Ramaco Resources(METCB) - 2020 Q1 - Quarterly Report

FORM 10-Q Filing Information Details the company's Q1 2020 Form 10-Q filing, registrant status, and outstanding common stock - Ramaco Resources, Inc. filed its Form 10-Q for the quarterly period ended March 31, 2020[2] - As of May 12, 2020, the registrant had 42,713,347 shares of common stock outstanding[4] Registrant Status | Status | Indication | | :-------------------- | :--------- | | Large accelerated filer | ☐ | | Accelerated filer | ☐ | | Non-accelerated filer | ☐ | | Smaller reporting company | ☒ | | Emerging growth company | ☒ | Cautionary Note Regarding Forward-Looking Statements Outlines the inherent risks and uncertainties associated with the report's forward-looking statements - The report includes forward-looking statements based on management's current expectations and assumptions, which are subject to various risks and uncertainties[9] - Key risks include the impact of the COVID-19 global pandemic, anticipated production levels, economic conditions in the metallurgical coal and steel industries, and the ability to obtain additional financing[10] - Investors are cautioned not to place undue reliance on forward-looking statements as actual results could differ materially and adversely[11] PART I. FINANCIAL INFORMATION Presents the company's Q1 2020 unaudited financial statements, management analysis, and risk disclosures Item 1. Financial Statements Provides unaudited condensed consolidated financial statements and accompanying notes for Q1 2020 Unaudited Condensed Consolidated Balance Sheets Summarizes the company's assets, liabilities, and stockholders' equity as of March 31, 2020 Condensed Consolidated Balance Sheet Highlights (in thousands) | Metric | March 31, 2020 | December 31, 2019 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Cash and cash equivalents | $15,319 | $5,532 | +$9,787 | | Total current assets | $58,140 | $44,323 | +$13,817 | | Property, plant and equipment – net | $181,896 | $178,202 | +$3,694 | | Total Assets | $244,659 | $226,813 | +$17,846 | | Total current liabilities | $28,652 | $26,411 | +$2,241 | | Long-term debt, net | $22,295 | $9,614 | +$12,681 | | Total liabilities | $71,691 | $56,730 | +$14,961 | | Total stockholders' equity | $172,968 | $170,083 | +$2,885 | Unaudited Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income for the first quarter of 2020 Condensed Consolidated Statements of Operations Highlights (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | Change (YoY) | | :---------------------------------- | :---------- | :---------- | :----------- | | Revenue | $41,935 | $57,460 | -$15,525 (-27.0%) | | Total costs and expenses | $40,794 | $49,210 | -$8,416 (-17.1%) | | Operating income | $1,141 | $8,250 | -$7,109 (-86.2%) | | Income before tax | $2,072 | $8,241 | -$6,169 (-74.9%) | | Net income | $1,962 | $6,883 | -$4,921 (-71.5%) | | Basic Earnings per common share | $0.05 | $0.17 | -$0.12 (-70.6%) | | Diluted Earnings per common share | $0.05 | $0.17 | -$0.12 (-70.6%) | Unaudited Condensed Consolidated Statements of Stockholders' Equity Outlines the changes in the company's equity accounts during the first quarter of 2020 Condensed Consolidated Statements of Stockholders' Equity Highlights (in thousands) | Metric | Balance at Jan 1, 2020 | Stock-based compensation | Net income | Balance at Mar 31, 2020 | | :-------------------- | :--------------------- | :----------------------- | :--------- | :---------------------- | | Common Stock | $410 | $17 | — | $427 | | Additional Paid-in Capital | $154,957 | $906 | — | $155,863 | | Retained Earnings | $14,716 | — | $1,962 | $16,678 | | Total Stockholders' Equity | $170,083 | $923 | $1,962 | $172,968 | Stockholders' Equity Changes (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | | :-------------------- | :---------- | :---------- | | Stock-based compensation | $923 | $894 | | Net income | $1,962 | $6,883 | Unaudited Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities for Q1 2020 - Net cash from operating activities significantly improved in Q1 2020, primarily due to a positive change in accounts receivable of $4.8 million, compared to a negative change of $16.6 million in Q1 2019[22] Condensed Consolidated Statements of Cash Flows Highlights (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | Change (YoY) | | :---------------------------------- | :---------- | :---------- | :----------- | | Net cash from operating activities | $6,416 | $(6,077) | +$12,493 | | Purchases of property, plant and equipment | $(8,900) | $(8,199) | -$701 | | Net cash from financing activities | $12,386 | $9,078 | +$3,308 | | Net change in cash and cash equivalents and restricted cash | $9,902 | $(5,198) | +$15,100 | | Cash and cash equivalents and restricted cash, end of period | $16,767 | $2,182 | +$14,585 | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations of the company's business, accounting policies, and specific financial items NOTE 1—DESCRIPTION OF BUSINESS Describes the company's corporate structure and its focus on metallurgical coal operations - Ramaco Resources, Inc. is a Delaware corporation, formed in October 2016, operating and developing high-quality, low-cost metallurgical coal[24] - The company's principal corporate offices are located in Lexington, Kentucky[24] NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Details the accounting principles and policies applied in the preparation of the financial statements - Interim financial statements are unaudited and prepared under SEC rules, with certain disclosures condensed or omitted compared to full GAAP statements[25] - The company is self-insured for workers' compensation claims, with an estimated aggregate liability of $1.2 million at March 31, 2020[28] - Sales to three customers accounted for approximately 73% of total revenue for the three months ended March 31, 2020, indicating significant customer concentration[31] NOTE 3—PROPERTY, PLANT AND EQUIPMENT Presents the composition of and changes in the company's fixed assets and related depreciation Property, Plant and Equipment, Net (in thousands) | Category | March 31, 2020 | December 31, 2019 | Change | | :-------------------------- | :------------- | :---------------- | :----- | | Plant and equipment | $145,347 | $142,773 | +$2,574 | | Construction in process | $14,144 | $11,986 | +$2,158 | | Capitalized mine development cost | $62,737 | $58,773 | +$3,964 | | Less: accumulated depreciation and amortization | $(40,332) | $(35,330) | -$5,002 | | Total property, plant and equipment, net | $181,896 | $178,202 | +$3,694 | Depreciation and Amortization (Three months ended March 31, in thousands) | Category | 2020 | 2019 | Change (YoY) | | :---------------------------------- | :---------- | :---------- | :----------- | | Depreciation of plant and equipment | $4,175 | $3,019 | +$1,156 (+38.3%) | | Amortization of capitalized mine development costs | $827 | $1,097 | -$270 (-24.6%) | | Total depreciation and amortization | $5,002 | $4,116 | +$886 (+21.5%) | NOTE 4—DEBT Details the company's credit facilities, outstanding debt balances, and covenant compliance - The Revolving Credit Facility, amended on February 20, 2020, consists of a $10.0 million term loan and up to $30.0 million revolving line of credit[37] - The company was in compliance with all debt covenants as of March 31, 2020[41] Debt Balances and Availability (as of March 31, 2020, in millions) | Debt Instrument | Outstanding Balance | Remaining Availability | | :---------------------- | :------------------ | :--------------------- | | Revolving Credit Facility | $16.5 | $13.5 | | Term Loan | $9.1 | N/A | NOTE 5—EQUITY Discloses information on stock-based compensation plans, restricted stock activity, and unrecognized costs - As of March 31, 2020, 3.3 million shares were available under the stock-based compensation plan for future awards[42] - There was $8.8 million of total unrecognized compensation cost related to unvested restricted stock, to be recognized over a weighted-average period of 2.3 years[44] Restricted Stock Activity (in thousands, except per share amounts) | Metric | Shares | Weighted Average Grant Date Fair Value | | :------------------------ | :---------- | :------------------------------------- | | Outstanding at Dec 31, 2019 | 1,628,241 | $6.32 | | Granted | 1,714,152 | $3.06 | | Outstanding at Mar 31, 2020 | 3,342,393 | $4.65 | NOTE 6—COMMITMENTS AND CONTINGENCIES Outlines the company's financial commitments, bonding requirements, and ongoing litigation - Total reclamation bonding requirements were $13.3 million as of March 31, 2020, supported by surety bonds[46] - Commitments under take-or-pay arrangements for coal transportation totaled $5.1 million