Warrior Met Coal, Inc. — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. This is an annual report, not a standalone quarterly filing; the filing also presents unaudited fourth-quarter results. The company is a single-reportable-segment U.S. producer and exporter of premium metallurgical coal, operating Mines No. 4 and No. 7 in Alabama. Substantially all coal revenue comes from international steelmakers.
Financial results and key metrics
| Metric | 2020 | 2019 |
|---|---|---|
| Total revenue | $782.7 million | $1,268.3 million |
| Operating income (loss) | $(27.1) million | $383.4 million |
| Net income (loss) | $(35.8) million | $301.7 million |
| Adjusted EBITDA (non-GAAP) | $108.3 million | $485.7 million |
| Operating cash flow | $112.6 million | $532.8 million |
| Coal sold / produced | 6.735 / 7.132 million metric tons | 7.240 / 7.683 million metric tons |
| Average net coal selling price | $113.12 per metric ton | $170.72 per metric ton |
| Cash cost of sales (non-GAAP) | $92.31 per metric ton | $99.15 per metric ton |
- Coal sales were $761.9 million, 97.3% of total revenue. Other revenue, principally natural gas and royalties, was $20.9 million.
- Operating margin was approximately negative 3.5% of revenue, compared with positive 30.2% in 2019. The company reported a $20.1 million income tax benefit and a 2020 loss per share of $0.70.
- Cash and cash equivalents were $211.9 million at year-end, and working capital was $297.2 million. Available liquidity was $243.5 million, including $31.6 million of ABL availability.
- Debt at year-end included $343.4 million principal of 8% senior secured notes due 2024 and $40.0 million drawn on the ABL Facility. The balance sheet also reported $38.5 million of financing lease obligations. The filing describes total indebtedness including leases as approximately $418.4 million.
- Investing cash outflow was $108.2 million; financing cash inflow was $14.1 million. Property, plant and equipment purchases were $87.5 million, with a further $27.1 million of Mine No. 4 development costs. The company paid $10.4 million in dividends.
- Fourth-quarter 2020 revenue was $212.3 million, operating loss $37.8 million, and net loss $33.7 million. Fourth-quarter 2019 revenue was $204.9 million, operating income $24.1 million, and net income $20.8 million.
Material changes versus 2019
- Revenue fell $485.6 million, primarily because the average coal selling price declined $57.60 per metric ton and sales volume decreased by about 0.5 million metric tons.
- Operating results shifted from substantial profit to loss. Although cash cost of sales per ton declined $6.84, lower coal prices more than offset the cost improvement; depreciation and depletion also rose to $118.1 million from $97.3 million.
- Operating cash flow declined by $420.2 million. Cash nevertheless increased to $211.9 million from $193.4 million, supported in part by net ABL borrowings of $40.0 million and a $24.3 million AMT credit refund.
- Debt increased following the 2020 ABL draw. In 2019, the company had retired $131.0 million principal of notes through offers and recorded a $9.8 million extinguishment loss.
Outlook, commentary, risks and unusual items
- Management withdrew its 2020 guidance because of COVID-19 uncertainty and provided no 2021 guidance. It said mines remained operating and that it was managing expenses, working capital, capital spending and liquidity conservatively.
- Blue Creek development was delayed until at least summer 2021. Management estimates $550–$600 million of investment over five years once development begins, with first development tons expected in 2023 and longwall start-up in 2025. These are plans, not assured outcomes.
- COVID-19 reduced demand and market prices and posed risks to customers, suppliers, transport and project execution. The company temporarily suspended its $70 million stock repurchase program but continued its regular $0.05 quarterly dividend; future dividends remain discretionary and subject to debt restrictions.
- The UMWA collective bargaining agreement covering about 67% of employees was due to expire March 31, 2021; management was renegotiating it. A failure to agree could disrupt production.
- Customer concentration is material: five largest customers represented approximately 64.5% of 2020 sales. The business is highly dependent on global steelmaking and met-coal prices, with operations concentrated in Alabama.
- Other significant exposures include $36.9 million of estimated black-lung liabilities, a Department of Labor request to increase related collateral to $39.8 million that the company appealed, reclamation obligations, surety-bond availability, and environmental, permitting and climate-related regulation. Asset retirement obligations were $61.9 million; the auditor identified their estimation as a critical audit matter.
- Unusual income included $3.5 million of 2020 settlement proceeds related to legacy Walter Energy claims. The company reported no material accrued environmental matters beyond reclamation obligations and management said ordinary-course legal proceedings were not expected to materially affect results.
- Management expects to use substantial net operating loss carryforwards and estimated no federal cash income taxes for six to eight years based on its forecasts. Their use depends on future taxable income and Section 382 limitations. The filing reports a $174.4 million net deferred tax asset.
Important facts for investors to verify
- Whether met-coal prices, sales volumes and cash costs recover sufficiently to restore profitability and operating cash flow.
- Current ABL borrowing-base availability, covenant headroom, liquidity needs and capacity to service secured debt and leases.
- Blue Creek’s updated schedule, funding plan, permitting status, expected capital cost and projected returns.
- Outcome of UMWA negotiations and any resulting labor-cost or operating changes.
- Customer renewals, payment quality and concentration, plus the company’s exposure to rail, port and throughput commitments.
- Outcome of the black-lung collateral appeal and changes in reclamation estimates, surety requirements or regulatory obligations.
- Whether tax forecasts support realization of deferred tax assets and continued use of NOLs, including any ownership-change effects.