Ramaco Resources(METC) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed consolidated financial statements and detailed notes on accounting policies, debt, leases, equity, revenue, and subsequent events Unaudited Condensed Consolidated Balance Sheets Total assets increased from $228.6 million to $247.1 million by June 30, 2021, driven by higher cash and inventories, with stockholders' equity also growing significantly | Metric | Dec 31, 2020 (in thousands) | Jun 30, 2021 (in thousands) | Change | | :-------------------------- | :-------------------------- | :-------------------------- | :----- | | Total Assets | $228,623 | $247,082 | +$18,459 | | Cash and cash equivalents | $5,300 | $19,394 | +$14,094 | | Inventories | $11,947 | $19,575 | +$7,628 | | Total Liabilities | $59,528 | $61,652 | +$2,124 | | Total Stockholders' Equity | $169,095 | $185,430 | +$16,335 | Unaudited Condensed Consolidated Statements of Operations The company achieved significant revenue and net income growth for both the three and six months ended June 30, 2021, primarily due to increased sales volumes and improved metallurgical coal pricing | Metric (in thousands, except per-share) | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | YoY Change | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | YoY Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Revenue | $76,057 | $36,374 | +109.1% | $119,511 | $78,310 | +52.6% | | Total costs and expenses | $69,036 | $40,673 | +69.7% | $111,246 | $81,468 | +36.6% | | Operating income (loss) | $7,021 | $(4,299) | N/A | $8,265 | $(3,158) | N/A | | Net income | $9,942 | $2,652 | +274.9% | $14,085 | $4,614 | +205.3% | | Basic EPS | $0.23 | $0.06 | +283.3% | $0.32 | $0.11 | +190.9% | Unaudited Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity increased from $169.1 million at January 1, 2021, to $185.4 million at June 30, 2021, primarily driven by net income and stock-based compensation | Metric (in thousands) | Balance at Jan 1, 2021 | Stock-based compensation | Net income | Restricted stock surrendered | Balance at Jun 30, 2021 | | :-------------------- | :--------------------- | :----------------------- | :--------- | :--------------------------- | :---------------------- | | Common Stock | $427 | $15 | $(1) | — | $441 | | Additional Paid-in Capital | $158,859 | $2,562 | $(326) | — | $161,095 | | Retained Earnings | $9,809 | — | $14,085 | — | $23,894 | | Total Stockholders' Equity | $169,095 | $3,077 | $14,085 | $(327) | $185,430 | Unaudited Condensed Consolidated Statements of Cash Flows Net cash from operating activities significantly increased to $32.9 million for the six months ended June 30, 2021, while investing activities saw reduced capital expenditures and financing activities resulted in a net cash outflow due to debt repayments | Metric (in thousands) | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | YoY Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Net cash from operating activities | $32,922 | $6,833 | +381.8% | | Net cash from investing activities | $(8,551) | $(18,019) | +52.5% | | Net cash from financing activities | $(10,910) | $15,528 | N/A | | Net change in cash and cash equivalents | $13,461 | $4,342 | +210.0% | | Cash and cash equivalents, end of period | $20,171 | $11,207 | +80.0% | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and disclosures for the financial statements, covering business, accounting policies, debt, leases, equity, revenue, and subsequent events NOTE 1—BUSINESS Ramaco Resources, Inc. operates and develops high-quality metallurgical coal in West Virginia, Virginia, and Pennsylvania, experiencing increased demand and U.S. steel prices in 2021 - The company is an operator and developer of high-quality, low-cost metallurgical coal in southern West Virginia, southwestern Virginia, and southwestern Pennsylvania[31] - Global economic recovery in 2021 led to increased demand for metallurgical coal and significantly higher U.S. steel prices, contrasting with declining demand and spot prices in 2020 due to COVID-19[32] NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note outlines the basis of presentation for interim financial statements, key accounting policies, and recent accounting pronouncements, including self-insurance and customer concentrations - The company is self-insured for workers' compensation claims, with an estimated aggregate liability of $1.2 million at June 30, 2021, and $1.7 million at December 31, 2020[37] - Sales to two customers accounted for approximately 46% of total revenue for the three