through March 31, 2021[47] - The company is in litigation regarding a partial structural failure at its Elk Creek plant in November 2018, with a trial scheduled for December 8, 2020[49] NOTE 7—REVENUE Provides a breakdown of coal sales revenue by domestic and export markets - Two customers accounted for approximately 56% of total revenue during Q1 2020, and their contractual obligations may be delayed or curtailed due to COVID-19[57] Coal Sales Revenue (Three months ended March 31, in thousands) | Category | 2020 | 2019 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Domestic revenues | $30,532 | $36,571 | -$6,039 (-16.5%) | | Export revenues | $11,403 | $20,889 | -$9,486 (-45.4%) | | Total revenues | $41,935 | $57,460 | -$15,525 (-27.0%) | NOTE 8—INCOME TAXES Explains the company's effective tax rate and the factors contributing to its change year-over-year - The lower effective tax rate in Q1 2020 (5% vs. 16% in Q1 2019) is primarily due to state taxes, permanent differences for non-deductible expenses, and depletion expense differences[52] Effective Tax Rate (Three months ended March 31) | Period | Effective Tax Rate | | :-------------------- | :----------------- | | March 31, 2020 | 5% | | March 31, 2019 | 16% | NOTE 9—EARNINGS PER SHARE Presents the calculation of basic and diluted earnings per share for the first quarter - Diluted EPS for Q1 2020 excludes 937,424 anti-dilutive stock options[53] Earnings Per Share (Three months ended March 31, in thousands, except per share amounts) | Metric | 2020 | 2019 | Change (YoY) | | :---------------------------------- | :---------- | :---------- | :----------- | | Net income | $1,962 | $6,883 | -$4,921 (-71.5%) | | Weighted average shares used to compute basic EPS | 41,760 | 40,604 | +1,156 (+2.8%) | | Basic EPS | $0.05 | $0.17 | -$0.12 (-70.6%) | | Diluted EPS | $0.05 | $0.17 | -$0.12 (-70.6%) | NOTE 10—RELATED PARTY TRANSACTIONS Discloses transactions and agreements with related parties, including royalty payments - The company has mineral lease and surface rights agreements with Ramaco Coal, LLC, a related party[54] Related Party Royalties (in thousands) | Metric | March 31, 2020 | December 31, 2019 | | :-------------------- | :------------- | :---------------- | | Production royalty payables | $400 | $500 | | Metric | Three months ended March 31, 2020 | Three months ended March 31, 2019 | | :-------------------- | :-------------------------------- | :-------------------------------- | | Royalties paid | $1,200 | $1,300 | NOTE 11—SUBSEQUENT EVENTS Details significant events after the reporting period, including COVID-19 impacts and financing activities - The COVID-19 pandemic led to declining demand and spot price reductions for metallurgical coal, limiting spot sales and increasing inventories in Q1 2020[56] - Two major customers (56% of Q1 2020 revenue) notified the company of potential delays or curtailments in contractual purchases due to COVID-19[57] - In response, the company implemented a two-week operational furlough for 182 employees at Elk Creek (recalled by May 1, 2020), temporarily reduced executive salaries by 30%, and deferred non-essential capital expenditures[58][61][67] - On April 20, 2020, the company received an $8.4 million Paycheck Protection Program (PPP) Loan to retain employees and cover payroll, lease, and utility payments[63] - On April 16, 2020, the company secured a $4.7 million equipment loan for financing existing equipment and anticipated future capital expenditures[66] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Provides management's analysis of Q1 2020 financial performance, liquidity, and the impact of COVID-19 Overview Presents the company's business focus, reserve base, and production goals amid challenging market conditions - Ramaco Resources, Inc. is a metallurgical coal operator and developer with a 265-million-ton reserve base as of December 31, 2019[69] - The company aims to grow production to more than 4-4.5 million clean tons of metallurgical coal, subject to market conditions[69] - Q1 2020 results were negatively impacted by continued weakness in the metallurgical industry and the emerging COVID-19 outbreak[71] Impact of the Coronavirus Disease 2019 (COVID-19) Pandemic on Our Business Details the adverse effects of the COVID-19 pandemic on demand, pricing, and company operations - The COVID-19 pandemic