Peabody Energy Corporation (NYSE: BTU) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 5, 2022. Peabody operates coal mines in the U.S. and Australia and reports seaborne thermal, seaborne metallurgical, Powder River Basin, other U.S. thermal, and Corporate and Other segments.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Revenue | $691.4 million | $651.3 million |
| Operating loss | $70.6 million | $40.8 million |
| Net loss attributable to common stockholders | $119.5 million | $80.1 million |
| Diluted loss per share | $0.88 | $0.81 |
| Adjusted EBITDA (non-GAAP) | $327.5 million | $61.1 million |
| Operating cash flow | $(273.7) million | $71.0 million |
| Free cash flow (non-GAAP) | $(238.5) million | $(22.2) million |
- Revenue quality: Reported revenue included $290.2 million of net unrealized mark-to-market losses on derivatives related to forecast sales and trading. Revenue from delivered coal was approximately $1.039 billion, versus $656 million a year earlier; this measure excludes derivative results and certain other revenue.
- Segment EBITDA: Seaborne metallurgical $181.0 million (prior-year loss of $22.4 million); seaborne thermal $90.5 million; other U.S. thermal $50.0 million; Powder River Basin $7.6 million. Corporate and Other was a $1.6 million loss.
- Margins and costs: Adjusted EBITDA margin per ton rose to $145.56 for seaborne metallurgical and $24.09 for seaborne thermal, while Powder River Basin fell to $0.37. Costs per ton rose across all four mining segments, with inflation and higher materials, services, repairs and labor cited as pressures.
- Balance sheet: March 31 cash and cash equivalents were $823.3 million, plus $24.7 million restricted cash. Total available liquidity was $841.5 million, down from $995.9 million at year-end. Total funded debt at par was $1.130 billion; net carrying amount was $1.098 billion. Current and long-term debt carrying amounts were $19.1 million and $1.079 billion, respectively.
- Cash movements: Operating cash use reflected $351.6 million of additional cash posted to meet derivative margin requirements. Investing activities provided $35.2 million and financing activities provided $132.2 million. Cash, cash equivalents and restricted cash ended at $848.0 million.
Material changes and notable items
- Coal pricing drove strong improvement in mining-segment EBITDA, particularly metallurgical coal. Total tons sold were essentially flat at 29.9 million versus 30.2 million.
- Higher operating costs, inflation, operational constraints and a $27.0 million year-over-year unfavorable change in early debt-extinguishment results contributed to the larger GAAP loss. Interest expense declined $13.0 million to $39.4 million.
- In March, Peabody issued $320 million of 3.25% convertible senior notes due 2028, using proceeds and cash to redeem nearer-term notes, including the remaining 2024 Peabody Notes and approximately $257.4 million of 2025 Notes. The company recorded a $23.0 million loss on early extinguishment associated with the redemptions.
- The company issued 10.1 million shares under a new at-the-market program for $222.0 million net proceeds. It also borrowed and repaid $225 million under a new $150 million revolving facility during the quarter; that facility had no outstanding borrowing or availability at quarter-end.
- Fair-value accounting for derivatives materially affected earnings: the company reported a $301.0 million unrealized loss on forecast-sales derivatives. Management’s Adjusted EBITDA adds back these losses and is a non-GAAP measure, not a substitute for GAAP results.
Outlook, commentary and risks
- The filing gives no specific full-year earnings or production guidance. It reports approximately $5.1 billion of expected revenue on customer contracts with fixed or reasonably estimable volumes and prices; about 48% was expected to be recognized over the next 12 months. This estimate excludes contracts with prices that cannot be reasonably estimated and remains subject to contract provisions and other uncertainties.
- Management described seaborne markets as volatile, with tight supply and elevated prices amid Russia’s invasion of Ukraine, sanctions and trade-flow changes. It said unpriced export volumes could benefit if prevailing prices persisted, while noting energy shortages could also weigh on industrial activity.
- Derivative margin calls pose a significant liquidity risk. At March 31, posted margin was $481.7 million, and the filing estimates a $100-per-ton change in the Newcastle forward curve could change variation-margin requirements by about $134 million. After quarter-end, Peabody converted 0.8 million tonnes of financial hedges into fixed-price physical sales; margin posted was $535.9 million on April 29.
- Other risks include inflation and execution constraints, coal-price and customer-demand volatility, mine safety and operational risks, reclamation and bonding requirements, climate and environmental regulation, and litigation. A securities class action related to North Goonyella allegations remained pending in part after the court’s March 2022 ruling; related derivative actions remained stayed. The company said it intended to defend the cases.
- At March 31, the company reported compliance with debt covenants. It had $1.485 billion of surety bonds and $469.1 million of letters of credit outstanding; these support reclamation and other obligations and can require additional collateral. Dividends and share repurchases remained suspended under restrictions.
Key facts for investors to verify
- How much of reported results and liquidity changes reflect coal prices and derivative fair-value/margin movements, rather than delivered-coal economics.
- Whether cash generation and available liquidity remain adequate as margin requirements, operating costs and collateral demands fluctuate.
- Realized prices, production volumes and cost trends by segment, especially the low Powder River Basin margin and operational constraints at Wambo.
- The terms, dilution potential and repayment profile of the 2028 convertible notes, alongside remaining debt maturities and covenant restrictions.
- Developments in North Goonyella-related litigation, reclamation obligations, regulatory requirements and the company’s ability to maintain required financial assurances.