Alpha Metallurgical Resources(AMR) - 2023 Q3 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements The report includes forward-looking statements based on current expectations, with actual results potentially differing due to various risks and uncertainties - The report includes forward-looking statements identified by terms like 'anticipate,' 'believe,' 'expect,' and 'plan,' which are based on current expectations and beliefs[7] - Actual results may differ materially due to various risks and uncertainties, including financial performance, liquidity, coal prices, transportation, environmental regulations, competition, labor relations, and cybersecurity attacks[7][9][11] - The company does not undertake to publicly revise these statements to account for future events or circumstances, except as expressly required by federal securities laws[12] Part I - Financial Information Item 1. Financial Statements This item includes the unaudited condensed consolidated financial statements, comprising statements of operations, comprehensive income, balance sheets, cash flows, and stockholders' equity, along with detailed notes explaining the company's business, accounting policies, and specific financial line items Condensed Consolidated Statements of Operations This section presents the company's unaudited condensed consolidated statements of operations, detailing revenues, expenses, and net income for the three and nine months ended September 30, 2023 and 2022 - For the three months ended September 30, 2023, total revenues decreased by 14.7% YoY, and net income significantly declined by 62.9% YoY[14] - For the nine months ended September 30, 2023, total revenues decreased by 23.4% YoY, and net income decreased by 55.6% YoY[14] Condensed Consolidated Statements of Operations (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (%) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Total Revenues | $741,820 | $869,768 | (14.7)% | $2,511,426 | $3,278,144 | (23.4)% | | Income from Operations| $117,159 | $262,470 | (55.4)% | $649,763 | $1,364,245 | (52.4)% | | Net Income | $93,814 | $252,817 | (62.9)% | $545,940 | $1,227,865 | (55.6)% | | Basic EPS | $6.88 | $14.77 | (53.4)% | $37.87 | $68.14 | (44.4)% | | Diluted EPS | $6.65 | $14.27 | (53.4)% | $36.46 | $65.31 | (44.1)% | Condensed Consolidated Statements of Comprehensive Income This section details the company's unaudited condensed consolidated statements of comprehensive income, showing net income and other comprehensive income components for the three and nine months ended September 30, 2023 and 2022 - Total comprehensive income for the three months ended September 30, 2023, was $93.4 million, a significant decrease from $253.6 million in the prior year period[16] - For the nine months ended September 30, 2023, total comprehensive income decreased by 55.8% YoY, primarily driven by the decline in net income[16] Condensed Consolidated Statements of Comprehensive Income (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (%) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Net Income | $93,814 | $252,817 | (62.9)% | $545,940 | $1,227,865 | (55.6)% | | Total Comprehensive Income | $93,362 | $253,635 | (63.2)% | $541,759 | $1,225,482 | (55.8)% | Condensed Consolidated Balance Sheets This section presents the company's unaudited condensed consolidated balance sheets, outlining assets, liabilities, and stockholders' equity as of September 30, 2023, and December 31, 2022 - As of September 30, 2023, total assets increased slightly to $2.35 billion from $2.31 billion at December 31, 2022[18][20] - Total liabilities decreased by 9.9% to $794.9 million, while total stockholders' equity increased by 9.0% to $1.56 billion, reflecting improved financial health[18][20] Condensed Consolidated Balance Sheets (in thousands) | Metric (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Total Current Assets | $1,048,946 | $1,114,421 | (5.8)% | | Total Assets | $2,352,960 | $2,312,479 | 1.7% | | Total Current Liabilities | $315,210 | $402,625 | (21.7)% | | Total Liabilities | $794,887 | $882,724 | (9.9)% | | Total Stockholders' Equity | $1,558,073 | $1,429,755 | 9.0% | Condensed Consolidated Statements of Cash Flows This section provides the company's unaudited condensed consolidated statements of cash flows, detailing operating, investing, and financing activities for the nine months ended September 30, 2023 and 2022 - For the nine months ended September 30, 2023, net cash provided by operating activities decreased significantly by 49.8% YoY to $651.8 million[22] - Net cash used in investing activities decreased by 30.6% YoY, while net cash used in financing activities decreased by 40.6% YoY, primarily due to lower debt repayments[22] Condensed Consolidated Statements of Cash Flows (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | | Net Cash Provided by Operating Activities | $651,806 | $1,299,037 | (49.8)% | | Net Cash Used in Investing Activities | $(126,637) | $(182,564) | (30.6)% | | Net Cash Used in Financing Activities | $(501,500) | $(844,133) | (40.6)% | | Net Increase in Cash and Cash Equivalents and Restricted Cash | $23,669 | $272,340 | (91.3)% | Condensed Consolidated Statements of Stockholders' Equity This section presents the company's unaudited condensed consolidated statements of stockholders' equity, showing changes in equity components from December 31, 2022, to September 30, 2023 - Total stockholders' equity increased from $1,429.8 million at December 31, 2022, to $1,558.1 million at September 30, 2023[18][20][27][28] - The increase was driven by net income and additional paid-in capital, partially offset by treasury stock repurchases and accumulated other comprehensive loss[18][20][27][28] Condensed Consolidated Statements of Stockholders' Equity (in thousands) | Metric (in thousands) | Dec 31, 2022 | Sep 30, 2023 | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Common Stock | $217 | $220 | 1.4% | | Additional Paid-in Capital | $815,442 | $825,143 | 1.2% | | Accumulated Other Comprehensive Loss | $(12,162) | $(16,343) | 34.4% | | Treasury Stock, at cost | $(649,061) | $(1,051,185) | 61.9% | | Retained Earnings | $1,275,319 | $1,800,238 | 41.2% | | Total Stockholders' Equity | $1,429,755 | $1,558,073 | 9.0% | Notes to Condensed Consolidated Financial Statements This section provides detailed notes to the unaudited condensed consolidated financial statements, explaining significant accounting policies, revenue recognition, and other financial disclosures (1) Business and Basis of Presentation This note describes Alpha's business as a leading metallurgical coal supplier and the basis of presentation for its unaudited interim financial statements in accordance with U.S. GAAP and SEC rules - Alpha is a Tennessee-based mining company with operations in Virginia and West Virginia, serving as a leading U.S. supplier of metallurgical coal products for the steel industry globally[31] - The interim Condensed Consolidated Financial Statements are unaudited, prepared in accordance with U.S. GAAP and SEC rules for Form 10-Q, and reflect all necessary normal and recurring adjustments[33] - No new accounting pronouncements are expected to have a material impact on the Company's financial position, results of operations, or liquidity[35] (2) Revenue This note details the company's revenue recognition policies and disaggregates coal revenues by product category and market for the reported periods - The Company earns revenues primarily through the sale of coal (produced or purchased) and disaggregates revenue by product category (met and thermal coal) and market (export and domestic) to reflect pricing and contract differences[36] Revenue by Category (in thousands) | Revenue Category (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (%) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :------------------------------ | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Total Export Coal Revenues | $514,597 | $641,345 | (19.7)% | $1,809,300 | $2,681,873 | (32.5)% | | Total Domestic Coal Revenues | $224,401 | $226,504 | (0.9)% | $690,203 | $589,972 | 16.9% | | Total Met Coal Revenues | $699,344 | $794,615 | (12.0)% | $2,363,309 | $3,140,848 | (24.7)% | | Total Thermal Coal Revenues | $39,654 | $73,234 | (45.8)% | $136,194 | $130,997 | 4.0% | | Total Coal Revenues | $738,998 | $867,849 | (14.8)% | $2,499,503 | $3,271,845 | (23.6)% | - Estimated future coal revenues from unsatisfied performance obligations are $71.4 million for the remainder of 2023 and $85.2 million for 2024, totaling $156.6 million[39] (3) Accumulated Other Comprehensive Loss This note explains changes in accumulated other comprehensive loss, primarily related to employee benefit costs, for the nine months ended September 30, 2023 - The accumulated other comprehensive loss increased from $(12.16) million at January 1, 2023, to $(16.34) million at September 30, 2023, primarily due to other comprehensive loss before reclassifications related to employee benefit costs[41] Employee Benefit Costs (in thousands) | Metric (in thousands) | Jan 1, 2023 | Sep 30, 2023 | Change (%) | | :-------------------- | :---------- | :----------- | :--------- | | Employee benefit costs (Balance) | $(12,162) | $(16,343) | 34.4% | - For the nine months ended September 30, 2023, the reclassification from accumulated other comprehensive loss to the Condensed Consolidated Statements of Operations for employee benefit costs was $(1,356) thousand, net of income tax[44] (4) Net Income Per Share This note presents the basic and diluted net income per common share for the three and nine months ended September 30, 2023 and 2022 - Basic net income per common share decreased by 53.4% to $6.88 for the three months ended September 30, 2023, and by 44.4% to $37.87 for the nine months, compared to the prior year periods[14][47] - Diluted net income per common share showed similar declines, decreasing by 53.4% to $6.65 for the three months and by 44.1% to $36.46 for the nine months[14][47] Net Income Per Share | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change (%) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :----- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Basic Income Per Common Share | $6.88 | $14.77 | (53.4)% | $37.87 | $68.14 | (44.4)% | | Diluted Income Per Common Share | $6.65 | $14.27 | (53.4)% | $36.46 | $65.31 | (44.1)% | (5) Inventories, net This note provides a breakdown of the company's inventories, net, including raw coal, saleable coal, and materials, as of September 30, 2023, and December 31, 2022 - As of September 30, 2023, total inventories, net, increased by 35.5% to $271.8 million from $200.6 million at December 31, 2022[49] - The increase was primarily driven by a significant 71.3% increase in saleable coal inventory[49] Inventory Category (in thousands) | Inventory Category (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Raw coal | $53,762 | $57,382 | (6.4)% | | Saleable coal | $156,715 | $91,474 | 71.3% | | Materials, supplies and other, net | $61,328 | $51,718 | 18.6% | | Total inventories, net | $271,805 | $200,574 | 35.5% | (6) Capital Stock This note details changes in the company's capital stock, including common share repurchase programs, dividend policy, and the expiration of Series A Warrants - The Board approved a $200 million increase to the existing common share repurchase program in February 2023, bringing the total authorization to $1.2 billion, and an additional $300 million increase in October 2023, totaling $1.5 billion[50] - As of September 30, 2023, the Company had repurchased 5,976,397 shares for an aggregate purchase price of approximately $910.3 million under the plan[50] - The Board determined to end the Company's fixed dividend program in