Alpha Metallurgical Resources(AMR) - 2023 Q1 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially - This report contains forward-looking statements involving risks and uncertainties related to future prospects, developments, and business strategies. These statements are based on current expectations and are subject to factors that could cause actual results to differ materially[6] - Key factors that may cause actual results to differ from forward-looking statements include coal price fluctuations, transportation costs, environmental regulations, market demand for coal and steel, inflationary pressures, cybersecurity threats, and geopolitical events like the war in Ukraine[8][10] Part I - Financial Information This section provides the unaudited condensed consolidated financial statements and related notes for the first quarter, detailing operations, financial position, and cash flows Financial Statements This section presents the unaudited condensed consolidated financial statements for the three-month periods ended March 31, 2023, and 2022. It includes the statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes providing context on revenue, capital stock, commitments, and segment performance Condensed Consolidated Statements of Operations (Unaudited) | Indicator (in thousands, except per share data) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $911,235 | $1,071,964 | | Income from operations | $314,501 | $453,066 | | Net income | $270,771 | $400,891 | | Diluted income per common share | $17.01 | $20.52 | Condensed Consolidated Balance Sheets (Unaudited) | Indicator (in thousands) | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total current assets | $1,092,487 | $1,114,421 | | Total assets | $2,349,117 | $2,312,479 | | Total current liabilities | $316,608 | $402,625 | | Total liabilities | $800,542 | $882,724 | | Total stockholders' equity | $1,548,575 | $1,429,755 | Condensed Consolidated Statements of Cash Flows (Unaudited) | Indicator (in thousands) | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $177,387 | $336,125 | | Net cash used in investing activities | $(27,891) | $(3,552) | | Net cash used in financing activities | $(231,452) | $(219,700) | | Net (decrease) increase in cash | $(81,956) | $112,873 | Note 2: Revenue Revenue is primarily earned from the sale of metallurgical (met) and thermal coal to domestic and international customers. The company disaggregates revenue to show the different pricing and contract structures between export markets (spot/short-term contracts) and domestic markets (longer-term, fixed-price contracts) Coal Revenues by Product and Market (in thousands) | Category | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Met Coal Revenues | $857,979 | $1,047,993 | | Thermal Coal Revenues | $48,719 | $21,745 | | Total Coal Revenues | $906,698 | $1,069,738 | | Export Coal Revenues | $678,131 | $894,525 | | Domestic Coal Revenues | $228,567 | $175,213 | - As of March 31, 2023, the company expects to recognize an estimated $147.9 million in revenue from unsatisfied performance obligations, with $110.6 million expected in the remainder of 2023 and $37.3 million in 2024[38] Note 6: Capital Stock This note details the company's capital stock activities, including its share repurchase program and dividend policy. In Q1 2023, the board increased the share repurchase authorization and declared a quarterly cash dividend - On February 21, 2023, the Board of Directors increased the common share repurchase program authorization by $200 million, bringing the total authorization to $1.2 billion[49] - As of March 31, 2023, the company had repurchased approximately 4.4 million shares for an aggregate price of $654.5 million under the program[49] - A quarterly cash dividend of $0.44 per share was declared on February 21, 2023, payable on April 3, 2023[51] Note 15: Commitments and Contingencies The company has significant off-balance sheet financial instruments, primarily surety bonds and letters of credit, to secure obligations for reclamation, workers' compensation, and black lung benefits. A potential regulatory change by the Department of Labor could materially increase collateral requirements for self-insured black lung obligations Off-Balance Sheet Financial Instruments as of March 31, 2023 (in thousands) | Instrument | Amount | | :--- | :--- | | Surety Bonds | $166,543 | | Letters of Credit | $61,927 | - The Department of Labor (DOL) has proposed new regulations that could substantially increase the collateral required for self-insured federal black lung obligations. The company estimates it could be required to provide approximately $80 million to $100 million of collateral, which would have a materially adverse effect on liquidity[96] Note 16: Segment Information The company operates under one reportable segment, 'Met,' which includes its metallurgical coal mining operations. The 'All Other' category includes corporate overhead and former thermal operations. The Met segment is the primary driver of revenue and profitability Segment Performance for Three Months Ended March 31, 2023 (in thousands) | Segment | Total Revenues | Adjusted EBITDA | | :--- | :--- | :--- | | Met | $889,938 | $362,008 | | All Other | $21,297 | $(7,593) | | Consolidated | $911,235 | $354,415 | - Export coal revenues represented 75% of total coal revenues in Q1 2023, down from 84% in Q1 2022. India was the only country with export revenue exceeding 10% of total revenues in both periods[109] - Customer concentration increased, with the top 10 customers accounting for 78% of total revenues in Q1 2023, compared to 73% in Q1 2022. Four customers individually exceeded 10% of total revenues[109] Note 17: Subsequent Events After the quarter ended, the Board of Directors declared an increased quarterly cash dividend - On May 3, 2023, the Board declared a quarterly cash dividend of $0.50 per share, an increase from the previous $0.44 per share. The dividend is payable on July 5, 2023[112] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's performance for Q1 2023, noting that while results were strong historically, they were impacted by softening metallurgical coal markets and moderating prices compared to the historic highs of early 2022. The analysis covers market conditions, operational results by segment, liquidity, capital resources, and cash flows Market Overview In Q1 2023, metallurgical coal markets softened due to recessionary concerns, uneven manufacturing demand, and persistent