Sales Performance - For the year ended December 31, 2022, coal sales increased by $1,516.6 million or 68.7% compared to 2021, with tons sold rising by 5.3 million tons or 7.2%[371] - Metallurgical operations coal sales rose by $1,008.6 million primarily due to higher realized pricing, while thermal segment coal sales increased by $509.4 million for the same reason[371] - The company reported consolidated revenues of $3.724 billion for the year ended December 31, 2022, with metallurgical revenues at $2.158 billion and thermal revenues at $1.567 billion[394] - For thermal coal, tons sold increased to 70.442 million in 2022 from 65.280 million in 2021, a variance of 5.162 million tons[386] - Coal sales per ton sold for metallurgical coal rose to $223.91 in 2022, an increase of $97.47 compared to $126.44 in 2021[386] Financial Performance - In the year ended December 31, 2022, the company reported a net loss of $14.4 million due to early retirement of debt, which included repayment of $273.8 million of its Term Loan and repurchases of approximately $142.1 million of Convertible Notes[382] - For the year ended December 31, 2022, net income was $1,330,914, a significant increase from $337,573 in 2021[400] - Adjusted EBITDA for coal operations reached $1,375,816, up from $618,539 in the previous year, indicating strong operational performance[400] - The provision for income taxes in 2022 was a benefit of $251.9 million, compared to a provision of $1.9 million in 2021, resulting in a net income increase of $253.8 million[382] Cost and Expenses - The cost of sales for 2022 increased by $759.0 million or 48.0% compared to 2021, driven by higher sales volumes and prices, as well as general inflationary pressures[375] - The cash cost per ton sold for thermal coal was $14.57 in 2022, up from $11.35 in 2021, reflecting an increase of $3.22[386] - The company achieved a cash margin per ton sold of $130.30 for metallurgical coal in 2022, an increase of $72.70 from $57.60 in 2021[386] Debt and Liquidity - Total debt was reduced by approximately 71% during 2022, with $273.8 million repaid from the Term Loan and $142.1 million in Convertible Notes repurchased[404] - The company ended 2022 with cash, equivalents, and short-term investments of $273.1 million, resulting in total liquidity of $400.8 million[404] - The company plans to maintain minimum liquidity levels of approximately $250 million to $300 million, primarily held in cash[404] - The amendment of the trade accounts receivable securitization facility increased borrowing capacity from $110 million to $150 million, maturing on August 1, 2025[413] Operational Developments - The company expects the addition of the second longwall operation at Leer South to significantly increase future volumes and improve cost structure relative to peers[388] - The company is pursuing strategic alternatives for its thermal assets, including potential divestiture, while shrinking its operational footprint[367] - The company anticipates purchasing approximately 40 to 45 million gallons of diesel fuel for operations in 2023, with 15 million gallons protected by heating oil call options at an average strike price of $4.07 per gallon[451] Asset Retirement and Pension Plans - The company completed approximately $7.2 million of Asset Retirement Obligation (ARO) work at thermal operations in 2022, down from $33.5 million in 2021[367] - As of December 31, 2022, the asset retirement obligation liabilities were $244.4 million, with an estimated aggregate uninflated and undiscounted cost of final mine closures of approximately $389.8 million[438] - The company has non-contributory defined benefit pension plans covering certain salaried and hourly employees, with benefits based on years of service and compensation[440] - The expected long-term rate of return on plan assets is established at the beginning of each fiscal year based on historical and projected returns, targeting 15% equity and 85% fixed income securities[441] Market Conditions - The company expects coking coal prices to remain volatile due to reduced demand for finished steel products and potential further reductions[365] - Domestic thermal coal consumption was supported by high natural gas prices, but shipment volumes were negatively impacted by rail service constraints in the second half of 2022[366] - The company anticipates that coal generator stockpiles are likely below desired levels at many U.S. power stations, despite recent declines in natural gas prices[366] Shareholder Returns - A variable rate dividend of $3.11 per share was declared for stockholders, with approximately $456.4 million paid in dividends during 2022[405] - The company repurchased 1,118,457 shares for approximately $158.8 million in 2022, totaling 11,206,835 shares repurchased since the program's inception[409]

Arch Resources, Inc. (NYSE:ARCH) Q3 2022 Earnings Conference Call October 26, 2022 10:00 AM ET Company Participants Deck Slone - SVP, Strategy Paul Lang - CEO John Drexler - COO Matt Giljum - CFO Conference Call Participants Dave Gagliano - BMO Capital Markets Lucas Pipes - B. Riley Nathan Martin - The Benchmark Company Alex Hacking - Citi Michael Dudas - Vertical Research Operator Good morning, and thank you for standing by. Welcome to the Arch Resources Third Quarter 2022 Earnings Conference Call. At this ...