August 2023, following the quarterly dividend declared and to be paid in the fourth quarter of 2023. The Series A Warrants expired on July 26, 2023, with no warrants outstanding as of September 30, 2023[52][53][55] (7) Accrued Expenses and Other Current Liabilities This note presents a breakdown of accrued expenses and other current liabilities, highlighting changes in dividend payable and income taxes payable - Accrued expenses and other current liabilities decreased by 28.2% to $190.1 million as of September 30, 2023, from $265.3 million at December 31, 2022[59] - This decrease was primarily due to a significant 89.9% reduction in dividend payable[59] Liability Category (in thousands) | Liability Category (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change (%) | | :-------------------------------- | :----------- | :----------- | :--------- | | Wages and benefits | $66,048 | $69,458 | (4.9)% | | Dividend payable | $8,701 | $86,118 | (89.9)% | | Income taxes payable | $8,589 | $0 | N/A | | Total accrued expenses and other current liabilities | $190,119 | $265,256 | (28.2)% | (8) Long-Term Debt This note details the company's long-term debt, including notes payable and financing leases, and discusses the refinancing of its ABL Agreement - Total long-term debt decreased by 4.3% to $10.5 million as of September 30, 2023, from $11.0 million at December 31, 2022[60] Debt Category (in thousands) | Debt Category (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change (%) | | :--------------------------- | :----------- | :----------- | :--------- | | Notes payable and other | $5,726 | $6,179 | (7.4)% | | Financing leases | $4,776 | $4,796 | (0.4)% | | Total long-term debt | $10,502 | $10,975 | (4.3)% | | Less current portion | $(3,438) | $(3,078) | 11.7% | | Long-term debt, net of current portion | $7,064 | $7,897 | (10.5)% | - On October 27, 2023, the Company terminated its existing ABL Agreement and entered into a new Credit Agreement (New ABL Facility) for up to $155 million, maturing on October 27, 2027[62] (9) Acquisition-Related Obligations This note explains the reduction in acquisition-related obligations due to the final payment of the Contingent Revenue Obligation - Acquisition-related obligations significantly decreased to $0.18 million as of September 30, 2023, from $28.25 million at December 31, 2022[65] - This reduction was due to the final calculated payment for the Contingent Revenue Obligation being made during the first quarter of 2023[66] Obligation (in thousands) | Obligation (in thousands) | Sep 30, 2023 | Dec 31, 2022 | Change (%) | | :------------------------ | :----------- | :----------- | :--------- | | Contingent Revenue Obligation | $0 | $27,719 | (100.0)% | | Environmental Settlement Obligation | $181 | $535 | (66.1)% | | Total acquisition-related obligations - current | $181 | $28,254 | (99.4)% | (10) Asset Retirement Obligations This note details the company's asset retirement obligations, including changes due to accretion and expenditures for the period - Total asset retirement obligations increased by 2.7% to $183.8 million as of September 30, 2023, from $179.0 million at December 31, 2022[68] - The increase was primarily due to $19.1 million in accretion for the period, partially offset by $14.3 million in expenditures[68] Asset Retirement Obligations (in thousands) | Metric (in thousands) | Dec 31, 2022 | Sep 30, 2023 | Change (%) | | :-------------------- | :----------- | :----------- | :--------- | | Total asset retirement obligations | $179,011 | $183,845 | 2.7% | | Accretion for the period | N/A | $19,129 | N/A | | Expenditures for the period | N/A | $(14,252) | N/A | (11) Fair Value of Financial Instruments and Fair Value Measurements This note discusses the fair value measurements of financial instruments, including trading securities and the previously outstanding Contingent Revenue Obligation - The estimated fair values of financial instruments are determined based on relevant market information, with estimates involving uncertainty[70] - Trading securities are classified as Level 2, with fair values obtained from a third-party pricing service provider based on observable market inputs[78] - The Contingent Revenue Obligation, previously a Level 3 measurement, was estimated using a Black-Scholes pricing model and was fully paid during the first quarter of 2023[79] (12) Income Taxes This note provides details on the company's income tax expense and the effective tax rate, explaining differences from the statutory rate - For the nine months ended September 30, 2023, the Company recorded income tax expense of $95.0 million on income before income taxes of $640.9 million[14][80] - The income tax expense differs from the expected statutory amount primarily due to the permanent impact of percentage depletion and foreign-derived intangible income deductions[80] Income Taxes (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | | Income before income taxes | $640,913 | $1,341,818 | (52.2)% | | Income tax expense | $94,973 | $113,953 | (16.7)% | (13) Employee Benefit Plans This note outlines the net periodic benefit costs for the company's pension, black lung, and self-insured medical plans - Net periodic benefit cost for pension obligations was $2.03 million for the nine months ended September 30, 2023, compared to a credit of $(7.98) million in the prior year[83] - Black lung net periodic benefit cost decreased by 41.8% to $2.87 million for the nine months ended September 30, 2023, from $4.93 million YoY[86] Employee Benefit Plans (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | | Pension Net Periodic Benefit Cost (Credit) | $2,030 | $(7,981) | N/A | | Black Lung Net Periodic Benefit Cost | $2,871 | $4,927 | (41.8)% | | Self-insured Medical Plan Expenses | $61,866 | $49,334 | 25.4% | (14) Related Party Transactions This note confirms the absence of