Business context and reporting period
This is Contura Energy, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2020; the filing does not identify Alpha Metallurgical Resources, Inc. as the registrant. Contura produced and sold metallurgical and thermal coal from Central and Northern Appalachia. Results are compared with the first quarter of 2019. Unless otherwise stated, dollar amounts below are in millions.
Key financial results
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Total revenue | $470.5 | $609.1 |
| Coal revenue | $468.4 | $607.0 |
| Operating income (loss) | $(23.7) | $17.8 |
| Net income (loss) | $(39.8) | $6.8 |
| Diluted earnings (loss) per share | $(2.18) | $0.35 |
| Adjusted EBITDA (non-GAAP) | $60.2 | $83.4 |
| Operating cash flow | $(0.1) | $14.6 |
| Capital expenditures | $49.6 | $41.1 |
Coal sales were 5.46 million tons, down 7.3%. Coal revenue less cost of coal sales was $70.5 million, or about 15.1% of coal revenue, versus $91.3 million, or about 15.0%, in Q1 2019. This simple measure is not the company’s Adjusted EBITDA or a separately reported GAAP margin.
At March 31, 2020, cash and cash equivalents were $227.1 million; total liquidity was reported as $257.1 million, including $30.0 million of available ABL commitments subject to facility limitations. Restricted cash was $116.9 million, including $15.1 million classified as current. Long-term debt was $653.0 million, including $29.5 million current. Total liabilities were $1,638.1 million and stockholders’ equity was $653.8 million.
Cash and restricted cash decreased $3.7 million during the quarter. Investing activities used $58.8 million, primarily for capital spending; financing activities provided $55.1 million, principally from $57.5 million drawn on the ABL facility.
Changes versus the prior comparable period
- Total revenue fell 22.8%, driven mainly by weaker coal pricing and lower sales volumes. Non-GAAP realized coal price averaged $74.89 per ton, down 17.7%; CAPP-Met realization fell 26.2% to $92.80 per ton.
- Cost of coal sales declined 22.8%, but not enough to prevent an operating loss. Interest expense rose 16.2% to $17.6 million, reflecting higher debt outstanding and rates.
- Adjusted EBITDA declined 27.8%. CAPP-Met Adjusted EBITDA was $69.2 million, down 31.9%; CAPP-Thermal remained negative at $(2.2) million, while NAPP generated $4.4 million.
- Operating cash flow moved from $14.6 million provided to approximately breakeven, with working-capital changes using $87.6 million in Q1 2020.
- Q1 2020 included a $33.7 million impairment charge, primarily in CAPP-Met, and a $15.0 million noncash gain from remeasurement of acquisition-related obligations. Q1 2019 included a $9.1 million gain on an asset exchange.
Outlook, risks, contingencies and unusual items
- Management cited weak coal markets and expected COVID-19 effects to weigh more heavily on Q2 than Q1. Customer force majeure and deferral notices had been received; the timing and extent of possible shipment reductions could not be estimated clearly. The company reported no significant related shipment deferrals or cancellations at the time of the filing.
- After quarter-end, most operations were idled for about 30 days beginning April 3 in response to market conditions, inventories and customer deferrals. By May 4, sites were back to nearly normal staffing and operating capacity, with additional precautions.
- Management said cash on hand and expected operating cash flows should meet requirements for the next 12 months, but warned continued weak conditions could bring further operating losses and cash outflows and that additional financing might not be available. This outlook depends on uncertain assumptions.
- As of April 30, 2020, 2020 sales commitments covered 6.3 million tons of NAPP coal (99% priced; average $42.55/ton), 11.3 million tons of CAPP-Met (67%; $95.54/ton) and 3.8 million tons of CAPP-Thermal (98%; $55.66/ton). Customer deferrals or force majeure could reduce shipments.
- The Department of Labor’s black-lung self-insurance reauthorization was conditional on $65.7 million of collateral, versus approximately $2.6 million previously provided. Contura planned to appeal; an unsuccessful appeal could materially reduce liquidity through additional collateral or third-party insurance.
- Contura had $396.4 million of surety bonds outstanding and $82.8 million of collateral supporting reclamation obligations. It warned that reduced surety availability or additional collateral demands could adversely affect liquidity. A planned Cumberland mine impoundment was estimated to cost $61 million over approximately two years.
- Moody’s downgraded Contura’s ratings on April 13, 2020 and changed the outlook to negative. Contura was in compliance with debt covenants at March 31 and was not then in an ABL Liquidity Period.
- The company recorded a $13.2 million increase in its deferred-tax-asset valuation allowance. It reported $67.9 million of refundable AMT credits and a $64.2 million NOL carryback receivable; the government could seek to offset refunds against bankruptcy claims.
- Disclosure controls were deemed ineffective at quarter-end due to previously identified material weaknesses, including risk assessment and coal-inventory controls. Management reported remediation efforts underway; it said the weaknesses had not caused a material misstatement in the periods cited.
Important facts for investors to verify
- Confirm the issuer and applicable reporting entity: this supplied 10-Q is for Contura Energy, Inc., despite the Alpha Metallurgical Resources metadata.
- Track realized prices, shipment volumes, customer deferrals and force majeure notices, especially for metallurgical coal and Q2 effects.
- Assess liquidity after the $57.5 million ABL draw, restricted-cash requirements, debt service and potential black-lung collateral demands.
- Verify the outcome and timing of the $65.7 million black-lung collateral appeal and the collectability and timing of tax refunds.
- Monitor coal-asset impairment assumptions, the contingent-obligation fair-value adjustment, covenant headroom, surety-bond availability and remediation of internal-control weaknesses.