Alpha Metallurgical Resources(AMR) - 2019 Q1 - Quarterly Report

Part I - Financial Information This section presents the company's financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Financial Statements Q1 2019 revenues rose to $609.1 million due to Alpha Merger, but net income from continuing operations fell to $8.0 million, with positive operating cash flow Condensed Consolidated Statements of Operations Q1 2019 revenues increased 26.3% due to the Alpha Merger, but income from operations and net income from continuing operations declined sharply due to higher costs | Financial Metric | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total Revenues | $609,114 | $482,332 | | Income from Operations | $17,781 | $67,816 | | Net Income from Continuing Operations | $7,990 | $58,300 | | Net Income | $6,815 | $56,941 | | Diluted EPS from Continuing Operations | $0.41 | $5.66 | | Diluted Net EPS | $0.35 | $5.53 | Condensed Consolidated Balance Sheets As of March 31, 2019, total assets increased slightly to $2.76 billion due to the Alpha Merger, with stable liabilities and increased stockholders' equity | Balance Sheet Item | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :--- | :--- | :--- | | Total Current Assets | $820,418 | $829,601 | | Total Assets | $2,756,051 | $2,746,058 | | Total Current Liabilities | $355,194 | $355,236 | | Total Liabilities | $1,675,407 | $1,674,918 | | Total Stockholders' Equity | $1,080,644 | $1,071,140 | Condensed Consolidated Statements of Cash Flows Q1 2019 operating cash flow was $14.6 million, a significant improvement, while investing and financing activities led to a $42.5 million decrease in cash | Cash Flow Activity | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $14,611 | $(30,335) | | Net cash used in investing activities | $(45,323) | $(31,348) | | Net cash used in financing activities | $(11,786) | $(6,309) | | Net decrease in cash and cash equivalents and restricted cash | $(42,498) | $(67,992) | Notes to Condensed Consolidated Financial Statements The notes detail the Alpha Merger's impact, purchase price allocation, revenue disaggregation, new accounting standards, and specifics on debt and contingencies Note 2: Mergers and Acquisitions This note details the November 2018 Alpha Natural Resources merger, valued at $688.5 million, with preliminary goodwill of $107.5 million recorded - On November 9, 2018, Contura completed its merger with Alpha Natural Resources Holdings, Inc. and ANR, Inc., acquiring 100% of the outstanding shares[38] | Purchase Price Component | Provisional Amount (in thousands) | | :--- | :--- | | Fair value of common stock issued | $703,365 | | Issued and redeemed equity awards | $32,217 | | Net balances due to Alpha settled | $(47,048) | | Total Purchase Price | $688,534 | - Provisional goodwill increased by $11.9 million during the quarter due to measurement-period adjustments, reaching $107.5 million as of March 31, 2019. This goodwill is not deductible for tax purposes and has been allocated to the CAPP-Met reportable segment[45] Note 4: Revenue Q1 2019 total coal revenues were $607.0 million, primarily from metallurgical and thermal coal, with CAPP-Met as the largest segment and $686.7 million in future fixed-price contract obligations | Q1 2019 Coal Revenues | CAPP - Met (in thousands) | CAPP - Thermal (in thousands) | NAPP (in thousands) | Trading and Logistics (in thousands) | Consolidated (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | | Met | $335,720 | $6,414 | $1,935 | $53,588 | $397,657 | | Thermal | $10,101 | $50,901 | $68,920 | $2,197 | $132,119 | | Freight & Handling | — | — | — | $77,184 | $77,184 | | Total | $345,821 | $57,315 | $70,855 | $132,969 | $606,960 | | Period | Estimated Revenue (in thousands) | | :--- | :--- | | Remainder of 2019 | $211,559 | | 2020 | $225,340 | | 2021 | $95,590 | | 2022 | $69,943 | | 2023 | $84,268 | | Total | $686,700 | Note 20: Segment Information The company operates four segments, with CAPP-Met generating the highest Q1 2019 revenue and Adjusted EBITDA, contributing to a consolidated Adjusted EBITDA of $83.4 million, with export sales at 57% of total coal revenues | Q1 2019 Segment Results | CAPP - Met (in thousands) | CAPP - Thermal (in thousands) | NAPP (in thousands) | Trading and Logistics (in thousands) | All Other (in thousands) | Consolidated (in thousands) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $346,499 | $57,607 | $71,701 | $132,603 | $704 | $609,114 | | Adjusted EBITDA | $91,703 | $(4,283) | $4,754 | $9,929 | $(18,721) | $83,382 | - Export coal revenues were $343.3 million, representing 57% of total coal revenues for the three months ended March 31, 2019, a decrease from 88% in the same period of 2018[169] - As of March 31, 2019, two customers each accounted for over 10% of the total accounts receivable balance[171] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes Q1 2019 revenue growth to the Alpha Merger, despite declining coal margins