material related party transactions for the reported periods - There were no material related party transactions for the nine months ended September 30, 2023 or 2022[88] (15) Commitments and Contingencies This note discusses the company's commitments and contingencies, including legal proceedings, coal royalty expenses, and surety bonds - Estimated losses from loss contingencies are accrued when probable and reasonably estimable; otherwise, disclosure is made if a material loss is reasonably possible[89] - Coal royalty expense decreased by 11.4% for the three months and 21.8% for the nine months ended September 30, 2023, compared to the prior year periods[90] - As of September 30, 2023, the Company had $175.3 million in outstanding surety bonds and $60.9 million in letters of credit to secure various obligations, including reclamation, workers' compensation, and black lung[94][95] - The U.S. Department of Labor's proposed new regulations could substantially increase collateral required for self-insured federal black lung obligations to $80 million to $100 million, which could materially adversely affect liquidity[102][224][225] (16) Segment Information This note provides financial information for the company's single reportable segment, Met, detailing revenues, Adjusted EBITDA, and capital expenditures - The Company operates one reportable segment, Met, which consists of 21 active mines and 8 preparation plants in Virginia and West Virginia, primarily producing metallurgical coal[105][138] - The 'All Other' category includes general corporate overhead, former CAPP - Thermal operations, and intercompany eliminations[106] Segment Information (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 (Met) | 3 Months Ended Sep 30, 2022 (Met) | Change (%) | 9 Months Ended Sep 30, 2023 (Met) | 9 Months Ended Sep 30, 2022 (Met) | Change (%) | | :-------------------- | :-------------------------------- | :-------------------------------- | :--------- | :-------------------------------- | :-------------------------------- | :--------- | | Total Revenues | $733,536 | $841,958 | (12.9)% | $2,461,274 | $3,217,588 | (23.5)% | | Adjusted EBITDA | $172,414 | $301,556 | (42.8)% | $803,517 | $1,521,089 | (47.2)% | | Capital Expenditures | $54,237 | $32,623 | 66.2% | $177,813 | $99,979 | 77.8% | (17) Subsequent Events This note discloses significant events occurring after the balance sheet date, including changes to the share repurchase program, dividend declarations, and debt refinancing - On October 31, 2023, the Board approved an additional $300 million increase to the share repurchase program, bringing the total authorization to $1.5 billion[50][121] - A quarterly cash dividend of $0.50 per share was declared on October 31, 2023, payable on December 15, 2023[53][121] - The Company terminated its existing ABL Agreement and entered into a new ABL Facility on October 27, 2023[62][121] Glossary This section provides definitions for key terms used throughout the report, including industry-specific terminology related to coal mining, financial metrics, and regulatory bodies, to ensure clarity and understanding for readers - The glossary defines industry-specific terms such as 'Ash,' 'Bituminous coal,' 'BTU,' 'CAPP,' 'Coal reserves,' 'Coke,' 'ESG,' 'Metallurgical coal,' 'MSHA,' 'Operating Margin,' 'Reclamation,' 'Thermal coal,' and various types of mines[123][124][125][126][127][128][129][130] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a narrative discussion and analysis of the company's financial condition and results of operations for the three and nine months ended September 30, 2023 and 2022, including market overview, business developments, factors affecting results, and liquidity Market Overview This section provides an overview of global metallurgical coal markets, including pricing trends and crude steel production data - Global metallurgical coal markets strengthened in Q3 2023 despite economic pressures and geopolitical conflicts, driven by tight supply and expected slow but increasing steel demand in 2024[134] Metallurgical Coal Index Prices (per metric ton) | Index (per metric ton) | July 1, 2023 | Sep 30, 2023 | Change | | :--------------------- | :----------- | :----------- | :----- | | Australian Premium Low Volatile | $233.00 | $333.00 | 43.0% | | U.S. East Coast Low Volatile | $227.00 | $258.00 | 13.7% | | U.S. East Coast High Volatile A | $216.00 | $288.00 | 33.3% | | U.S. East Coast High Volatile B | $206.00 | $238.00 | 15.5% | - Global crude steel production decreased by 1.5% in September 2023 YoY, with China down 5.6%, but India and South Korea posted significant increases of 18.2%[136] Business Overview This section provides an overview of Alpha Metallurgical Resources' operations, including its role as a leading U.S. metallurgical coal supplier and key sales metrics - Alpha Metallurgical Resources is a leading U.S. supplier of metallurgical coal, operating 21 active mines and 8 preparation plants in Central Appalachia (CAPP) with approximately 4,030 employees[138] - Met coal sales accounted for approximately 89% and 90% of total coal sales volume for the three and nine months ended September 30, 2023, respectively[139] - Approximately 70% and 72% of coal revenues for the three and nine months ended September 30, 2023, respectively, were derived from export sales to customers outside the United States[140] Other Business Developments This section highlights recent strategic business developments, including the transition to a pure-play metallurgical producer and equipment acquisitions - In August 2023, the Company completed its transition to a pure-play metallurgical producer with the cessation of mining at its last thermal coal mine, Slabcamp[145] - In January 2023, subsidiary Maxxim Rebuild Co., LLC acquired coal trucks and related equipment to secure trucking services for operations[145] Factors