Warrior Met Coal, Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; comparisons are to the corresponding 2020 periods. Warrior mines and exports non-thermal metallurgical coal for steelmakers. Financial statements are unaudited.
Financial and operating results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $227.4 million | $163.7 million | $441.2 million | $390.4 million |
| Operating income (loss) | $(2.8) million | $(5.3) million | $8.2 million | $25.2 million |
| Net income (loss) | $(4.7) million | $(9.2) million | $(26.0) million | $12.4 million |
| Diluted EPS | $(0.09) | $(0.18) | $(0.51) | $0.24 |
| Segment Adjusted EBITDA (non-GAAP) | $72.0 million | $28.3 million | $124.6 million | $98.1 million |
| Adjusted EBITDA (non-GAAP) | $65.2 million | $20.3 million | $111.9 million | $82.3 million |
Q2 coal sales were $224.8 million, up $65.8 million year over year, reflecting 24% higher sales volume and a higher average selling price. Tons sold were 1.653 million versus 1.335 million; tons produced fell to 1.084 million from 1.920 million. Average selling price was $135.97 per ton versus $119.15, and cash cost of sales was $91.82 per ton versus $97.35. Q2 operating margin was approximately negative 1.2% of revenue and net margin approximately negative 2.1%.
For the first half, revenue rose 13%, but operating income declined and the company moved from net income to a net loss. Sales volume increased to 3.424 million tons from 2.981 million, while average selling price decreased to $126.09 from $127.62; production declined to 3.054 million from 3.824 million. Cash cost of sales per ton improved to $89.16 from $94.16.
Cash flow, liquidity and debt
- Six-month operating cash flow was $113.9 million, compared with $53.0 million in 2020. Investing cash outflow was $36.9 million versus $51.3 million; financing cash outflow was $22.0 million versus $25.5 million of inflow. Cash increased by $55.0 million to $266.9 million.
- At June 30, cash and cash equivalents were $266.9 million, short-term investments were $8.5 million, and ABL availability was $21.0 million. Management reported total liquidity of $287.9 million.
- Debt carrying value was $380.3 million: $343.4 million of 8% senior secured notes due 2024 and $40.0 million drawn under the ABL Facility due 2023, net of debt discount. Finance lease liabilities were $64.1 million. The company reported compliance with applicable ABL covenants.
- Six-month capital expenditures were $23.7 million, with an additional $13.5 million of deferred mine development costs. The regular dividend was $0.05 per share per quarter; $5.2 million was paid during the half.
Material developments, outlook and risks
- The UMWA collective bargaining agreement expired April 1, 2021, and the union strike was ongoing. Mine No. 4 was idled and Mine No. 7 operated at reduced levels. Q2 included $10.9 million of idle-mine costs and $7.0 million of strike-related business interruption costs.
- Management said existing coal inventory of approximately 456,000 metric tons and expected production were intended to support anticipated 2021 customer commitments of 4.4–5.0 million metric tons. Production, shipping and quarterly results remained uncertain.
- No full-year 2021 guidance was provided, citing uncertainty from the strike, COVID-19 and the Chinese ban on Australian coal. Management said it was managing costs, working capital, capital spending and liquidity conservatively.
- Most of the first-year $25 million Blue Creek development budget was delayed; spending was minimal in 2021. The stock repurchase program remained temporarily suspended. The board declared a further $0.05-per-share dividend on July 30, payable August 16, 2021; future dividends remain discretionary.
- A $47.8 million non-cash valuation allowance against Alabama deferred tax assets contributed to first-half income tax expense of $17.0 million. The company also recorded a $22.9 million non-cash tax benefit from remeasurement following Alabama’s repeal of its throwback rule. Q2 tax benefit was $6.6 million.
- XCoal accounted for 63.1% of Q2 sales, creating customer concentration to monitor. Natural-gas swaps generated a $3.3 million Q2 fair-value loss and a $2.5 million liability at quarter-end.
- Other risks include met-coal and steel-market volatility, customer and transport conditions, labor availability, mining and permitting risks, reclamation obligations, and substantial debt service. Management reported no material changes to the risk factors in its 2020 Form 10-K and no material environmental or litigation accruals apart from asset retirement obligations.
Important facts for investors to verify
- Progress and potential duration of UMWA negotiations, strike-related production limits, and the company’s ability to meet customer commitments.
- Whether higher sales prices and volumes persist, and how inventory drawdown, production and unit costs develop.
- Liquidity and covenant headroom, including ABL availability, debt service, lease commitments and the sustainability of dividends.
- Timing, funding and expected returns for Blue Creek development, and conditions for restarting share repurchases.
- Use and realizability of deferred tax assets, and the effects of customer concentration and natural-gas hedging.