Alpha Metallurgical Resources, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Amounts below are in U.S. dollars. Alpha is a U.S. coal producer focused on metallurgical coal, with operations in Virginia and West Virginia. The former Northern Appalachia operations are reported as discontinued operations.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / prior date |
|---|---|---|
| Total revenue | $1,072.0 million | $386.3 million; up 177.5% |
| Operating income (loss) | $453.1 million | $(16.5) million |
| Net income (loss) | $400.9 million | $(32.9) million |
| Diluted EPS | $20.52 | $(1.79) |
| Operating cash flow | $336.1 million | $(19.1) million |
| Capital expenditures | $28.1 million | $20.4 million |
| Cash and cash equivalents | $159.5 million | $81.2 million at Dec. 31, 2021 |
| Total debt, before debt discounts and issuance costs | $254.5 million | $454.7 million at Dec. 31, 2021 |
| Stockholders’ equity | $929.8 million | $546.9 million at Dec. 31, 2021 |
Coal revenue rose primarily on stronger met coal pricing; total tons sold were nearly flat at 4.048 million, down 0.4%. Export coal represented 84% of coal revenue, versus 63% a year earlier. Net income included a $9.4 million non-cash mark-to-market loss on acquisition-related obligations and $39.6 million of income tax expense. The company reported a 42.3% operating margin and 37.4% net margin, calculated as the respective income measure divided by total revenue. Adjusted EBITDA, a non-GAAP measure, was $503.8 million versus $28.9 million.
Coal margin improved substantially: GAAP coal margin was $474.9 million versus a loss of $0.8 million; non-GAAP coal margin was $520.7 million versus $45.2 million. Met-segment non-GAAP realization rose to $240.82 per ton from $82.00, while non-GAAP cost rose to $103.61 from $71.72 per ton.
Cash, cash equivalents and restricted cash totaled $295.5 million at quarter-end, including $136.0 million of restricted cash. Reported total liquidity was $193.4 million, consisting of $159.5 million cash and $34.0 million of ABL availability. Operating cash flow was partly offset by a $124.2 million use of cash from changes in operating assets and liabilities, primarily working capital. Investing activities used $3.6 million; financing activities used $219.7 million, including $200.5 million of debt principal repayments and share repurchases.
Material changes and capital allocation
- Revenue and earnings turned sharply higher year over year as met coal prices surged; the company attributed the market strength to supply tightness, demand and geopolitical disruption.
- Cost of coal sales increased 59.8%, reflecting higher freight, royalties and taxes, supplies and maintenance, and wages. Cost inflation could weigh on margins if not offset by realized prices.
- Alpha prepaid $200 million of term-loan principal in Q1; a further $150 million prepayment occurred in Q2. The term loan carried a 10% rate at March 31 and matures in June 2024. No further scheduled term-loan amortization was then required before maturity.
- The board announced after quarter-end that it increased the share repurchase authorization from $150 million to $600 million. By March 31, 133,501 shares had been repurchased under the new program for approximately $16.5 million.
- Also after quarter-end, the board adopted a dividend policy targeting $1.50 per share annually, paid quarterly, with the first $0.375-per-share dividend scheduled for July 1, 2022. Future dividends remain discretionary.
Outlook, commentary and risks
Management expected 2022 capital expenditures of $160 million to $190 million and said cash on hand and operating cash generation should cover working capital, capital spending, debt service and other obligations for the next 12 months and the reasonably foreseeable future. It planned to continue deleveraging, subject to market strength and available liquidity. As of April 20, 2022, sales commitments for 2022 included 14.5 million met tons, 53% priced, at an average realized price of $243.88 per ton, and 1.0 million thermal tons, 96% priced, at $53.26 per ton.
- Met coal indices rose sharply during Q1, with substantial volatility following Russia’s invasion of Ukraine. Management said it did not foresee direct material adverse effects from the conflict and related sanctions, but cautioned that market uncertainty remained.
- Management identified COVID-related absences and supply-chain disruption, inflation, fuel and input costs, labor and transportation availability, coal demand and pricing, permitting, environmental regulation, and mining hazards as risks.
- The Department of Labor’s black-lung self-insurance reauthorization process remained unresolved. The proposed collateral requirement was $65.7 million, compared with approximately $2.6 million previously provided. Alpha appealed and said it was willing to allocate an additional $10 million; an unfavorable outcome could require more collateral or third-party insurance and reduce liquidity.
- Letters of credit outstanding were $121.1 million and surety bonds totaled $174.2 million. Management warned that reduced surety-bond availability or higher collateral requirements could materially affect liquidity.
- Other commitments included an estimated $71.2 million of minimum coal purchases for the remainder of 2022. The company also had $61.9 million of remaining 2022 purchases and sales under Cumberland back-to-back agreements.
- One customer accounted for 29% of Q1 total revenue; the top ten accounted for 73%, creating customer concentration exposure. Management reported compliance with debt covenants at March 31.
Key facts for investors to verify
- Whether the elevated met coal pricing and realized margins persist, and how much of future sales remain unpriced.
- Cash generation and working-capital requirements, distinguishing unrestricted cash from restricted collateral.
- Debt reduction progress, interest costs, and available borrowing capacity after letters of credit and borrowing-base limits.
- The outcome and collateral consequences of the black-lung self-insurance appeal and the continuing availability of surety bonds.
- Execution and funding of repurchases, dividends and planned capital expenditures if coal markets or cash flows weaken.
- Exposure to major customers, export markets, input-cost inflation, and the contractual coal purchase and back-to-back obligations.