Affecting Our Results of Operations This section discusses key factors influencing the company's operating results, including commodity price risk, cost management, and operational challenges - The Company manages commodity price risk for coal sales through coal supply agreements, with realized prices influenced by coal quality, transportation costs, and regional supply and demand[146] - Operating results are dependent on maximizing productivity and controlling costs, with primary expenses including operating supply costs, repair and maintenance, purchased coal, royalties, wages, benefits, freight, and taxes[147] - The Company experiences volatility in operating costs related to fuel, explosives, steel, tires, and contract services, and faces risks from difficult geologic conditions, permit delays, labor shortages, and equipment problems[147] Results of Operations Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022 Revenues This section analyzes the company's revenue performance for the three months ended September 30, 2023, compared to the prior year period - Coal revenues decreased by $128.9 million (14.8%) for the three months ended September 30, 2023, primarily due to a 17.6% reduction in average coal sales realization within the Met segment[151] - Total tons sold increased by 1.9% to 4,225 thousand tons for the three months ended September 30, 2023[151] Revenues (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Coal revenues | $738,998 | $867,849 | $(128,851) | (14.8)% | | Other revenues | $2,822 | $1,919 | $903 | 47.1% | | Total revenues | $741,820 | $869,768 | $(127,948) | (14.7)% | | Tons sold | 4,225 | 4,145 | 80 | 1.9% | Cost and Expenses This section analyzes the company's costs and expenses for the three months ended September 30, 2023, compared to the prior year period - Total costs and expenses increased by 2.9% to $624.7 million for the three months ended September 30, 2023[152] - Cost of coal sales increased by 1.9% due to higher coal sales volumes, while depreciation, depletion and amortization increased by 16.7% due to capital expenditures[152][153] Cost and Expenses (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Cost of coal sales | $564,608 | $554,055 | $10,553 | 1.9% | | Depreciation, depletion and amortization | $32,582 | $27,925 | $4,657 | 16.7% | | Amortization of acquired intangibles, net | $2,069 | $4,543 | $(2,474) | (54.5)% | | Selling, general and administrative expenses | $18,053 | $15,095 | $2,958 | 19.6% | | Mark-to-market adjustment for acquisition-related obligations | $0 | $(2,954) | $2,954 | 100.0% | | Total costs and expenses | $624,661 | $607,298 | $17,363 | 2.9% | Total Other Expense, Net This section analyzes the company's total other expense, net, for the three months ended September 30, 2023, compared to the prior year period - Total other expense, net, increased by 11.7% to $4.38 million for the three months ended September 30, 2023, compared to $3.92 million in the prior year period[156] Total Other Expense, Net (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total other expense, net | $4,381 | $3,923 | $458 | 11.7% | Income Tax Expense This section analyzes the company's income tax expense for the three months ended September 30, 2023, compared to the prior year period - Income tax expense increased significantly by 231.0% to $19.0 million for the three months ended September 30, 2023, on income before income taxes of $112.8 million[158] - The effective tax rate differs from the federal statutory rate of 21% primarily due to the permanent impact of percentage depletion and foreign-derived intangible income deductions[158] Income Tax Expense (in thousands) | Metric (in thousands) | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Income tax expense | $18,964 | $5,730 | $13,234 | 231.0% | Non-GAAP Financial Measures This section provides an analysis of non-GAAP financial measures for the three months ended September 30, 2023, focusing on the Met segment's performance - Met segment non-GAAP coal revenues decreased by 11.3% for the three months ended September 30, 2023, primarily due to a 16.0% reduction in average non-GAAP coal sales realization per ton, despite a 5.6% increase in tons sold[168] - Met segment non-GAAP coal margin per ton decreased by 43.6% to $44.78, while Met segment Adjusted EBITDA decreased by 42.8% to $172.4 million[170][176] Non-GAAP Financial Measures (in thousands, except per ton) | Metric (in thousands, except per ton) | 3 Months Ended Sep 30, 2023 (Met) | 3 Months Ended Sep 30, 2022 (Met) | Change (%) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :--------- | | Tons sold | 4,115 | 3,896 | 5.6% | | Non-GAAP Coal revenues | $636,711 | $718,053 | (11.3)% | | Non-GAAP Coal sales realization per ton | $154.73 | $184.31 | (16.0)% | | Non-GAAP Cost of coal sales | $452,460 | $408,553 | 10.7% | | Non-GAAP Cost of coal sales per ton | $109.95 | $104.86 | 4.9% | | Non-GAAP Coal margin per ton | $44.78 | $79.44 | (43.6)% | | Adjusted EBITDA | $172,414 | $301,556 | (42.8)% | Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022 Revenues This section analyzes the company's revenue performance for the nine months ended September 30, 2023, compared to the prior year period - Coal revenues decreased by $772.3 million (23.6%) for the nine months ended September 30, 2023, primarily due to a 25.4% reduction in average coal sales realization within the Met segment[179] - Total tons sold remained stable at 12,488 thousand tons for the nine months ended September 30, 2023[179] Revenues (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Coal revenues | $2,499,503 | $3,271,845 | $(772,342) | (23.6)% | | Other revenues | $11,923 | $6,299 | $5,624 | 89.3% | | Total revenues | $2,511,426 | $3,278,144 | $(766,718) | (23.4)% | | Tons sold | 12,488 | 12,497 | (9) | (0.1)% | Cost and Expenses This section analyzes the