inflation. While prices declined from early 2022 peaks, the World Steel Association projects a 2.3% rebound in steel demand for the year, though regional performance varies significantly - Metallurgical coal indices ended Q1 2023 roughly flat after a mid-quarter peak, with further softening in April. For example, the Australian Premium Low Volatile index ended the quarter at $301.00/ton but fell to $231.50/ton by April 27, 2023[127] - Global crude steel production increased by 1.7% in March 2023 year-over-year, driven by China (+6.9%) and India (+2.7%), while the EU (-5.6%) and North America (-2.6%) saw declines[129] Results of Operations Comparing Q1 2023 to Q1 2022, total revenues decreased by 15.0% to $911.2 million, primarily due to lower coal sales realizations in the Met segment as prices moderated. Despite lower revenues, total costs and expenses also decreased by 3.6%, leading to a net income of $270.8 million, down from $400.9 million in the prior-year period Revenue and Sales Volume Comparison | Indicator (in thousands, except tons) | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Coal revenues | $906,698 | $1,069,738 | (15.2)% | | Total revenues | $911,235 | $1,071,964 | (15.0)% | | Tons sold | 3,915 | 4,048 | (3.3)% | Met Segment Non-GAAP Performance per Ton | Indicator | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Non-GAAP Coal Sales Realization | $208.93 | $240.82 | (13.2)% | | Non-GAAP Cost of Coal Sales | $110.56 | $103.61 | 6.7% | | Non-GAAP Coal Margin | $98.36 | $137.21 | (28.3)% | Adjusted EBITDA by Segment (in thousands) | Segment | Q1 2023 | Q1 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Met segment operations | $362,008 | $513,301 | (29.5)% | | All Other category | $(7,593) | $(9,640) | 21.2% | | Total | $354,415 | $503,661 | (29.6)% | Liquidity and Capital Resources The company's liquidity remains solid, with total liquidity of $315.6 million as of March 31, 2023, comprising cash and credit facility availability. Key uses of cash include capital expenditures, debt service, and shareholder returns. A significant future risk is the potential for increased collateral requirements for black lung obligations Total Liquidity as of March 31, 2023 (in thousands) | Component | Amount | | :--- | :--- | | Cash and cash equivalents | $222,507 | | Credit facility availability | $93,123 | | Total liquidity | $315,630 | - The company expects to spend between $250.0 million and $280.0 million on capital expenditures during 2023[183] Cash Flow Summary (in thousands) | Activity | Q1 2023 | Q1 2022 | | :--- | :--- | :--- | | Net cash from Operations | $177,387 | $336,125 | | Net cash used in Investing | $(27,891) | $(3,552) | | Net cash used in Financing | $(231,452) | $(219,700) | Quantitative and Qualitative Disclosures about Market Risk The company is exposed to commodity price risk, interest rate risk, and foreign currency risk. Commodity risk for coal sales is managed via supply agreements, while supply costs like diesel fuel are managed through strategic sourcing. Interest rate risk is minimal with no outstanding floating-rate debt. Foreign currency risk is indirect, affecting the competitiveness of its U.S. dollar-denominated coal in international markets - The company manages coal price risk through sales agreements. As of April 27, 2023, 51% of its 15.5 million tons of total committed metallurgical coal for 2023 was priced at an average of $203.86 per ton[137][138] - For 2023, 83.3% of the company's budgeted 22.2 million gallons of diesel fuel usage is priced at an average of $3.60 per gallon[198][199] - As of March 31, 2023, there were no cash borrowings outstanding under the floating-rate ABL facility, minimizing direct interest rate risk[200] Controls and Procedures Based on an evaluation as of March 31, 2023, the company's CEO and CFO concluded that its disclosure controls and procedures were effective. There were no material changes in internal control over financial reporting during the quarter - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2023[203] - No changes occurred during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[204] Part II - Other Information This section provides additional information on legal proceedings, risk factors, equity security sales, and mine safety disclosures Legal Proceedings This section refers to Note 15(d) of the financial statements for a description of the company's legal proceedings, which arise in the normal course of business - For a description of legal proceedings, the report refers to Note 15, part (d), of the Condensed Consolidated Financial Statements[207] Risk Factors This section directs readers to the more detailed 'Risk Factors' section in the company's Annual Report on Form 10-K for the year ended December 31, 2022, for a comprehensive discussion of potential risks - The report incorporates by reference the risk factors discussed in the company's Annual Report on Form 10-K for the year ended December 31, 2022[208] Unregistered Sales of Equity Securities and Use of Proceeds This section outlines the company's capital return activities, including the declaration of a quarterly dividend and significant share repurchases made during the first quarter of 2023 under its board-authorized program - The Board of Directors declared a quarterly cash dividend of $0.44 per share during the three months ended March 31, 2023[209] Common Stock Repurchases in Q1 2023 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Approx. Value Remaining for Repurchase (in thousands) | | :--- | :--- | :--- | :--- | :--- | | Jan 2023 | 315,740 | $155.43 | 278,750 | $507,713 | | Feb 2023 | 265,768 | $162.37 | 247,535 | $667,659 | | Mar 2023 | 343,753 | $158.38 | 343,753 | $613,217 | | Total | 925,261 | | 870,038 | | - On February 21, 2023, the Board increased the total authorization for the common share repurchase program to $1.2 billion[211] Mine Safety Disclosures Information regarding mine safety violations and other regulatory matters as required by the Dodd-Frank Act is provided in Exhibit 95 of this quarterly report - Mine safety disclosures required by Section 1503(a) of the Dodd-Frank Act are included in Exhibit 95 to this Form 10-Q[213] Exhibits This section refers to the Exhibit Index, which lists all documents filed as part of this Quarterly Report on Form 10-Q, including certifications and the Mine Safety Disclosure exhibit - A full list of exhibits filed with the report is available in the Exhibit Index[214][218]