Financial Data and Key Metrics Changes - Arch Resources reported record earnings for the third consecutive quarter in Q2 2022, with significant cash generation capabilities [7][10] - Cash from operating activities totaled $268 million, despite a $124 million increase in working capital and a $60 million contribution to the thermal reclamation fund [31] - The company reduced total indebtedness by $136 million or 42%, ending the quarter with a net debt positive cash position of approximately $95 million [10][33] Business Line Data and Key Metrics Changes - The metallurgical segment faced challenges due to poor rail service and localized geological issues, which impacted sales volumes and increased operating costs [8][22] - The thermal segment generated around $93 million in EBITDA while expending just $4.6 million in capital expenditures, resulting in a significant cash generation ratio [25] - The company built inventory levels, ending the quarter with approximately 1.1 million tons of coking coal on the ground [21] Market Data and Key Metrics Changes - Coking coal prices have softened, with High-Vol coal assessed at $249 per metric ton, down from $480 per metric ton in April [14] - Year-to-date hot metal production is down about 5.5%, affecting seaborne coking coal demand and pressuring prices [15] - International thermal coal markets are strong, with prices around $415 per metric ton for Australian thermal coal, supporting coking coal prices [17] Company Strategy and Development Direction - The company aims to fortify its financial position while returning excess cash to shareholders through a capital return program [11] - Arch Resources is exploring opportunities to ship uncommitted coking coal volumes into thermal markets due to favorable pricing [17][28] - The company plans to maintain a minimum liquidity level of approximately $250 million to $300 million while executing its capital return program [34] Management's Comments on Operating Environment and Future Outlook - Management expressed frustration over ongoing rail service issues but remains hopeful for improvements as the year progresses [8][40] - The company anticipates significant improvements in productivity at the Leer South mine by late August [9][23] - Despite recent price pullbacks, management sees a constructive and profitable coking coal market in the long term [18] Other Important Information - The company declared a quarterly dividend of $190 million or $6 per share, payable in September [11][32] - Arch Resources has increased its buyback authorization to $500 million as part of its capital return strategy [12][34] - The company expects to maintain a strong cash generation capability from its core coking and thermal portfolios [30] Q&A Session Summary Question: What is the expected cadence of met coal shipments for the remainder of the year? - Management expects modest improvements in Q3, projecting around 2.3 million tons for the quarter, with a target of 2.6 million tons for Q4 [40][41] Question: What are the opportunities for switching met coal into the thermal market? - Management sees significant opportunities to switch met coal into thermal markets due to current pricing dynamics, while still prioritizing metallurgical customers [48][49] Question: What are the other uses being considered for the remaining 50% of discretionary cash flow? - Other uses include addressing dilutive securities and capital preservation, alongside potential buybacks [57][58] Question: What gives confidence that sandstone issues at Leer South will improve after August? - Management indicated that geological mapping suggests reduced sandstone issues in future panels, with favorable cutting conditions reported by continuous miners [63][64] Question: What is the expected cash cost for the metallurgical segment in Q3? - The expected midpoint cash cost is $89, with challenges anticipated but improvements expected in Q4 [66] Question: What is the pricing expectation for thermal coal volumes in 2023? - Management indicated that pricing for 2023 is expected to be above long-term historical averages, with a solid book of business being built [71][72]

