Ramaco Resources(METC) - 2021 Q3 - Quarterly Report

FORM 10-Q Cautionary Note Regarding Forward-Looking Statements This section outlines forward-looking statements, emphasizing their basis on current expectations and assumptions, subject to various risks and uncertainties - Forward-looking statements are based on management's current expectations and assumptions, subject to risks and uncertainties[9] - Potential factors influencing forward-looking statements include COVID-19 impact, production levels, economic conditions in the metallurgical coal and steel industries, capital project timing, reserve estimates, financing ability, regulatory compliance, and market competition[10] - The company disclaims any duty to update forward-looking statements to reflect events or circumstances after the report date, except as required by applicable law[15] Part I. Financial Information Financial Highlights (Q3 2021 vs Q3 2020 & YTD 2021 vs YTD 2020) | Metric | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $76,377 thousand | $39,459 thousand | $195,889 thousand | $117,769 thousand | | Net income (loss) | $7,035 thousand | $(4,776) thousand | $21,120 thousand | $(162) thousand | | Basic EPS | $0.16 | $(0.11) | $0.48 | $0.00 | | Diluted EPS | $0.16 | $(0.11) | $0.48 | $0.00 | Balance Sheet Snapshot (Sep 30, 2021 vs Dec 31, 2020) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--------------------------- | :------------------- | :------------------- | | Total Assets | $299,084 thousand | $228,623 thousand | | Total Liabilities | $105,277 thousand | $59,528 thousand | | Total Stockholders' Equity | $193,807 thousand | $169,095 thousand | | Cash and cash equivalents | $46,672 thousand | $5,300 thousand | - Net cash from operating activities significantly increased to $37.8 million for the nine months ended September 30, 2021, from $0.9 million in the prior year[28] Item 1. Financial Statements This section presents Ramaco Resources' unaudited condensed consolidated financial statements for the period ended September 30, 2021 Unaudited Condensed Consolidated Balance Sheets | Metric | September 30, 2021 (in thousands) | December 31, 2020 (in thousands) | | :-------------------------------- | :-------------------------------- | :--------------------------------- | | Total Assets | $299,084 | $228,623 | | Total Liabilities | $105,277 | $59,528 | | Total Stockholders' Equity | $193,807 | $169,095 | | Cash and cash equivalents | $46,672 | $5,300 | | Accounts receivable | $37,592 | $20,299 | | Inventories | $13,880 | $11,947 | | Accounts payable | $21,157 | $11,742 | | Senior notes, net | $32,245 | — | - Total assets increased by approximately $70.5 million, primarily driven by a significant increase in cash and cash equivalents and accounts receivable[19] - Total liabilities increased by approximately $45.7 million, largely due to increases in accounts payable and the issuance of senior notes[19] Unaudited Condensed Consolidated Statements of Operations | Metric | 3 Months Ended Sep 30, 2021 (in thousands) | 3 Months Ended Sep 30, 2020 (in thousands) | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | | :----------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Revenue | $76,377 | $39,459 | $195,889 | $117,769 | | Operating income (loss) | $8,767 | $(7,582) | $17,032 | $(10,741) | | Net income (loss) | $7,035 | $(4,776) | $21,120 | $(162) | | Basic EPS | $0.16 | $(0.11) | $0.48 | $0.00 | | Diluted EPS | $0.16 | $(0.11) | $0.48 | $0.00 | - Revenue increased by 93.5% for the three months ended September 30, 2021, and by 66.3% for the nine months ended September 30, 2021, compared to the respective prior periods[20] - The company reported a significant turnaround from a net loss of $(4.8) million in Q3 2020 to a net income of $7.0 million in Q3 2021, and from a net loss of $(0.2) million to a net income of $21.1 million for the nine months ended September 30, 2021[20] Unaudited Condensed Consolidated Statements of Stockholders' Equity | Metric | January 1, 2021 (in thousands) | September 30, 2021 (in thousands) | | :----------------------- | :----------------------------- | :-------------------------------- | | Total Stockholders' Equity | $169,095 | $193,807 | | Net income | $21,120 (YTD) | | | Stock-based compensation | $3,919 (YTD) | | - Total stockholders' equity increased by $24.7 million from January 1, 2021, to September 30, 2021, primarily due to net income and stock-based compensation[24] Unaudited Condensed Consolidated Statements of Cash Flows | Metric | 9 Months Ended Sep 30, 2021 (in thousands) | 9 Months Ended Sep 30, 2020 (in thousands) | | :--------------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash from operating activities | $37,757 | $947 | | Net cash from investing activities | $(17,642) | $(20,515) | | Net cash from financing activities | $20,847 | $20,541 | | Net change in cash and cash equivalents | $40,962 | $973 | - Net cash from operating activities saw a substantial increase to $37.8 million for the nine months ended September 30, 2021, compared to $0.9 million in the prior year[28] - The company experienced a significant net increase in cash and cash equivalents of $41.0 million for the nine months ended September 30, 2021[28] Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1—BUSINESS - Ramaco Resources, Inc. is an operator and developer of high-quality, low-cost metallurgical coal in southern West Virginia, southwestern Virginia, and southwestern Pennsylvania[31] - After declining demand in 2020 due to COVID-19, the company observed increased demand for metallurgical coal in 2021, driven by global economic recovery and significant increases in U.S. steel prices[32] NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Interim financial statements are unaudited, condensed, and prepared in accordance with SEC rules and GAAP, relying on management estimates and assumptions[34][35] - The company is self-insured for certain