due to lower prices and higher costs, while liquidity remains strong at $378.3 million, with a new $555 million term loan facility planned Results of Operations Q1 2019 revenue increased 26.3% to $609.1 million due to higher sales volume, but average coal sales realization decreased, and costs surged, leading to an 86.3% fall in net income from continuing operations to $8.0 million | Revenue Component | Q1 2019 (in thousands) | Q1 2018 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Met Coal | $397,657 | $346,650 | 14.7% | | Thermal Coal | $132,119 | $56,049 | 135.7% | | Total Revenues | $609,114 | $482,332 | 26.3% | | Cost Component | Q1 2019 (in thousands) | Q1 2018 (in thousands) | Change (%) | | :--- | :--- | :--- | :--- | | Cost of coal sales | $438,510 | $295,078 | 48.6% | | Depreciation, depletion and amortization | $61,271 | $11,588 | 428.7% | | Selling, general and administrative | $20,951 | $19,157 | 9.4% | | Total costs and expenses | $591,333 | $414,516 | 42.7% | - The sales mix shifted towards thermal coal, which accounted for 47.6% of volume in Q1 2019 compared to 35.0% in Q1 2018, while met coal's share decreased from 65.0% to 52.4%[232] Liquidity and Capital Resources As of March 31, 2019, total liquidity was $378.3 million, including $182.0 million in cash and $196.3 million from the ABL facility, with operating cash flow at $14.6 million, and a new $555 million term loan facility committed - Total liquidity as of March 31, 2019 was $378.3 million, which includes $182.0 million in cash and cash equivalents and $196.3 million available under the ABL facility[260] | Cash Flow Summary | Q1 2019 (in thousands) | Q1 2018 (in thousands) | | :--- | :--- | :--- | | Operating Activities | $14,611 | $(30,335) | | Investing Activities | $(45,323) | $(31,348) | | Financing Activities | $(11,786) | $(6,309) | - On May 15, 2019, the company executed a commitment letter to refinance its existing Term Loan Credit Facility with a new 5-year, $555 million First Lien Facility[272] Quantitative and Qualitative Disclosures about Market Risk The company faces commodity price, credit, and interest rate risks, managing commodity risk with fixed-price contracts, noting a 50 basis point interest rate change impacts annual expense by $2.6 million, and mitigating credit risk through customer evaluations - As of May 7, 2019, the company has sales commitments for 98% of its 7.2 million tons of NAPP coal, 79% of its 9.8 million tons of CAPP-Met coal, and 100% of its 4.4 million tons of CAPP-Thermal coal for 2019[290] - A 50 basis point (0.50%) increase or decrease in interest rates would change the company's annual interest expense by approximately $2.6 million[295] - Credit risk is managed by evaluating each customer's creditworthiness and using mitigation strategies such as letters of credit, cash collateral, or credit insurance when necessary[293] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes to internal control over financial reporting - Based on an evaluation as of March 31, 2019, the CEO and CFO concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level[296] - There were no changes in internal control over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, the internal controls[298] Part II - Other Information This section covers legal proceedings, risk factors, unregistered equity sales, and mine safety disclosures Legal Proceedings The company is involved in various legal proceedings, including contract disputes, personal injury, and environmental matters, with further details in Note 19(d) - For a description of the Company's legal proceedings, readers are referred to Note 19, part (d), of the unaudited Condensed Consolidated Financial Statements[300] Risk Factors This section refers to the Annual Report on Form 10-K for detailed risk factors, noting no new or materially changed risks in this quarterly report - The report directs readers to the 'Risk Factors' section of the company's Annual Report on Form 10-K for the year ended December 31, 2018 for a comprehensive discussion of potential risks[301] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2019, the company repurchased 71,036 common shares to satisfy employee tax withholdings on stock grants, not as part of a public repurchase program | Period | Total Shares Purchased | Average Price Paid per Share ($) | | :--- | :--- | :--- | | Jan 1 - Jan 31, 2019 | 9,699 | $64.03 | | Feb 1 - Feb 28, 2019 | 6,188 | $61.27 | | Mar 1 - Mar 31, 2019 | 55,149 | $57.50 | | Total | 71,036 | N/A | - The share repurchases were authorized to satisfy employees' statutory tax withholdings upon the vesting of stock grants and are recorded as treasury stock[303] Mine Safety Disclosures Mine safety violation information, as required by the Dodd-Frank Act, is included as Exhibit 95 to this quarterly report - Information concerning mine safety violations as required by Section 1503(a) of the Dodd-Frank Act is included in Exhibit 95 to the Quarterly Report[304]