Arch Resources(US:ARCH)2023-07-26 16:00Revenue and Sales Performance - In Q2 2023, coal sales revenue decreased by approximately $376.1 million, or 33.2%, compared to Q2 2022, with tons sold down by 1.2 million tons, or 6.0%[121]. - Metallurgical coal sales dropped by approximately $272.7 million due to decreased pricing, while thermal coal sales fell by approximately $103.3 million, also due to decreased pricing and volume[121]. - Total coal sales for the first half of 2023 were approximately $1,627.2 million, a decrease of $374.1 million or 18.7% compared to the first half of 2022[130]. - Tons sold in the first half of 2023 decreased by approximately 1.8 million tons, or 4.4%, totaling 37,890 tons[130]. - Thermal coal sales in the first half of 2023 decreased by approximately $165.3 million due to decreased pricing and volume[132]. - Non-GAAP segment coal sales revenues for Q2 2023 were $626.656 million, down from $954.467 million in Q2 2022, reflecting a 34.3% decline[149][150]. Cost and Expenses - The cost of sales for Q2 2023 decreased by approximately $33.6 million, or 5.3%, compared to Q2 2022, primarily due to reduced transportation costs[124]. - Cost of sales for the first half of 2023 increased by approximately $29.9 million, or 2.6%, totaling $1,177.9 million compared to $1,147.9 million in the first half of 2022[133]. - Cash cost per ton sold in the metallurgical segment decreased to $89.94 in Q2 2023 from $98.95 in Q2 2022, an improvement of $9.01[144]. - Cash cost per ton sold for metallurgical coal was $89.94 in Q2 2023, compared to $98.95 in Q2 2022, showing a decrease of 1.01%[154][156]. - For the six months ended June 30, 2023, cash cost per ton sold for metallurgical coal was $86.54, down from $345.011 in the same period of 2022, indicating a significant reduction in costs[157][158]. Profitability and Financial Metrics - Adjusted EBITDA for the metallurgical segment in the second quarter of 2023 was $132.8 million, a decrease of $263.6 million from $396.4 million in the same period of 2022[144]. - Net income for the three months ended June 30, 2023, was $77.4 million, a decrease from $407.6 million in the same period of 2022, while adjusted EBITDA was $130.4 million compared to $460.0 million year-over-year[161]. - Provision for income taxes for the first half of 2023 was $50.1 million, an increase of $49.1 million compared to $951,000 in the first half of 2022[139]. - Total non-operating expenses for the first half of 2023 were $59,000, a decrease of $15.1 million compared to $15.1 million in the first half of 2022[138]. - The net loss resulting from early retirement of debt in the first half of 2023 was $1.1 million, a decrease of $12.6 million compared to a loss of $13.7 million in the first half of 2022[138]. Operational and Strategic Initiatives - The company plans to continue growing its thermal mine reclamation fund with contributions of $10 to $20 million over the next several quarters[119]. - The company is pursuing strategic alternatives for its thermal assets, including potential divestiture, while shrinking its operational footprint in the Powder River Basin[119]. - The company continues to streamline its organizational structure to align with its long-term strategic direction as a leading producer of metallurgical products for the steelmaking industry[119]. - The company continues to focus on improving operational efficiency and managing costs amid challenging market conditions[160]. - Capital expenditures for the first half of 2023 were approximately $76.6 million, with expectations to maintain spending at maintenance levels in the foreseeable future[164]. Market Conditions and Risks - Domestic thermal coal consumption was pressured by a mild winter and falling natural gas prices, with natural gas currently economically displacing thermal coal[115]. - The company expects continued volatility in coking coal prices due to underinvestment in the sector and ongoing supply constraints[114]. - The European Union's ban on Russian coal imports has contributed to historically high thermal coal prices in international markets during 2022[112]. - The decline in coal sales per ton sold is linked to the roll-off of high-priced contracts from the previous year, which were influenced by strong domestic thermal coal markets[146]. - The company is subject to fluctuations in metallurgical coal market pricing due to the short-term nature of sales commitments[179]. Liquidity and Financial Position - The company ended Q2 2023 with cash, cash equivalents, and short-term investments of $235.1 million, and total liquidity of $361.2 million, sufficient to meet short-term and reasonably foreseeable long-term obligations[164]. - The company expects to maintain minimum liquidity levels of approximately $250 million to $300 million, with a substantial portion held in cash[164]. - Cash provided by operating activities decreased by approximately $238 million to $322.9 million for the six months ended June 30, 2023, compared to $561.2 million in the prior year[176]. - The company has reduced long-term debt by repurchasing approximately $13.2 million principal amount of Convertible Notes during the first half of 2023[171]. Shareholder Returns - For the six months ended June 30, 2023, the company paid approximately $111.9 million in dividends and spent about $93.8 million on share repurchases[165]. - The company repurchased shares for approximately $73.0 million during Q2 2023, bringing total repurchases to approximately $1.1 billion since the program's inception in 2017[169]. - The company plans to pay a combined fixed and variable dividend of $3.97 per share to stockholders of record as of August 31, 2023[167]. Commodity Price Management - The company manages commodity price risk through long-term coal supply agreements and derivative instruments[179]. - Price risk exposure includes diesel fuel, steel, explosives, and other production supplies, managed through strategic sourcing contracts[179]. - Forward contracts, swaps, and options are utilized to manage exposure to price risk related to operational supplies[179]. - The company has committed to purchasing approximately 30 to 35 million gallons of diesel fuel annually, with 12 million gallons protected through heating oil call options at an average strike price of $2.97 per gallon[181]. - The average strike price for heating oil call options is $2.97 per gallon, protecting cash flows from diesel price increases[181]. - The company has no unpriced thermal coal commitments for 2023[180]. - Committed metallurgical coal sales for 2023 include 1.7 million tons priced at $183.57 per ton and 3.5 million tons seaborne priced at $179.01 per ton[180]. - Committed thermal coal sales include 67.9 million tons priced at $17.40 per ton[180]. - The company has 0.4 million tons of priced thermal coal committed at $43.43 per ton[180].