Financial Data and Key Metrics Changes - Arch Resources reported record earnings for the second consecutive quarter, with significant progress against strategic priorities despite rail-related challenges [6][7] - Operating cash flows reached $293 million, nearly double the previous quarter, with discretionary cash flow exceeding $270 million [27][30] - The company reduced total debt to $323 million, achieving a net debt neutral position with total liquidity at $386 million [28][30] Business Line Data and Key Metrics Changes - The metallurgical segment achieved a record gross margin, despite a nearly 25% decline in coking coal shipments quarter-over-quarter [7][17] - The thermal segment generated over $100 million in EBITDA while maintaining low capital expenditures, contributing significantly to cash flow [21][27] Market Data and Key Metrics Changes - Coking coal prices reached $470 per metric ton on the US East Coast, with Arch capturing an average price of nearly $270 per ton [10][22] - Thermal coal prices are currently around $300 per metric ton, supporting the coking coal market due to demand crossover [13][22] Company Strategy and Development Direction - Arch has relaunched its capital return program, committing to return nearly 100% of discretionary cash flow to shareholders, with a dividend of $8.11 per share announced for the second quarter [8][30] - The company is focused on maintaining a strong metallurgical asset base while responsibly winding down its legacy thermal segment [9][15] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the coking coal market's fundamentals, despite current geopolitical disruptions and supply constraints [11][12] - The company anticipates a significant increase in financial results in Q2, driven by higher pricing and expected improvements in rail service [14][32] Other Important Information - Arch has established a thermal mine reclamation fund, reaching $100 million, which is expected to match the asset retirement obligation liability [29] - The company received multiple awards for safety and environmental stewardship, reinforcing its commitment to ESG standards [25] Q&A Session Summary Question: Clarification on thermal commentary regarding export market - John Drexler confirmed that the 3.5 million tons for export is included in the overall guidance and pricing commitments [35] Question: Cash cost guidance for Q2 - Management indicated that while costs are expected to decrease, they may still be elevated due to ongoing rail service issues [39][41] Question: Capital returns and potential buybacks - Matt Giljum mentioned that both buybacks and addressing convertibles are options, with no significant difference in their impact [66][67] Question: Rail logistics improvements - Paul Lang expressed confidence in rail service improvements, attributing challenges to labor shortages and COVID impacts [49][51] Question: Impact of natural gas prices on demand - Management noted that high natural gas prices are making coal more competitive, with strong demand anticipated for future years [54][56] Question: Market dynamics and customer outreach - Paul Lang highlighted a shift towards Asian markets for export growth, moving away from traditional European markets [80]

Financial Data and Key Metrics Changes - Arch Resources reported a record quarter in Q4 2021 with record metallurgical segment margins, net income, earnings per share, and EBITDA, despite operational challenges [29][30][34] - Operating cash flows totaled $147 million, the highest level in the last three years, even with a significant increase in trade receivables [30] - Unrestricted cash at the end of Q4 was $340 million, with total liquidity of $390 million, marking a significant increase from Q3 levels [30][33] Business Line Data and Key Metrics Changes - The metallurgical segment achieved a gross margin record, while the average cost for coking coal was reported at $86.38 per ton due to various pressures including inflation and COVID impacts [19][29] - The thermal segment generated over $68 million in EBITDA during Q4, contributing to a total of $904 million since Q4 2016, with a significant reduction in asset retirement obligations [25][26] Market Data and Key Metrics Changes - Coking coal markets remained tight, with Arch's primary metallurgical product, High Vol A coal, assessed at $390 per metric ton on the U.S. East Coast [14] - Global steel output remained strong, particularly outside of China, with indications of a potential expansion in the Chinese steel sector [15] Company Strategy and Development Direction - Arch is pivoting towards steel and metallurgical coal markets, focusing on developing a world-class coking coal portfolio while managing legacy thermal assets [12][13] - The company plans to resume a robust capital return program, allocating 50% of discretionary cash flow to stockholders through fixed and variable dividends, and the other 50% for buybacks and capital preservation [10][11][33] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the coking coal market for 2022, anticipating strong demand and pricing despite potential cost pressures from inflation and rail service issues [16][21][24] - The company is cautiously optimistic about improving rail service and expects to manage challenges effectively moving