led to declining demand and spot price reductions for metallurgical coal, resulting in increased inventories in Q1 2020[73] - Two major customers (56% of Q1 2020 revenue) notified the company of potential delays or curtailments in contractual purchases due to COVID-19[74] - In response, the company implemented operational furloughs, executive salary reductions, and deferred non-essential capital expenditures[75][78] Results of Operations Compares Q1 2020 financial results to Q1 2019, highlighting key performance drivers - Net income and Adjusted EBITDA significantly decreased in Q1 2020 compared to Q1 2019, primarily due to lower realized pricing and sales volumes, partially offset by improved cash cost of sales[79] Consolidated Statement of Operations Data (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Revenue | $41,935 | $57,460 | -$15,525 (-27.0%) | | Operating income | $1,141 | $8,250 | -$7,109 (-86.2%) | | Net income | $1,962 | $6,883 | -$4,921 (-71.5%) | | Adjusted EBITDA | $8,417 | $13,686 | -$5,269 (-38.5%) | Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019 Provides a detailed comparative analysis of coal sales, costs, and expenses for Q1 2020 versus Q1 2019 - The decline in sales volumes and realized pricing in 2020 is primarily due to reduced worldwide demand, exacerbated by the COVID-19 pandemic[82] Coal Sales Performance (Three months ended March 31, in thousands, except tons) | Metric | 2020 | 2019 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Company Produced Coal sales revenue | $41,935 | $52,700 | -$10,765 (-20.4%) | | Company Produced Tons sold | 416 | 443 | -27 (-6.1%) | | Purchased from Third Parties Coal sales revenue | $0 | $4,760 | -$4,760 (-100%) | | Purchased from Third Parties Tons sold | 0 | 35 | -35 (-100%) | | Overall Revenue per ton sold (FOB mine) | $93 | $105 | -$12 (-11.4%) | Cost of Sales and Expenses (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | Change (YoY) | | :-------------------- | :---------- | :---------- | :----------- | | Cost of sales | $30,934 | $41,006 | -$10,072 (-24.6%) | | Cash cost per ton sold (FOB mine) | $67 | $68 | -$1 (-1.5%) | | Depreciation and amortization | $5,002 | $4,116 | +$886 (+21.5%) | | Selling, general and administrative | $4,717 | $3,960 | +$757 (+19.1%) | | Other income | $1,210 | $298 | +$912 (+306.0%) | Liquidity and Capital Resources Discusses the company's liquidity position, cash flow activities, and capital management strategies - The company believes current cash, operating cash flow, and available credit will meet future capital and liquidity requirements, but is reviewing further capital expenditure reductions and alternative financing due to COVID-19 uncertainty[91][93] Liquidity Position (as of March 31, 2020, in millions) | Metric | Amount | | :-------------------- | :----- | | Cash and cash equivalents | $15.3 | | Available under credit agreements | $13.5 | Cash Flow Activities (Three months ended March 31, 2020, in millions) | Activity | Amount | | :-------------------- | :----- | | Cash flows from operating activities | $6.4 | | Net borrowings | $12.4 | | Capital expenditures | $(8.9) | Indebtedness Details the terms of the company's credit facilities and recent loan agreements - The Revolving Credit Facility (amended Feb 2020) includes a $10.0 million term loan and up to $30.0 million revolving line of credit, secured by personal property assets[94] - On April 20, 2020, the company received an $8.4 million PPP Loan to retain employees and cover payroll, lease, and utility payments[98][99][101] - An additional $4.7 million equipment loan was secured on April 16, 2020, for general corporate purposes and future capital expenditures[101] Debt Outstanding (as of March 31, 2020, in millions) | Debt Instrument | Outstanding Balance | | :---------------------- | :------------------ | | Revolving Credit Facility | $16.5 | | Term Loan | $9.1 | Off-Balance Sheet Arrangements Confirms the absence of material off-balance sheet arrangements as of the reporting date - As of March 31, 2020, the company had no material off-balance sheet arrangements[102] Non-GAAP Financial Measures Defines and reconciles non-GAAP measures like Adjusted EBITDA and cash cost per ton to their GAAP equivalents - Adjusted EBITDA is defined as net income plus net interest expense, stock-based compensation, depreciation and amortization