Alpha Metallurgical Resources, Inc. — Q1 2023 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. Alpha mines and markets metallurgical and thermal coal, primarily from operations in Virginia and West Virginia. Unless noted otherwise, amounts below are in millions of dollars.
Financial performance
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Total revenue | $911.2 | $1,072.0 | -15.0% |
| Operating income | $314.5 | $453.1 | -30.6% |
| Net income | $270.8 | $400.9 | -32.5% |
| Diluted EPS | $17.01 | $20.52 | -17.1% |
| Adjusted EBITDA (non-GAAP) | $354.4 | $503.7 | -29.6% |
| Operating cash flow | $177.4 | $336.1 | -47.2% |
Coal revenue was $906.7 million, down 15.2%; total coal sales volume declined 3.3% to 3.915 million tons. Met coal represented about 90% of coal sales volume. Met segment non-GAAP realization fell 13.2% to $208.93 per ton, while its non-GAAP cost of coal sales rose 6.7% to $110.56 per ton. Consolidated GAAP coal margin was $329.9 million, versus $474.8 million a year earlier. Total costs and expenses declined 3.6%; SG&A rose 37.2% to $20.7 million. Interest expense fell to $1.7 million from $13.1 million, principally reflecting lower debt.
Capital expenditures were $74.2 million, versus $28.1 million. Cash used in investing was $27.9 million; cash used in financing was $231.5 million, including $144.9 million for repurchases and $86.0 million of dividends and dividend equivalents paid. Cash, cash equivalents and restricted cash decreased $82.0 million during the quarter.
Balance sheet and liquidity
At March 31, 2023, cash and cash equivalents were $222.5 million; total assets were $2.35 billion and stockholders’ equity was $1.55 billion. Total debt was $11.9 million. The ABL facility had no cash borrowings, with $61.9 million of letters of credit outstanding; the company reported $93.1 million of facility availability and total liquidity of $315.6 million. The company was in compliance with debt covenants and was not in a Liquidity Period.
Restricted cash, restricted investments and deposits totaled $148.8 million. Outstanding surety bonds were $166.5 million. These balances support obligations including reclamation, workers’ compensation and black lung liabilities, and are not all freely available for general use.
Changes, outlook and risks
- Lower coal realizations, following the exceptionally strong prior-year pricing environment, drove most of the decline in revenue and earnings. Management cited inflation-related labor and supply costs, partly offset by lower freight, royalties and severance taxes.
- Management reported that metallurgical coal indices softened after quarter-end; the four monitored indices were lower by April 27 than at March 31. Market risks include recessionary concerns, steel demand, China’s recovery, geopolitical developments and transport availability.
- As of April 27, 2023, 2023 commitments covered 15.5 million tons of met coal, 51% priced, at an average realized price of $203.86 per ton; thermal commitments covered 1.6 million tons, 75% priced, at $108.77 per ton. These are commitments, not full-year earnings guidance.
- Management expects 2023 capital expenditures of $250–$280 million and pension contributions of $16.4 million for the remainder of the year. It stated that cash on hand and expected operating cash flow should cover anticipated needs for the next 12 months, while noting this depends on assumptions and market conditions. No earnings or revenue guidance is provided in the filing.
- A proposed federal black lung collateral rule could require an estimated $80–$100 million of additional collateral; the company warned that a material increase could adversely affect liquidity. Its appeal of an earlier collateral determination remained unresolved.
- Customer and market concentration bear watching: exports were 75% of coal revenue; the largest customer represented 17% of total revenue and the top ten represented 78%. Surety availability or demands for additional collateral could also materially affect liquidity.
- The board increased the quarterly dividend to $0.50 per share on May 3, 2023, payable July 5, up from $0.44. The company also increased its repurchase authorization by $200 million to $1.2 billion. Q1 included the final payment on the contingent revenue obligation and $11.9 million paid for a business acquisition, which the filing describes as trucks, equipment and facilities supporting trucking services.
Key facts for investors to verify
- Whether realized coal prices and post-quarter index declines affect the remaining 2023 sales commitments and margins.
- Progress and final requirements in the DOL black lung reauthorization and collateral process.
- Cash conversion and working-capital needs, given lower operating cash flow and higher receivables and inventories.
- Capital expenditure execution, repurchases and dividends relative to available liquidity and the company’s stated cash needs.
- Customer concentration, export demand, transportation capacity and availability of surety bonds.