company's costs and expenses for the nine months ended September 30, 2023, compared to the prior year period - Total costs and expenses decreased by 2.7% to $1.86 billion for the nine months ended September 30, 2023[181] - Cost of coal sales decreased by 2.9% due to lower royalties, taxes, and freight, offsetting inflationary pressures. Depreciation, depletion, and amortization increased by 12.6%, while amortization of acquired intangibles decreased by 59.7%[181][182] Cost and Expenses (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Cost of coal sales | $1,687,259 | $1,736,826 | $(49,567) | (2.9)% | | Depreciation, depletion and amortization | $94,231 | $83,690 | $10,541 | 12.6% | | Amortization of acquired intangibles, net | $6,458 | $16,038 | $(9,580) | (59.7)% | | Selling, general and administrative expenses | $56,251 | $48,339 | $7,912 | 16.4% | | Mark-to-market adjustment for acquisition-related obligations | $0 | $10,615 | $(10,615) | (100.0)% | | Total costs and expenses | $1,861,663 | $1,913,899 | $(52,236) | (2.7)% | Total Other Expense, Net This section analyzes the company's total other expense, net, for the nine months ended September 30, 2023, compared to the prior year period - Total other expense, net, decreased by 60.5% to $8.85 million for the nine months ended September 30, 2023, primarily due to decreased interest expense from a reduction in outstanding debt[185] Total Other Expense, Net (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Total other expense, net | $8,850 | $22,427 | $(13,577) | (60.5)% | Income Tax Expense This section analyzes the company's income tax expense for the nine months ended September 30, 2023, compared to the prior year period - Income tax expense decreased by 16.7% to $95.0 million for the nine months ended September 30, 2023, on income before income taxes of $640.9 million[186] - The effective tax rate differs from the federal statutory rate of 21% primarily due to the permanent impact of percentage depletion and foreign-derived intangible income deductions[186] Income Tax Expense (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change ($) | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :--------- | | Income tax expense | $94,973 | $113,953 | $(18,980) | (16.7)% | Non-GAAP Financial Measures This section provides an analysis of non-GAAP financial measures for the nine months ended September 30, 2023, focusing on the Met segment's performance - Met segment non-GAAP coal revenues decreased by 23.6% for the nine months ended September 30, 2023, due to a 25.3% reduction in average non-GAAP coal sales realization per ton, despite a 2.3% increase in tons sold[196] - Met segment non-GAAP coal margin per ton decreased by 47.5% to $68.86, while Met segment Adjusted EBITDA decreased by 47.2% to $803.5 million[198][203] Non-GAAP Financial Measures (in thousands, except per ton) | Metric (in thousands, except per ton) | 9 Months Ended Sep 30, 2023 (Met) | 9 Months Ended Sep 30, 2022 (Met) | Change (%) | | :------------------------------------ | :-------------------------------- | :-------------------------------- | :--------- | | Tons sold | 12,001 | 11,726 | 2.3% | | Non-GAAP Coal revenues | $2,133,218 | $2,790,507 | (23.6)% | | Non-GAAP Coal sales realization per ton | $177.75 | $237.98 | (25.3)% | | Non-GAAP Cost of coal sales | $1,306,879 | $1,251,200 | 4.5% | | Non-GAAP Cost of coal sales per ton | $108.90 | $106.70 | 2.1% | | Non-GAAP Coal margin per ton | $68.86 | $131.27 | (47.5)% | | Adjusted EBITDA | $803,517 | $1,521,089 | (47.2)% | Liquidity and Capital Resources Overview This section provides an overview of the company's liquidity and capital resource requirements and sources, along with management's outlook on sufficiency - The Company's primary liquidity and capital resource requirements stem from coal production, capital expenditures, debt service, reclamation obligations, taxes, and regulatory costs[205] - Primary sources of liquidity are derived from sales of coal, debt financing, and miscellaneous revenues[205] - Management believes cash on hand and cash generated from operations will be sufficient for the next 12 months, but acknowledges significant business, political, economic, regulatory, environmental, and competitive uncertainties[206] Liquidity This section details the company's total liquidity as of September 30, 2023, including cash and credit facility availability - As of September 30, 2023, total liquidity was $390.1 million, comprising $296.1 million in cash and cash equivalents and $94.1 million in credit facility availability[208] Total Liquidity (in thousands) | Metric (in thousands) | September 30, 2023 | | :-------------------- | :----------------- | | Cash and cash equivalents | $296,059 | | Credit facility availability | $94,073 | | Total liquidity | $390,132 | Cash Collateral This section outlines the company's cash collateral held to secure various obligations as of September 30, 2023 - As of September 30, 2023, the Company had $161.9 million in total cash collateral, including long-term restricted cash, long-term restricted investments, and deposits[210] - This collateral secures obligations under workers' compensation, black lung, reclamation-related obligations, financial payments, and other performance obligations[209] Cash Collateral (in thousands) | Metric (in thousands) | September 30, 2023 | | :-------------------- | :----------------- | | Long-term restricted cash | $83,004 | | Long-term restricted investments | $71,269 | | Short-term and long-term deposits | $7,605 | | Total cash collateral | $161,878 | Off-Balance Sheet Arrangements This section describes the company's off-balance sheet arrangements, including surety bonds and letters of credit, and their potential impact on liquidity - As of September 30, 2023, the Company had $175.3 million in outstanding surety bonds and $60.9 million in letters