expenses, and any transaction-related costs[104] Reconciliation of Net Income to Adjusted EBITDA (Three months ended March 31, in thousands) | Metric | 2020 | 2019 | | :-------------------- | :---------- | :---------- | | Net income | $1,962 | $6,883 | | Depreciation and amortization | $5,002 | $4,116 | | Interest expense, net | $279 | $307 | | Income taxes | $110 | $1,358 | | EBITDA | $7,353 | $12,664 | | Stock-based compensation | $923 | $894 | | Accretion of asset retirement obligation | $141 | $128 | | Adjusted EBITDA | $8,417 | $13,686 | Non-GAAP Revenue and Cash Cost per Ton Sold (Three months ended March 31, in thousands, except per ton amounts) | Metric | 2020 (Total) | 2019 (Total) | | :-------------------- | :----------- | :----------- | | Non-GAAP revenue (FOB mine) | $38,749 | $50,110 | | Tons sold | 416 | 478 | | Revenue per ton sold (FOB mine) | $93 | $105 | | Non-GAAP cash cost of sales | $27,748 | $33,724 | | Cash cost per ton sold | $67 | $71 | Item 3. Quantitative and Qualitative Disclosures about Market Risk Refers to the company's Annual Report on Form 10-K for detailed market risk disclosures - Quantitative and qualitative disclosures about market risk are included in Item 7A of the Annual Report on Form 10-K for the year ended December 31, 2019[110] Item 4. Controls and Procedures Confirms the effectiveness of disclosure controls and the status of internal financial reporting controls Disclosure Controls and Procedures States management's conclusion on the effectiveness of the company's disclosure controls - Management concluded that disclosure controls and procedures were effective as of March 31, 2020, at the reasonable assurance level[112] Changes in Internal Control over Financial Reporting Reports on any significant changes to internal controls over financial reporting during the quarter - There were no significant changes in the system of internal control over financial reporting during the quarter ended March 31, 2020[114] PART II. OTHER INFORMATION Provides additional non-financial information on legal proceedings, risk factors, and mine safety Item 1. Legal Proceedings Discloses the status of litigation and its potential impact on the company's financial condition - Management believes no pending litigation, disputes, or claims will have a material adverse effect on the company's financial condition, cash flows, or results of operations[117] - For a description of legal proceedings, refer to Note 6 to the Condensed Consolidated Financial Statements[117] Item 1A. Risk Factors Updates risk factors, emphasizing the adverse impacts of the COVID-19 pandemic on the business - The COVID-19 pandemic is adversely affecting the business, operations, and financial condition, causing a significant slowdown in the global economy and declines in metallurgical coal prices and demand for steel[120] - Customer concentration is a significant risk, with two of the three largest customers (56% of Q1 2020 revenue) notifying the company of potential delays or curtailments due to COVID-19[121][127] - The company's $8.4 million Paycheck Protection Program (PPP) Loan may be challenged regarding eligibility, potentially leading to significant legal fees and civil/criminal penalties[129][131] - The full impact of COVID-19 on the business, cash flows, liquidity, financial condition, and results of operations remains uncertain[125] Item 4. Mine Safety Disclosures Refers to an exhibit for detailed information on mine safety violations and regulatory matters - Information concerning mine safety violations or other regulatory matters is included in Exhibit 95.1 to this Quarterly Report[132] Item 6. Exhibits Lists all exhibits filed with the Form 10-Q, including agreements, certifications, and disclosures - Exhibits include promissory notes for the PPP Loan and an equipment loan, restricted stock award agreements, and amendments to the Credit and Security Agreement[134] - Certifications from the Chief Executive Officer and Chief Financial Officer (pursuant to Sections 302 and 906 of Sarbanes-Oxley Act) and Mine Safety Disclosure are filed or furnished[134] SIGNATURES Contains the official signatures of the company's certifying officers for the report - The report was signed on May 12, 2020, by Michael D. Bauersachs (President and Chief Executive Officer) and Jeremy R. Sussman (Chief Financial Officer)[139]