Alpha Metallurgical Resources, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Amounts below are in millions of U.S. dollars unless noted. Interim financial statements are unaudited.
Business context
Alpha mines and markets metallurgical and thermal coal, principally from Central Appalachia. Its strategy is focused on metallurgical coal. At quarter-end it reported 19 active mines and eight preparation and load-out facilities. Former Northern Appalachia operations are presented as discontinued operations following their sale in December 2020.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $648.8 | $335.6 | $1,430.4 | $1,092.3 |
| Operating income (loss) | $100.0 | ($48.7) | $81.3 | ($135.7) |
| Net income (loss) | $83.3 | ($68.6) | $31.3 | ($346.7) |
| Adjusted EBITDA (non-GAAP) | $148.2 | $12.4 | $217.0 | $76.0 |
| Operating cash flow | Not provided separately | Not provided separately | $70.6 | $73.0 |
Q3 diluted EPS was $4.40, versus a loss of $3.75 a year earlier; nine-month diluted EPS was $1.67, versus a loss of $18.96. Q3 coal sales were 4.7 million tons, up 19.2%; coal revenue rose 93.1%, reflecting both volume growth and higher realizations. Met-segment non-GAAP coal margin was $166.8 million, or $35.28 per ton, compared with $31.8 million, or $8.02 per ton, in Q3 2020. These non-GAAP measures are company-defined and should be considered alongside GAAP results.
For the first nine months, capital expenditures were $60.4 million; investing cash outflow was $62.3 million and financing cash outflow was $82.9 million. Cash, cash equivalents and restricted cash together declined $74.6 million. At September 30, cash and cash equivalents were $78.3 million; total reported debt was $505.2 million, compared with $582.5 million at December 31, 2020. Stockholders’ equity was $248.1 million.
Reported total liquidity was $183.3 million: $78.3 million cash and $105.0 million of unused ABL commitments, subject to borrowing-base and covenant limitations. Separately, $84.0 million was classified as long-term restricted cash. The company reported compliance with debt covenants and no ABL Liquidity Period at quarter-end.
Material changes and unusual items
- Met coal demand and pricing strengthened sharply. Q3 export coal revenue was 80% of coal revenue, compared with 61% a year earlier; exports were 71% for the nine-month period versus 64%.
- The company recorded an $18.0 million nine-month expense from marking up its acquisition-related Contingent Revenue Obligation, primarily reflecting higher forecast revenue. It also recorded a $12.7 million reduction in its deferred-tax valuation allowance.
- In August, the company received a previously recognized $64.2 million federal tax refund and $5.4 million of associated interest following completion of the IRS audit of its 2016 return and carryback claim.
- During Q3, Alpha repurchased and retired $18.7 million of term-loan principal for $18.4 million and prepaid another $31.0 million. It reported $497.2 million of long-term debt net of current portion at quarter-end, and no further scheduled term-loan amortization before maturity in June 2024.
- Net cash provided by operations was nearly unchanged year over year despite the return to profitability; working-capital changes used $100.7 million in the 2021 nine-month period.
Outlook, risks and contingencies
- Management expected materially higher average Q4 metallurgical-coal realizations on index-linked tons than the 2021 year-to-date average, while cautioning that market pricing could remain volatile.
- For 2022, Alpha expected to ship 14.5 million net tons of metallurgical coal; more than 3.5 million net tons had been contracted to North American customers at fixed prices. The majority of expected shipments were intended for export markets.
- Management forecast 2021 capital expenditures of $88 million to $98 million. It expected sufficient liquidity for the next 12 months, but warned that deteriorating markets or changed assumptions could require additional funding.
- The ABL Facility matured in April 2022. Refinancing was in process; management anticipated a new facility of approximately $150 million but gave no assurance it could be completed on time or at all. Existing ABL letters of credit were $120.0 million.
- A disputed federal black-lung self-insurance collateral determination could require $65.7 million of collateral, versus approximately $2.6 million previously provided. The company appealed; it reported no substantive appeal activity. Additional collateral or third-party insurance could materially reduce liquidity.
- Alpha had $176.9 million of outstanding surety bonds and $37.2 million of collateral supporting reclamation obligations. It warned that reduced surety availability or demands for more collateral could adversely affect liquidity. Other obligations include $14.9 million of 2022 transportation commitments and $22.6 million of coal purchase commitments for the remainder of 2021.
- Thermal operations were being wound down: Alpha said 2021 thermal production was sold out and expected the Slabcamp mine to cease operations in summer 2022. Inflation in diesel, steel, labor and other inputs, COVID-19 effects, coal-market volatility, permitting, reclamation, environmental regulation and customer contract performance remain risks.
Most important facts for investors to verify
- Whether realized coal prices and margins sustain the Q3 improvement, and how much of future sales is exposed to index pricing versus fixed-price contracts.
- Completion, size, availability and terms of the ABL refinancing before its April 2022 maturity, including capacity for letters of credit.
- Developments in the black-lung collateral appeal and any resulting cash, letter-of-credit or insurance requirements.
- Working-capital movements, cash generation, capital spending and debt-reduction progress, while distinguishing unrestricted cash from restricted collateral.
- Performance of 2022 shipment plans and the timing and costs of thermal mine closures and reclamation.
- Changes in the fair value of acquisition-related obligations and in the realizability of deferred tax assets.