of credit to provide financial assurance for post-mining reclamation, workers' compensation, and federal black lung benefits[212] - The Company's failure to maintain or acquire surety bonds or suitable alternatives could have a material adverse effect on its liquidity[96] Off-Balance Sheet Arrangements (in thousands) | Metric (in thousands) | September 30, 2023 | | :-------------------- | :----------------- | | Surety bonds | $175,339 | | Letters of credit | $60,927 | Debt Financing and Related Transactions This section details the company's debt financing activities, including outstanding borrowings and the refinancing of its ABL Agreement - As of September 30, 2023, there were no outstanding borrowings under the ABL Facility, but $60.9 million in letters of credit were outstanding[213] - On October 27, 2023, the Company refinanced its ABL Agreement, entering into a new ABL Facility with a maturity date of October 27, 2027[62][214] Acquisition-Related Obligations This section discusses the status of the company's acquisition-related obligations, including the final payment of the Contingent Revenue Obligation - The Company paid the final calculated payment for the Contingent Revenue Obligation during the first quarter of 2023[215] - As of September 30, 2023, the Company had $0.2 million of acquisition-related obligations outstanding[215] Capital Requirements This section outlines the company's capital expenditures and future investment plans, including significant investments for facility upgrades - Capital expenditures for the nine months ended September 30, 2023, were $183.8 million, with full-year 2023 expenditures expected to be between $250.0 million and $280.0 million[216] - The Company expects to spend between $40.0 million and $50.0 million on capital contributions for equity affiliates in 2024, including significant investments for Dominion Terminal Associates (DTA) facility upgrades[219][220] Capital Expenditures (in millions) | Metric (in millions) | 9 Months Ended Sep 30, 2023 | Full-Year 2023 Estimate | | :------------------- | :-------------------------- | :---------------------- | | Capital expenditures | $183.8 | $250.0 - $280.0 | Contractual Obligations This section confirms that there have been no material changes to the company's contractual obligations during the reported period - There have been no material changes to the Company's contractual obligations during the nine months ended September 30, 2023, as discussed in the Annual Report on Form 10-K for the year ended December 31, 2022[217] Business Updates This section provides updates on the company's credit ratings, strategic investments, and potential liquidity risks - S&P Global Ratings upgraded the Company's issuer credit rating to B+ with a stable outlook in August 2023, and Moody's Investors Service upgraded its Corporate Family Rating to B1 with a stable outlook in July 2023[218] - The Company is evaluating significant capital investments for its 65% owned Dominion Terminal Associates (DTA) coal export terminal to maximize functionality and minimize downtime[219] - Negative outlook ratings in the future could result in potential liquidity risks, including declines in stock value, reduced cash, higher credit costs, and demands for additional collateral[218] Income Taxes This section details the company's federal income taxes payable as of September 30, 2023 - As of September 30, 2023, the Company has recorded federal income taxes payable of $8.6 million[59][223] Pension Plans This section outlines the company's expectations regarding future contributions to its pension plans - The Company does not expect to have any additional contributions to the pension plans for the remainder of 2023[223] DCMWC Reauthorization Process This section discusses the potential impact of new Department of Labor regulations on the company's black lung collateral obligations and liquidity - The U.S. Department of Labor's proposed new regulations could substantially increase the collateral required for self-insured federal black lung obligations to an estimated $80 million to $100 million[224][225] - This significant increase in collateral obligations could have a materially adverse effect on the Company's liquidity[225] - The Company has appealed an earlier DCMWC determination requiring $65.7 million in collateral, which represents a 2,400% increase from previous levels[223][224] Share Repurchase Program This section provides an update on the company's share repurchase program, including recent authorization increases - The Board approved an additional $300 million increase to the share repurchase program on October 31, 2023, bringing the total authorization to $1.5 billion[50][226] Dividend Program This section details the company's decision to end its fixed dividend program and the declaration of its final quarterly dividend - The Board determined to end the fixed dividend program following the quarterly dividend declared and to be paid in the fourth quarter of 2023[52][227] - A quarterly cash dividend of $0.50 per share was declared on October 31, 2023, payable on December 15, 2023[53][227] Cash Flows This section analyzes the company's cash flow activities for the nine months ended September 30, 2023, compared to the prior year period - Net cash provided by operating activities decreased by 49.8% YoY to $651.8 million for the nine months ended September 30, 2023, primarily due to lower coal sale realizations[229] - Net cash used in investing activities decreased by 30.6% YoY, while net cash used in financing activities decreased by 40.6% YoY, primarily due to lower principal repayments of long-term debt[229][230] Cash Flows (in thousands) | Metric (in thousands) | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | Change (%) | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | | Net cash provided by operating activities | $651,806 | $1,299,037 | (49.8)% | | Net cash used in investing activities | $(126,637) | $(182,564) | (30.6)% | | Net cash used in financing activities | $(501,500) | $(844,133) | (40.6)% | | Net increase in cash and cash equivalents and restricted cash | $23,669 | $272,340 | (91.3)% | Analysis of Material Debt Covenants This section confirms the company's compliance with debt covenants as of September 30, 2023, and discusses potential implications of a breach - As of September 30, 2023, the Company was in compliance with all covenants under the ABL Agreement[231] - A breach of covenants could result in a default and acceleration of amounts borrowed. The Fixed Charge Coverage Ratio covenant was not applicable as the Company was not in a Liquidity Period[231][232] Critical Accounting Policies and Estimates This section discusses the company's critical accounting policies and estimates, emphasizing the use of judgment and assumptions in financial reporting - The preparation of financial statements requires management to make estimates and assumptions based on historical experience and current economic conditions, which are continuously evaluated[234] - The Company's critical accounting policies remain unchanged as of September 30, 2023, from those discussed in its Annual Report on Form 10-K for the year ended December 31, 2022[235] Item 3. Quantitative and Qualitative Disclosures about Market Risk This item discusses the company's exposure to market risks, including commodity price risk for coal sales and supplies, interest rate risk on its revolving credit facility and investments, and foreign currency risk due to international sales denominated in U.S. dollars Commodity Price Risk This section describes how the company manages commodity price risk for both coal sales and key operating supplies - The Company manages commodity price risk for coal sales through coal supply agreements and for supplies (diesel fuel, steel, explosives) through strategic sourcing contracts[236] Budgeted Diesel Fuel Usage | Metric | 2023 Budgeted Diesel Fuel Usage | 2024 Budgeted Diesel Fuel Usage | | :----- | :------------------------------ | :------------------------------ | | Gallons | 23.9 million | 23.3 million | | % Priced | 94.6% | 42.4% | | Average Realized Price per Gallon | $3.49 | $3.46 | Interest Rate Risk This section discusses the company's exposure to interest rate risk on its debt and investments - The Company's ABL Facility bears a floating rate of interest on cash borrowings, though no cash borrowings were outstanding as of September 30, 2023[238] - Investments in trading securities ($71.3 million as of September 30, 2023) are primarily in shorter-term, highly rated debt obligations (U.S. government securities) to manage interest rate risk[239] Foreign Currency Risk This section addresses the company's foreign currency risk exposure, primarily through indirect impacts on competitiveness - The Company's transactions are denominated in U.S. dollars, limiting direct foreign currency exchange-rate risks[241] - However, fluctuations in foreign currencies against the U.S. dollar could provide foreign competitors with a competitive advantage or lead to demands for decreased prices from overseas customers, adversely affecting competitiveness and financial results[241] Item 4. Controls and Procedures This item confirms that the CEO and CFO evaluated the effectiveness of disclosure controls and procedures as of September 30, 2023, concluding they were effective. There were no material changes in internal control over financial reporting during the period Evaluation of Disclosure Controls and Procedures This section details the evaluation of the company's disclosure controls and procedures by its CEO and CFO - The CEO and CFO concluded that the Company's disclosure controls and procedures were effective as of September 30, 2023[242] - Disclosure controls and procedures are designed to ensure timely recording, processing, summarizing, and reporting of information required for SEC filings[242] Changes in Internal Control Over Financial Reporting This section confirms that there were no material changes in the company's internal control over financial reporting during the reported period - There were no changes in internal control over financial reporting during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting[243] Inherent Limitations on Effectiveness of Disclosure Controls and Procedures This section acknowledges the inherent limitations of control systems, emphasizing that they provide reasonable, not absolute, assurance - Management acknowledges that control systems, no matter how well designed and operated, can provide only reasonable, not absolute, assurance and may not prevent or detect all errors and fraud due to inherent limitations[244] Part II - Other Information Item 1. Legal Proceedings The company is involved in legal proceedings from time to time, including contract disputes, personal injury claims, environmental issues, and employment matters. Accruals are recorded for probable and estimable losses, but many claims involve unquantified damages and significant judgment - The Company is party to various legal proceedings, including contract disputes, personal injury claims, property damage claims, environmental and safety issues, securities-related matters, and employment matters[103] - Estimated losses from loss contingencies are accrued when probable and reasonably estimable, but many claims involve unquantified damages and significant judgment, making estimates difficult[103] Item 1A. Risk Factors This section highlights a key risk factor: disruptions in transportation services or port facilities, and increased transportation costs, could impair the company's ability to supply coal, reduce demand, and adversely affect its business. This includes reliance on single rail carriers and the Dominion Termin