Alpha Metallurgical Resources, Inc. quarterly report, Q2 FY2021

Alpha Metallurgical Resources, Inc. — Q2 2021 Form 10-Q

Reporting period: Three and six months ended June 30, 2021. Financial statements are unaudited; amounts below are in U.S. dollars. The company mines and sells metallurgical and thermal coal, with operations in Virginia and West Virginia. Former Northern Appalachia operations are reported as discontinued following their sale in December 2020.

Financial performance and key metrics

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Total revenue	$395.3 million	$353.9 million	$781.5 million	$756.7 million
Operating loss	$2.2 million	$67.3 million	$18.7 million	$87.0 million
Net loss	$19.0 million	$238.3 million	$51.9 million	$278.1 million
Adjusted EBITDA (non-GAAP)	$39.9 million	$7.1 million	$68.8 million	$63.6 million
Operating cash flow	Not separately stated for quarter	Not separately stated for quarter	$(25.5) million	$78.9 million

Q2 coal revenue rose 11.4% year over year, on 4.4% higher sales volume and stronger metallurgical coal pricing. Six-month coal revenue increased 3.2%; sales volume rose 3.7%.
Q2 GAAP coal margin was $10.4 million, versus a $37.3 million loss a year earlier. Non-GAAP coal margin was $55.2 million, or $13.73 per ton, compared with $25.7 million, or $6.67 per ton. These non-GAAP measures exclude specified costs and should not be viewed as substitutes for GAAP results.
For the six months, GAAP coal margin was $9.6 million versus a $24.5 million loss; non-GAAP coal margin was $100.4 million versus $101.5 million. Met segment non-GAAP realization was lower for the half-year, reflecting weak Australian-index pricing in Q1, while pricing improved in Q2.
At June 30, cash and equivalents were $72.3 million; total assets were $1.66 billion and stockholders’ equity was $162.3 million. Cash, equivalents and restricted cash totaled $168.9 million, including $96.6 million of restricted cash.
Total debt was $579.7 million, including $29.4 million current; the term loan is due June 2024 and carried a 10.00% interest rate. There were no ABL borrowings, but $128.8 million of letters of credit were outstanding. The company reported covenant compliance.
Operating cash flow was negative in the first half, principally reflecting a $66.3 million use from changes in operating assets and liabilities. Investing cash outflow was $40.8 million, including $38.0 million of capital expenditures; financing cash outflow was $9.4 million.

Material changes and unusual items

Q2 net loss improved substantially from 2020, when results included major impairments and restructuring, including $144.3 million of impairment in discontinued operations. First-half 2021 results also benefited from much lower impairment and restructuring charges.
Former NAPP operations generated only $0.4 million of discontinued-operation loss in Q2 2021, compared with $156.6 million in Q2 2020.
The company reorganized segment reporting to one reportable Met segment; prior periods were restated for comparability. It continues to reduce thermal operations and expects its remaining thermal mine to cease operation in 2022.
A pension actuarial revaluation reduced the pension liability by approximately $8.8 million, with the offset recorded in other comprehensive income. Pension funding relief reduced expected contributions; $7.7 million was expected for the remainder of 2021.
In July 2021, after quarter-end, the company repaid $21.2 million of the West Virginia allocation of its LCC note payable, in exchange for return of $14.0 million of surety collateral; $2.3 million remained on the Kentucky allocation.

Outlook, risks and contingencies

Management expected liquidity to cover working capital, planned capital expenditures, debt service and other obligations for the next 12 months, while cautioning that deterioration in markets could require additional funding. Reported June 30 liquidity was $132.3 million, including $60.0 million of ABL availability, subject to borrowing-base and covenant limits.
2021 capital expenditure guidance was $88–$98 million. As of July 26, sales commitments covered 13.5 million tons of Met coal and 1.5 million tons of thermal coal for 2021; the filing reports average realized prices for these committed tons.
Management described improving metallurgical coal markets and stronger steel activity, but highlighted uncertain pandemic effects, potential shipment deferrals or force majeure, coal-price volatility, cost inflation, transportation and operational risks, and continued long-term pressure on thermal coal.
A Department of Labor black-lung self-insurance reauthorization determination called for $65.7 million of collateral, compared with approximately $2.6 million previously provided. The company appealed; the outcome was unresolved and additional collateral or third-party insurance could materially reduce liquidity.
The company recorded a $64.2 million current federal tax receivable and $5.4 million of related interest for an NOL carryback claim. The federal government could seek to offset some or all of the refund against bankruptcy claims.
Surety-bond availability is a liquidity risk: $211.7 million of surety bonds were outstanding, with $42.2 million of collateral supporting reclamation obligations. Additional collateral demands or difficulty renewing bonds could adversely affect liquidity. Moody’s assigned Caa1 corporate-family and Caa2 senior-secured facility ratings in April 2021, with a stable outlook.

Important facts for investors to verify

Whether Q2’s market-driven margin improvement continues, particularly for export Met coal and contracts tied to Australian indices.
Actual operating cash generation and working-capital movements, given first-half operating cash outflow and declining cash balances.
The resolution and potential liquidity impact of the black-lung collateral appeal, and the company’s continuing access to surety bonds and ABL availability.
Collection and timing of the federal NOL carryback refund, including any potential government setoff.
Capital spending versus the $88–$98 million 2021 plan, debt repayment progress, and the cost and timing of the remaining thermal transition.
Comparability of Adjusted EBITDA and other non-GAAP measures with GAAP results; the filing cautions that non-GAAP definitions may not be comparable across companies.