Suncoke Energy, Inc. — FY 2022 Form 10-K
Reporting period: Year ended December 31, 2022; filed February 24, 2023. SunCoke produces coke for steelmaking and operates bulk-material logistics terminals. It reports Domestic Coke, Brazil Coke and Logistics segments. Figures below are U.S. dollars unless stated otherwise.
Financial performance and position
| Metric | FY 2022 | FY 2021 |
|---|---|---|
| Revenue | $1,972.5 million | $1,456.0 million |
| Operating income | $153.7 million | $141.5 million |
| Net income | $104.9 million | $48.8 million |
| Net income attributable to SunCoke | $100.7 million; $1.20 diluted EPS | $43.4 million; $0.52 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $297.7 million | $275.4 million |
| Cash from operating activities | $208.9 million | $233.1 million |
| Capital expenditures | $75.5 million | $98.6 million |
- Operating margin was approximately 7.8% and net margin approximately 5.3%, based on reported revenue and income. Adjusted EBITDA margin was approximately 15.1%.
- Revenue increased $516.5 million, primarily from higher coal-price pass-through in Domestic Coke; those pass-throughs raised both revenue and cost of sales. Operating income rose $12.2 million. Net income increased in part because 2021 included a $31.9 million debt-extinguishment loss.
- Operating cash flow fell $24.2 million, mainly due to working-capital changes associated with higher coal prices. Cash and cash equivalents were $90.0 million at year-end, versus $63.8 million in 2021.
- At year-end, total borrowings were $543.8 million, comprising $500 million of 4.875% senior notes due 2029, $35 million drawn on a $350 million revolving facility due 2026, and an $8.8 million financing obligation. Debt and financing obligations net of issuance costs were $532.2 million. Management reported approximately $83 million of debt reduction during 2022.
- Current assets were $374.0 million and current liabilities $224.0 million. Revolver availability was $315 million; the company reported compliance with debt covenants. Total liabilities were $1,031.9 million and total equity $622.7 million.
Segments and changes versus prior year
- Domestic Coke: Adjusted EBITDA rose to $263.4 million from $243.4 million. Export coke pricing and favorable coal-to-coke yield gains supported results; higher maintenance and fuel costs were a partial offset. Production declined to 4.023 million tons from 4.162 million, while sales declined to 4.031 million tons from 4.183 million. Adjusted EBITDA per ton increased to $65.34 from $58.19.
- Logistics: Adjusted EBITDA increased to $49.7 million from $43.5 million. Tons handled rose to 22.291 million from 19.933 million, with higher volumes and favorable pricing/mix contributing; operating and maintenance costs partly offset gains.
- Brazil Coke: Adjusted EBITDA decreased to $14.5 million from $17.2 million, as lower production and the absence of prior-year production bonuses outweighed higher reimbursable costs and favorable currency translation. Production was 1.585 million tons versus 1.685 million.
- Interest expense declined to $32.0 million from $42.5 million, reflecting the 2021 refinancing from 7.5% notes to 4.875% notes and lower average debt. The 2022 effective tax rate was 13.8%, versus 27.2% in 2021, with tax benefits from foreign-tax-credit regulations, research credits and lower apportioned state rates.
Outlook, management commentary and risks
- Management described 2022 as a strong year, with record Adjusted EBITDA, and said current resources should meet working-capital needs for at least the next 12 months and thereafter for the foreseeable future. The filing provides no specific 2023 earnings or revenue guidance.
- On June 28, 2022, SunCoke signed a non-binding letter of intent with U.S. Steel concerning acquisition of two Granite City blast furnaces and development of a 2-million-ton-per-year granulated pig iron facility, with U.S. Steel as buyer for an initial 10-year term. The proposal was not a definitive completed transaction; SunCoke incurred $1.5 million of related transaction costs in 2022.
- Quarterly dividends increased from $0.06 per share in the first half of 2022 to $0.08 in the second half. The board declared another $0.08 dividend payable March 1, 2023; future dividends remain discretionary and subject to financial conditions and debt covenants.
- Key exposures include dependence on a small number of steel customers (Cliffs Steel represented 60.0% of revenue and U.S. Steel 14.4% in 2022), steel-industry cyclicality, coke demand and alternative steelmaking technologies, export-market volatility, coal supply and transportation, aging equipment, inflation, and extensive environmental regulation.
- Legacy black lung liabilities were $58.1 million at year-end, with 332 active claims. The Department of Labor had sought additional collateral, and a proposed rule issued in January 2023 could require collateral equal to 120% of expected lifetime obligations if finalized; management said this could reduce liquidity. The company’s appeal of an earlier collateral determination was unresolved in the supplied filing text.
- Environmental and regulatory uncertainties include potential changes to coke-plant emissions standards and review of controls at the Jewell facility. Management said the outcome and cost impact were not yet clear. Certain legal claims were pending or threatened; management did not expect them to have a material adverse impact, while acknowledging outcomes could not be ascertained.
- The independent auditor gave an unqualified opinion on the financial statements and concluded internal control over financial reporting was effective. The estimated black lung benefit liability was identified as a critical audit matter because of subjective actuarial assumptions.
Most important facts for investors to verify
- Whether the increase in earnings and EBITDA is sustained by underlying pricing, yields and operating performance, rather than largely by coal-price pass-through and favorable export-market conditions.
- Renewal and performance of major customer contracts, particularly the Indiana Harbor contract expiring October 2023, Granite City contract expiring December 2024, and Haverhill II contract expiring June 2025.
- Status, financing, permitting, economics and definitive agreements for the proposed granulated pig iron project.
- Outcome of the black lung collateral appeal and proposed Department of Labor rule, including any effect on available liquidity.
- Actual maintenance, environmental-compliance and capital needs, and whether cash generation supports debt reduction and dividends.
- Exposure to customer concentration, coke-demand shifts, logistics coal volumes, and changes in export coke and coal markets.