months ended June 30, 2021, and 52% for the six months ended June 30, 2021, indicating customer concentration[41] - The adoption of ASU 2019-12 (Income Taxes) in Q1 2021 did not materially impact consolidated financial statements, and the company is assessing the impact of ASU No 2020-04 (Reference Rate Reform)[42][43] NOTE 3—PROPERTY, PLANT AND EQUIPMENT Net property, plant, and equipment slightly decreased to $177.6 million at June 30, 2021, with increased capitalized mine development costs offset by accumulated depreciation | Metric (in thousands) | Jun 30, 2021 | Dec 31, 2020 | | :-------------------------------- | :----------- | :----------- | | Plant and equipment | $158,959 | $155,173 | | Construction in process | $4,778 | $7,245 | | Capitalized mine development costs | $81,549 | $74,279 | | Less: accumulated depreciation and amortization | $(67,711) | $(56,242) | | Total property, plant and equipment, net | $177,575 | $180,455 | - Capitalized amounts related to coal reserves at non-operating properties totaled $14.2 million as of June 30, 2021, down from $15.4 million as of December 31, 2020[44] | Metric (in thousands) | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | | :-------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total depreciation and amortization | $5,955 | $5,341 | $12,110 | $10,343 | NOTE 4—DEBT The company's debt includes a $5.0 million Term Loan and a $30.0 million Revolving Credit Facility, with an additional $3.0 million Equipment Financing Loan outstanding as of June 30, 2021 - The Revolving Credit Facility has a $30.0 million availability, with no amount outstanding at June 30, 2021[47] - The Term Loan had an outstanding principal balance of $5.0 million at June 30, 2021[48] - The Equipment Financing Loan had an outstanding principal balance of $3.0 million at June 30, 2021[50] - The company was in compliance with all debt covenants under the Credit Agreement at June 30, 2021[49] NOTE 5—LEASES The company holds various financing leases for mining equipment and one operating lease for office space, with total right-of-use assets of $5.8 million and lease liabilities of $5.4 million at June 30, 2021 | Metric (in thousands) | Jun 30, 2021 | Dec 31, 2020 | | :-------------------- | :----------- | :----------- | | Total right-of-use assets | $5,813 | $110 | | Total lease liabilities | $5,395 | $110 | - Weighted average remaining lease term for financing leases is 2.8 years with a discount rate of 4.1%[55] NOTE 6—SBA PAYCHECK PROTECTION PROGRAM LOAN The company received an $8.4 million PPP Loan in April 2020, which was fully forgiven by the SBA on July 29, 2021, and recognized as other income in 2020 - The company received an $8.4 million PPP Loan in April 2020[56] - The PPP Loan was approved for full forgiveness by the SBA on July 29, 2021, and $8.4 million was recognized as other income in 2020[59][60] NOTE 7—EQUITY The company's stock-based compensation plan reserved 1.7 million shares for future awards, with expenses totaling $1.5 million for Q2 2021 and $2.6 million for H1 2021 - 1.7 million shares were reserved under the current stock-based compensation plan for future awards at June 30, 2021[61] - Stock-based compensation expense totaled $1.5 million for Q2 2021 and $2.6 million for H1 2021[63] - Unrecognized compensation cost related to unvested restricted stock was $9.9 million at June 30, 2021, to be recognized over a weighted-average period of 2.1 years[63] NOTE 8—COMMITMENTS AND CONTINGENCIES The company has $15.7 million in reclamation bonding, $0.3 million in surety bonds, and $6.3 million in contingent transportation commitments, alongside a $32.7 million jury verdict in the Chubb Insurance lawsuit that is not yet final - Total reclamation bonding requirements were $15.7 million, and surety bonds for performance obligations were $0.3 million at June 30, 2021[65] - Contingent liabilities under take-or-pay transportation arrangements totaled $6.3 million, expiring between December 31, 2021, and March 31, 2024[66] - On July 15, 2021, a jury awarded the company $7.7 million in compensatory damages and an additional $25.0 million for inconvenience and aggravation in the Chubb Insurance lawsuit, though the verdict is not final and not recognized as of June 30, 2021[71] NOTE 9—REVENUE Total revenue significantly increased for both the three and six months ended June 30, 2021, driven by higher export revenues, with outstanding performance obligations for 0.8 million tons at fixed prices and 0.1 million tons at index-based pricing for the remainder of 2021 | Revenue (in thousands) | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | YoY Change | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | YoY Change | | :--------------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | North American revenues | $37,550 | $31,005 | +21.1% | $57,656 | $62,510 | -7.7% | | Export revenues | $38,507 | $5,369 | +617.2% | $61,855 | $15,800 | +291.5% | | Total revenues | $76,057 | $36,374 | +109.1% | $119,511 | $78,310 | +52.6% | - Outstanding performance obligations for the remainder of 2021 include approximately 0.8 million tons at an average fixed price of $86/ton and 0.1 million tons at index-based pricing[72] NOTE 10—INCOME TAXES Income tax expense for the three and six months ended June 30, 2021, was significantly lower than in 2020, primarily due to a $1.0 million tax benefit from legislative changes in West Virginia, resulting in effective tax rates of 10% and 9% respectively | Metric (in thousands) | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total income tax expense | $228 | $1,260 | $62 | $1,370 | - A tax benefit of $1.0 million (Q2 2021) and $1.4 million (H1 2021) was recognized due to legislative changes in West Virginia[73] - Effective tax rate (excluding discrete items) was 10% for Q2 2021 (vs 21% in Q2 2020) and 9% for H1 2021 (vs 16% in H1 2020)[73] NOTE 11—EARNINGS PER SHARE Basic and diluted EPS significantly increased for both the three and six months ended June 30, 2021, reflecting higher net income | Metric (in thousands, except per share) | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | | :------------------------------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $9,942 | $2,652 | $14,085 | $4,614 | | Basic EPS | $0.23 | $0.06 | $0.32 | $0.11 | | Diluted EPS | $0.23 | $0.06 | $0.32 | $0.11 | NOTE 12—RELATED PARTY TRANSACTIONS The company has mineral leases and surface rights agreements with Ramaco Coal, LLC, a related party, with royalties paid totaling $1.5 million for Q2 2021 and $2.6 million for H1 2021 - Royalties paid to related party Ramaco Coal, LLC were $1.5 million for the three months ended June 30, 2021, and $2.6 million for the six months ended June 30, 2021[76] NOTE 13—SUBSEQUENT EVENTS Subsequent to June 30, 2021, the company completed a $34.5 million public offering of Senior Unsecured Notes, received full SBA forgiveness for its $8.4 million PPP Loan, and was awarded $32.7 million in a jury verdict for the Chubb Insurance lawsuit - On July 13, 2021, the company closed a public offering of $34.5 million in 9.00% Senior Unsecured Notes due 2026, with proceeds for general corporate purposes including acquisitions, capital expenditures, and working capital[77][78] - On July 29, 2021, the SBA approved full forgiveness for the $8.4 million PPP Loan[79][80] - On July 15-16, 2021, a jury awarded the company $32.7 million ($7.7 million compensatory, $25.0 million inconvenience/aggravation) in the Chubb Insurance lawsuit, though the verdict is not final[79] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, operations, recent developments, liquidity, capital resources, indebtedness, and non-GAAP measures Overview Ramaco Resources, Inc., a metallurgical coal producer with a 261-million-ton reserve base, aims to grow production to 4-4.5 million clean tons, experiencing increased demand and U.S. steel prices in Q2 2021 with 0.7 million tons sold, 51% to export markets - The company has a 261-million-ton reserve base of high-quality metallurgical coal and plans to grow production to more than 4-4.5 million clean tons[83] - In Q2 2021, the company sold 0.7 million tons of coal, with 51% going to export markets (Europe, South America, Asia, Africa), a significant shift from Q2 2020 where 85% of sales were North American[85] - The global economic recovery in 2021 led to increased demand and significantly higher U.S. steel prices, reversing the declining demand and spot prices experienced in 2020 due to COVID-19[87] Recent Developments Recent developments include a $34.5 million Senior Unsecured Notes offering, a $32.7 million favorable jury verdict in the Chubb Insurance litigation, and full forgiveness of the $8.4 million SBA Paycheck Protection Program Loan, all occurring in July 2021 - Completed a $34.5 million public offering of 9.00% Senior Unsecured Notes due 2026 on July 13, 2021, with proceeds for general corporate purposes including acquisitions, capital expenditures, and working capital[89][91] - A jury returned a verdict in favor of the company for $7.7 million in compensatory damages and an