish the appeal’s outcome.
• Surety bonds had a $253.5 million face amount; the company warned that reduced availability or demands for additional collateral could adversely affect liquidity. It also reported $47.5 million of transportation commitments for 2022 and substantial Cumberland back-to-back coal purchase-and-sale commitments.
• Moody’s assigned a Caa1 Corporate Family Rating and SGL-3 speculative-grade liquidity rating on April 16, 2021, with a stable outlook. The company reported compliance with debt covenants and was not in an ABL Liquidity Period at quarter-end.

Important facts for investors to verify

• Whether the expected federal tax refund is received in full and on what timeline, including any government setoff.
• The status and eventual collateral requirements of the black-lung self-insurance appeal and the company’s surety-bond capacity.
• Realized Met coal prices, Australian-index exposure, production costs and margins relative to the disclosed 2021 sales commitments.
• Cash generation, working-capital movements, capital spending and ABL availability as the borrowing base changes.
• Payments and settlement of acquisition-related obligations, including the contingent revenue obligation, and completion of remaining surety-bond releases related to the sold NAPP operations.
• That GAAP losses and cash flow remain distinct from Adjusted EBITDA and other management-defined non-GAAP measures.