Peabody Energy Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. Peabody is a coal producer operating in the U.S. and Australia, with five reportable segments. Financial amounts are in U.S. dollars.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Revenue | $651.3 million | $846.2 million |
| Operating loss | $40.8 million | $93.5 million |
| Loss from continuing operations, net of tax | $77.7 million | $129.3 million |
| Net loss attributable to common stockholders | $80.1 million; $0.81 per diluted share | $129.7 million; $1.33 per diluted share |
| Adjusted EBITDA | $61.1 million | $36.8 million |
| Operating cash flow | $71.0 million | $(4.7) million |
| Free cash flow | $(22.2) million | $(41.8) million |
| Cash and cash equivalents | $580.2 million | $709.2 million at Dec. 31, 2020 |
| Available liquidity | $603.8 million | $728.7 million at Dec. 31, 2020 |
| Total debt at par | $1,538.2 million | $1,591.3 million at Dec. 31, 2020 |
Revenue fell 23%, primarily due to lower sales volumes and realized prices. Total tons sold declined 15% to 30.2 million. Lower operating costs, production efficiencies and reduced depreciation helped narrow the continuing-operations loss; higher interest expense partly offset that improvement. Adjusted EBITDA is a non-GAAP measure.
Investing cash outflow was $93.2 million, including $50.3 million of property and mine-development additions and $136.1 million of joint-venture contributions, partly offset by $102.4 million of distributions. Financing cash outflow was $63.3 million, including debt repayments and $22.5 million of financing costs. Cash, cash equivalents and restricted cash ended the quarter at $623.7 million.
At March 31, current assets were $1,272.1 million and current liabilities were $791.0 million. The balance sheet reported total liabilities of $3,594.8 million and stockholders’ equity of $891.5 million. Asset retirement obligations were $735.9 million.
Material changes versus the prior comparable period
- Revenue decreased by $194.9 million, while net loss attributable to common stockholders improved by $49.6 million and Adjusted EBITDA increased by $24.3 million.
- Seaborne metallurgical revenue fell 55% to $87.5 million, reflecting lower volumes and mix, including the idling of Shoal Creek and Metropolitan and the closure of Millennium. Seaborne thermal, Powder River Basin and Other U.S. Thermal revenue also declined.
- Segment Adjusted EBITDA improved in the Powder River Basin and Corporate and Other, but declined in Seaborne Thermal and Other U.S. Thermal. Seaborne Metallurgical remained loss-making at $(22.4) million.
- Interest expense increased to $52.4 million from $33.1 million, mainly due to the first-quarter refinancing and related fees. Depreciation, depletion and amortization decreased to $68.3 million from $106.0 million.
- Available liquidity declined by $124.9 million from year-end. Restricted cash was $43.5 million at quarter-end.
Debt, liquidity and capital allocation
In January 2021, Peabody completed refinancing transactions that exchanged approximately $398.7 million of 2022 notes for new debt due in 2024 and restructured its revolving facilities. New debt included 10.0% Co-Issuer Notes and 10.0% Co-Issuer Term Loans; Peabody Notes carry an 8.5% rate, comprising 6.0% cash interest and 2.5% paid in kind. The company also established a $324 million letter-of-credit facility. The refinancing extended maturities and provided covenant relief, but increased financing costs. Management expected approximately $200 million of interest expense in 2021, including about $50 million non-cash.
The company reported compliance with debt covenants at March 31, 2021. Its letter-of-credit facility requires restricted subsidiaries to maintain at least $125 million of aggregate quarter-end liquidity; the filing reports $475.3 million under that calculation. Dividends and share repurchases are suspended, and the surety agreement generally prohibits them through December 31, 2024. The receivables securitization program had no borrowings, but $120.8 million of letters of credit outstanding and only $0.8 million of availability.
Outlook, commentary and risks
- Peabody targeted 2021 capital expenditures of approximately $225 million, including approximately $135 million for ongoing extension projects. The filing does not provide a numerical earnings or revenue forecast.
- Management described stronger U.S. thermal coal demand in the quarter, supported by cold weather, higher natural-gas prices and lower utility stockpiles. Seaborne thermal prices were supported by tight supply and low inventories. Seaborne metallurgical coal remained under pressure, including from the unofficial Chinese ban on Australian coal and COVID-19 concerns in India.
- Shoal Creek remained idled; a preparation-plant upgrade was anticipated to be commissioned by mid-Q3 2021, and restart depended on project progress and stable demand. Its labor contract expired April 1, with negotiations ongoing. Metropolitan’s workforce returned in early May; longwall production was anticipated to restart in Q2 and ramp up in Q3.
- Management identified approximately $1.2 billion of assets particularly sensitive to coal prices, costs, demand, customer concentration and economic viability. It reported no impairment was required at March 31, 2021.
- Principal risks include coal-price and demand volatility, mine safety and operating risks, labor relations, reclamation and surety collateral needs, regulation and climate-related changes in coal demand or financing availability, and COVID-19 uncertainty. The filing reports $1,570.8 million of surety bonds and $423.4 million of letters of credit.
- Peabody disclosed a securities class action and two related derivative actions concerning alleged statements about North Goonyella Mine safety and the mine’s potential restart; the company said it believes the claims lack merit and intends to defend them. It also recorded $89.8 million for certain Patriot-related black-lung liabilities, while potential obligations for active workers could not be reliably estimated.
Important facts for investors to verify
- Whether coal prices, realized contract prices and sales volumes recover, especially in seaborne metallurgical markets and at idled mines.
- How the refinancing’s higher cash and payment-in-kind interest affects 2021 cash needs, and whether restricted-subsidiary liquidity remains comfortably above its covenant minimum.
- Whether collateral requirements, reclamation assurances and surety arrangements constrain usable liquidity beyond reported cash and availability.
- Progress on Shoal Creek and Metropolitan restart plans, including labor discussions, customer demand and the stated production timelines.
- Developments in the North Goonyella litigation and Patriot-related liabilities, as well as the company’s reassessment of impairment-sensitive assets.