forward [23][24] Other Important Information - The company completed the year with zero environmental violations, showcasing its commitment to environmental stewardship [18] - Capital expenditures for 2022 are projected at $150 million to $160 million, with a significant portion allocated to maintenance in the metallurgical segment [27][74] Q&A Session Summary Question: Clarification on met coal volume guidance - Management acknowledged the potential for Q1 volumes to be down due to rail issues but expressed confidence in resolving these challenges for the remainder of the year [39][40][41] Question: Domestic net sales expectations - Management indicated that domestic sales are expected to be lower this year, with a focus on seaborne markets due to better pricing opportunities [43][44][46] Question: Thermal side performance and pricing discrepancies - Management clarified the difference in thermal sales numbers and expressed confidence in the overall strength of their thermal sales position [48][49][50] Question: Capital return program specifics - Management discussed the flexibility of the capital return program, emphasizing that the board will consider various options for returning capital to shareholders [67][70][72] Question: Capital expenditures breakdown - Management provided details on the capital expenditure guidance, highlighting the focus on maintenance capital and a new project at the Leer plant to enhance production [73][74]

Financial Data and Key Metrics Changes - Arch Resources reported a gross margin of $118 million in the metallurgical segment, nearly a 100% increase from the prior period [7] - The legacy thermal segment generated approximately $58 million in gross margin, a 43% improvement from the prior quarter [8] - Unrestricted cash at the end of Q3 was $210 million, with total liquidity at $254 million, both slightly higher than June 30 levels [31] Business Line Data and Key Metrics Changes - The metallurgical segment commenced longwall production at the Leer South mine, contributing to strong shipping performance despite a planned outage [7][19] - Thermal shipments increased by 25% sequentially in Q3, with expectations for sustainability into Q4 [25] - The company committed more than 70 million tons of Powder River Basin (PRB) coal for delivery in 2022 at an average price of approximately $16 per ton [26][40] Market Data and Key Metrics Changes - Global steel production was up more than 6% compared to the pre-pandemic year of 2019, driving strong demand for coking coal [13] - The prompt price of High-Vol A coal reached $390 per metric ton FOB the vessel, reflecting significant upward pressure due to supply-demand mismatches [14] - The company expects 75% of its metallurgical output to be exported, with a significant portion directed to Asian markets [23] Company Strategy and Development Direction - Arch Resources is strategically pivoting towards steel and coking coal markets while winding down thermal coal operations [10] - The company plans to prioritize debt reduction and cash building to restore its balance sheet to pre-2020 levels [9] - A quarterly dividend of $0.25 per share has been initiated, with plans for more robust capital return mechanisms in the future [10][36] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the ongoing transformation of the metallurgical franchise and the robust outlook for global coking coal markets [29] - The company anticipates significant improvement in cash flows and operating performance in Q4 and 2022, driven by favorable market conditions [33] - Management acknowledged inflationary pressures but believes they can manage costs effectively while ramping up production at Leer South [67] Other Important Information - Arch Resources has committed to reducing its asset retirement obligation (ARO) for the Powder River Basin mine by about 15% during 2021 [10] - The company has established a sinking fund to prefund closure obligations for its thermal mines, with planned contributions of $15 million in Q4 and $30 million in the following year [35] Q&A Session Summary Question: Clarification on thermal coal commitments and pricing - The company confirmed 70 million tons of PRB coal committed at $16 per ton for 2022, with 4 million tons expected from West Elk, split between domestic and export markets [40] Question: Future guidance on thermal coal production - Management indicated that while they will continue to manage the thermal segment responsively, they will not provide specific guidance for years beyond 2022 [42] Question: Expected pricing for export tons in Q4 - Management expects substantial increases in pricing for export tons, with current pricing for High-Vol A coal at $390 per metric ton [60]