Peabody Energy Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Figures are unaudited and in U.S. dollars unless stated otherwise. Peabody produces and markets thermal and metallurgical coal in the U.S. and Australia.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $1,342.5 million | $679.0 million | $3,355.8 million | $2,053.7 million |
| Operating profit (loss) | $420.5 million | ($43.8) million | $799.2 million | ($88.8) million |
| Continuing income (loss), after tax | $384.4 million | ($59.6) million | $675.9 million | ($160.3) million |
| Net income (loss) attributable to common stockholders | $375.1 million | ($44.2) million | $665.1 million | ($152.9) million |
| Diluted EPS attributable to common stockholders | $2.33 | ($0.38) | $4.31 | ($1.46) |
| Adjusted EBITDA (non-GAAP) | $438.9 million | $289.1 million | $1,344.2 million | $472.3 million |
| Operating cash flow | Not separately reported for the quarter | Not separately reported for the quarter | $504.1 million | ($18.4) million |
| Free cash flow (non-GAAP) | Not separately reported for the quarter | Not separately reported for the quarter | $565.2 million | ($138.1) million |
- Margins and volumes: Q3 Adjusted EBITDA margin was approximately 32.7% of revenue, versus approximately 42.6% a year earlier; nine-month margin was approximately 40.1%, versus 23.0%. Total tons sold declined 3% in Q3 and 6% year to date. These consolidated margin calculations are based on reported revenue and non-GAAP Adjusted EBITDA.
- Cash and liquidity: September 30 cash and cash equivalents were $1,354.5 million; total available liquidity was $1,369.2 million, including only $3.8 million of credit facility availability and $10.9 million under the receivables program. Cash, cash equivalents and restricted cash totaled $1,399.0 million.
- Debt: Debt carrying amount was $869.2 million, compared with $1,137.8 million at December 31, 2021; debt at par was $891.0 million. The balance sheet classified $546.9 million as current because the company stated it intended and was able to retire additional debt within 12 months. Peabody reported compliance with debt covenants.
- Capital and equity: Stockholders’ equity rose to $2,661.2 million from $1,820.8 million at year-end 2021. The company issued about 10.1 million shares in an at-the-market offering for $222 million net proceeds during the first quarter.
Changes versus the prior comparable periods
- Revenue rose 98% in Q3 and 63% year to date, driven principally by higher realized coal prices. Q3 Adjusted EBITDA increased 52%; nine-month Adjusted EBITDA increased 185%.
- Seaborne Metallurgical Mining was a major contributor: nine-month segment revenue increased to $1,165.8 million from $388.0 million and Adjusted EBITDA to $593.9 million from $8.6 million, reflecting stronger realized prices and resumed Shoal Creek sales.
- Higher prices were partly offset by inflation in materials, services, repairs and labor, as well as higher sales-sensitive costs. Q3 operating costs and expenses increased to $838.4 million from $649.4 million.
- Q3 results benefited from $90.4 million of unrealized gains on forecasted-sales derivatives, compared with $238.4 million of unrealized losses a year earlier. For the nine-month period, these derivatives recorded $235.1 million of unrealized losses, versus $264.0 million of losses in 2021.
- Nine-month operating cash flow improved substantially, but included $335.8 million of cash used to meet derivative margin requirements. Investing cash flow was positive $61.1 million, including substantial joint-venture contributions and distributions and Middlemount receipts.
Outlook, management commentary, risks and unusual items
- Capital plans: Peabody increased its 2022 capital-expenditure target from approximately $190 million to $210 million, including $100 million of major-project and growth spending. It began redevelopment of North Goonyella, subject to regulatory approvals: $140 million of initial spending is approved, a further $240 million of development costs is estimated, development coal is targeted for Q1 2024 and longwall operations are expected in 2026. Management expects operating cash flow to fund redevelopment.
- Market and operating risks: Management described seaborne markets as volatile, with tight supply and elevated prices, while noting weaker steel prices and macroeconomic concerns. Wet weather, staffing shortages, rail performance issues, elevated overburden removal, and inflation affected operations and costs. The filing provides no quantified full-year earnings or coal-price guidance.
- Derivatives and collateral: Peabody had $465.9 million of margin posted at September 30, falling to $361.7 million by October 31. A $100-per-tonne change in the Newcastle forward curve was estimated to change variation-margin requirements by about $86 million. Margin calls and surety collateral can constrain liquidity; an additional $57.4 million of surety collateral was posted after quarter-end.
- Debt actions: The company issued $320 million of 3.25% convertible notes due 2028 and used proceeds, with cash, to retire nearer-term debt. Two debt-repurchase offers were pending at quarter-end and scheduled to expire November 18, 2022. Debt repurchases generated early-extinguishment losses, including $8.7 million in Q3.
- Contingencies: A securities class action settlement of $4.6 million is expected to be paid by insurers and received preliminary court approval; final approval was scheduled for February 2023. Australian authorities were investigating stormwater discharges at the Metropolitan Mine. The company recorded an $85.7 million liability for certain legacy Patriot black-lung obligations and said ultimate exposure remains uncertain.
- Other risks and capital returns: Coal prices, climate and environmental regulation, permitting, mine safety, labor, transport, reclamation bonding, and financing access are material risks. Dividends and share repurchases remain suspended, with restrictions under surety and debt agreements. The company noted new Queensland coal royalty tiers effective July 2022 and is assessing potential impacts of U.S. legislation and proposed regulations.
Most important facts for investors to verify
- Whether realized coal prices, volumes and segment costs sustain the reported earnings and non-GAAP Adjusted EBITDA, particularly the unusually strong metallurgical contribution.
- How much derivative margin and surety collateral may be required or recovered, and the effect on cash availability and operating flexibility.
- The outcome and timing of pending debt repurchases, future debt retirement intentions, and the effect of current debt classification on liquidity assessment.
- North Goonyella’s regulatory approvals, remaining investment requirements, schedule and expected funding from operating cash flow.
- Developments in the Metropolitan Mine investigation, securities settlement approval, Patriot-related liabilities, and Australian royalty or environmental rule changes.