additional $25.0 million for inconvenience and aggravation in the Chubb Insurance litigation on July 15-16, 2021[94] - The $8.4 million SBA Paycheck Protection Program Loan was approved for full forgiveness by the SBA on July 29, 2021[95] Results of Operations The company reported significantly higher net income and Adjusted EBITDA for both the three and six months ended June 30, 2021, compared to 2020, driven by a 42% increase in sales volumes and improved pricing, with other income including CARES Act Employee Retention Tax Credit in 2021 and PPP Loan forgiveness in 2020 | Metric (in thousands) | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | YoY Change | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | YoY Change | | :-------------------- | :-------------------------- | :-------------------------- | :--------- | :-------------------------- | :-------------------------- | :--------- | | Revenue | $76,057 | $36,374 | +109.1% | $119,511 | $78,310 | +52.6% | | Operating income (loss) | $7,021 | $(4,299) | N/A | $8,265 | $(3,158) | N/A | | Net income | $9,942 | $2,652 | +274.9% | $14,085 | $4,614 | +205.3% | | Adjusted EBITDA | $18,084 | $10,811 | +67.3% | $29,624 | $19,228 | +54.1% | - Sales volumes were 42% higher during the six months ended June 30, 2021, compared to the same period in 2020, primarily due to the recovery from COVID-19 impacts[96] - The company recognized $5.3 million in CARES Act Employee Retention Tax Credit in H1 2021 and $7.3 million in PPP Loan forgiveness in H1 2020 as other income[96] Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020 Revenue increased by 109% to $76.1 million, driven by a 90% increase in tons sold and a 7% increase in revenue per ton (FOB mine), while net income surged by 275% | Metric (in thousands, except per ton) | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | YoY Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Coal sales revenue | $76,057 | $36,374 | +109.1% | | Tons sold | 686 | 362 | +89.5% | | Revenue per ton sold (FOB mine) | $97 | $91 | +6.6% | | Cost of sales | $57,762 | $30,134 | +91.7% | | Cash cost per ton sold (FOB mine) | $70 | $74 | -5.4% | | Net income | $9,942 | $2,652 | +274.9% | - Other income for Q2 2021 included $2.9 million from the CARES Act Employee Retention Tax Credit, while Q2 2020 included $7.3 million from anticipated PPP Loan forgiveness[103] Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020 Revenue increased by 53% to $119.5 million, primarily due to a 42% increase in tons sold, with cash cost per ton (FOB mine) improving by 5.7% to $66, and net income growing by 205% | Metric (in thousands, except per ton) | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | YoY Change | | :------------------------------------ | :-------------------------- | :-------------------------- | :--------- | | Coal sales revenue | $119,511 | $78,310 | +52.6% | | Tons sold | 1,108 | 778 | +42.4% | | Revenue per ton sold (FOB mine) | $93 | $92 | +1.1% | | Cost of sales | $89,000 | $61,100 | +45.7% | | Cash cost per ton sold (FOB mine) | $66 | $70 | -5.7% | | Net income | $14,085 | $4,614 | +205.3% | - Other income for H1 2021 included $5.3 million from the CARES Act Employee Retention Tax Credit, while H1 2020 included $7.3 million from anticipated PPP Loan forgiveness[112] Liquidity and Capital Resources At June 30, 2021, the company held $19.4 million in cash and $30.0 million in available credit, with $32.9 million in operating cash flow for H1 2021 primarily funding $8.6 million in capital expenditures and $9.4 million in net debt repayments - At June 30, 2021, the company had $19.4 million of cash and cash equivalents and $30.0 million available under its existing credit agreements for future borrowings[116] - Cash flows from operating activities were $32.9 million for the first six months of 2021, including a positive impact from working capital components of a net $3.4 million[117] - Capital expenditures were $8.6 million, principally for development of the Berwind mining complex and for infrastructure at the Elk Creek mining complex, with net repayments of borrowings totaling $9.4 million[120] - The company believes that current cash on hand, cash flow from operations, and available liquidity under existing credit agreements will be sufficient to meet its capital expenditure and operating plans[118] Indebtedness The company's debt structure includes a $5.0 million Term Loan and an undrawn $30.0 million Revolving Credit Facility, with a $3.0 million Equipment Financing Loan outstanding, and post-period, a $34.5 million Senior Unsecured Notes offering was completed and the $8.4 million PPP Loan was fully forgiven - At June 30, 2021, the Term Loan had an outstanding principal balance of $5.0 million, and the Revolving Credit Facility had $30.0 million available with no outstanding amount[124][123] - The Equipment Financing Loan had an outstanding principal balance of $3.0 million at June 30, 2021[126] - On July 13, 2021, the company closed a $34.5 million public offering of 9.00% Senior Unsecured Notes due 2026[129] - On July 29, 2021, the $8.4 million SBA Paycheck Protection Program Loan was approved for full forgiveness[128] Off-Balance Sheet Arrangements As of June 30, 2021, the company reported no material off-balance sheet arrangements - No material off-balance sheet arrangements were reported as of June 30, 2021[131] Non-GAAP Financial Measures The company utilizes Adjusted EBITDA, non-GAAP revenue per ton (FOB mine), and non-GAAP cash cost per ton sold as supplemental measures to evaluate operating performance and monitor coal prices and costs, with Adjusted EBITDA significantly increasing for both Q2 and H1 2021 - Adjusted EBITDA is defined as net income plus net interest expense, stock-based compensation, depreciation and amortization expenses, and any transaction-related costs[133] | Metric (in thousands) | 3 Months Ended Jun 30, 2021 | 3 Months Ended Jun 30, 2020 | 6 Months Ended Jun 30, 2021 | 6 Months Ended Jun 30, 2020 | | :-------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income | $9,942 | $2,652 | $14,085 | $4,614 | | Adjusted EBITDA | $18,084 | $10,811 | $29,624 | $19,228 | - Non-GAAP revenue per ton (FOB mine) increased to $97/ton in Q2 2021 (from $91/ton in Q2 2020) and $93/ton in H1 2021 (from $92/ton in H1 2020)[135][137] - Non-GAAP cash cost per ton sold (FOB mine) decreased to $70/ton in Q2 2021 (from $74/ton in Q2 2020) and $66/ton in H1 2021 (from $70/ton in H1 2020)[138] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the disclosures about market risk provided in Item 7A of the company's Annual Report - Market risk disclosures are incorporated by reference from Item 7A of the company's Annual Report[139] Item 4. Controls and Procedures The company's management concluded that disclosure controls and procedures were effective as of June 30, 2021, with no significant changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were evaluated and deemed effective as of June 30, 2021, at a reasonable assurance level[140] - No significant changes in internal control over financial reporting occurred during the quarter ended June 30, 2021[142] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in routine litigation but believes no pending claims will have a material adverse effect on its financial condition, with specific details referenced in Note 8 of the financial statements - The company believes no pending litigation, disputes, or claims will have a material adverse effect on its financial condition, cash flows, or results of operations[145] - Further details on legal proceedings are provided in Note 8 to the Condensed Consolidated Financial Statements[145] Item 1A. Risk Factors The company refers readers to the risk factors detailed in its Annual Report and other SEC filings, noting no material changes in risk factors from those previously described - Readers should carefully consider the risk factors and other cautionary statements described in the company's Annual Report and other SEC filings[146] - There have been no material changes in risk factors from those described in the Annual Report[147] Item 4. Mine Safety Disclosures Information regarding mine safety violations and regulatory matters is included in Exhibit 95.1 of this Quarterly Report - Mine safety disclosures are provided in Exhibit 95.1 to this Quarterly Report[148] Item 6. Exhibits This section lists the exhibits filed or furnished with the Form 10-Q, including indentures for senior notes, certifications (Sarbanes-Oxley Act), mine safety disclosures, and XBRL interactive data files - The report includes various exhibits such as indentures for 9.00% Senior Notes due 2026, CEO/CFO certifications (Sarbanes-Oxley Act), mine safety disclosures, and Inline XBRL documents[152] SIGNATURES The report is duly signed on behalf of Ramaco Resources, Inc. by Randall W. Atkins, Chairman, CEO, and Director, and Jeremy R. Sussman, Chief Financial Officer, on August 2, 2021 - The report was signed by Randall W Atkins (Chairman, CEO, and Director) and Jeremy R Sussman (Chief Financial Officer) on August 2, 2021[156]