workers' compensation claims, with an estimated aggregate liability of $3.5 million at September 30, 2021[37] - Sales to the top three customers accounted for approximately 64% of total revenue for the three months ended September 30, 2021, and 59% for the nine months ended September 30, 2021[41] NOTE 3—PROPERTY, PLANT AND EQUIPMENT | (In thousands) | September 30, 2021 | December 31, 2020 | | :----------------------------------- | :----------------- | :---------------- | | Plant and equipment | $161,566 | $155,173 | | Construction in process | $4,890 | $7,245 | | Capitalized mine development costs | $88,713 | $74,279 | | Less: accumulated depreciation and amortization | $(73,494) | $(56,242) | | Total property, plant and equipment, net | $181,675 | $180,455 | - Net property, plant, and equipment increased slightly to $181.7 million at September 30, 2021, from $180.5 million at December 31, 2020[44] | (In thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total depreciation and amortization | $6,751 | $5,258 | $18,861 | $15,601 | NOTE 4—DEBT - The company has a Revolving Credit Facility with $27.1 million remaining availability and a Term Loan with an outstanding principal balance of $4.2 million at September 30, 2021[47][48] - On July 13, 2021, the company completed an offering of $34.5 million in 9.00% Senior Unsecured Notes due 2026[51] - The company was in compliance with all debt covenants under the Credit Agreement at September 30, 2021[49] NOTE 5—LEASES - The company holds various financing leases for mining equipment, generally with terms up to 36 months, and one operating lease for office space expiring mid-2022[56] | (In thousands) | September 30, 2021 | December 31, 2020 | | :--------------------------------- | :----------------- | :---------------- | | Total right-of-use assets | $8,941 | $110 | | Total lease liabilities | $7,948 | $110 | NOTE 6—SBA PAYCHECK PROTECTION PROGRAM LOAN - The $8.4 million PPP Loan received in April 2020 was fully forgiven by the SBA on July 29, 2021[61] - The company recognized $8.4 million as other income in 2020 due to the anticipated forgiveness of the PPP Loan[60] NOTE 7—EQUITY - At September 30, 2021, there was $8.5 million of total unrecognized compensation cost related to unvested restricted stock, to be recognized over a weighted-average period of 1.8 years[64] | Restricted Stock Activity | Shares | Weighted Average Grant Date Fair Value | | :------------------------ | :---------- | :------------------------------------- | | Outstanding at Dec 31, 2020 | 2,845,525 | $4.28 | | Granted | 1,592,659 | $4.37 | | Vested | (321,075) | $8.03 | | Forfeited | (129,279) | $4.11 | | Outstanding at Sep 30, 2021 | 3,987,830 | $4.02 | NOTE 8—COMMITMENTS AND CONTINGENCIES - At September 30, 2021, the company had $15.8 million in reclamation bonding requirements and $4.6 million in contingent liabilities under take-or-pay transportation arrangements[66][68] - 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 a lawsuit against Federal Insurance Company, though this verdict is not yet final and has not been recognized as a gain[71] NOTE 9—REVENUE | (In thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | North American revenues | $47,954 | $27,284 | $105,611 | $89,795 | | Export revenues | $28,423 | $12,175 | $90,278 | $27,974 | | Total revenues | $76,377 | $39,459 | $195,889 | $117,769 | - Total revenues increased significantly, with export revenues showing a particularly strong growth of 133% for the nine months ended September 30, 2021, compared to the prior year[72] - As of September 30, 2021, the company had outstanding performance obligations for the remainder of 2021 of approximately 0.5 million tons at an average fixed price of $84/ton and 0.1 million tons with index-based pricing[72] NOTE 10—INCOME TAXES | (In thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total income tax expense (benefit) | $1,588 | $(1,407) | $1,650 | $(38) | - The effective tax rate, excluding discrete items, was 21% for Q3 2021 and 13% for YTD 2021[75] - Discrete items included a tax benefit of $0.2 million for legislative changes in Virginia and West Virginia for Q3 2021, and a $1.6 million benefit for YTD 2021[75] NOTE 11—EARNINGS (LOSS) PER SHARE | (In thousands, except per share amounts) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net income (loss) | $7,035 | $(4,776) | $21,120 | $(162) | | Basic EPS | $0.16 | $(0.11) | $0.48 | $(0.00) | | Diluted EPS | $0.16 | $(0.11) | $0.48 | $(0.00) | - Basic and diluted EPS significantly improved from a loss of $(0.11) in Q3 2020 to a gain of $0.16 in Q3 2021, and from a loss of $(0.00) to a gain of $0.48 for YTD 2021[76] NOTE 12—RELATED PARTY TRANSACTIONS - The company has mineral leases and surface rights agreements with Ramaco Coal, LLC, a related party. Royalties paid to Ramaco Coal totaled $1.3 million for Q3 2021 and $3.9 million for YTD 2021[77] - Charges to Ramaco Coal for shared administrative services were $40 thousand for Q3 2021 and $79 thousand for YTD 2021[78][79] NOTE 13—SUBSEQUENT EVENTS - The company completed 2022 domestic sales negotiations, contracting to sell 1.67 million tons of coal at an average price of $196 per short ton FOB mine, representing 54% of projected 2022 production[80] - An Asset Purchase Agreement was entered into on October 26, 2021, to acquire certain assets for $30 million, with closing expected in mid-November 2021[81] - The Board of Directors authorized the initiation of a regular quarterly dividend to be paid starting in the first quarter of 2022, and the Revolving Credit Facility was increased by $10 million to $40 million with an extended maturity to December 31, 2024[82][83] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting increased revenue, return to profitability, strategic developments, liquidity, and non-GAAP measures Overview - The company's primary revenue source is metallurgical coal sales, with a 261 million ton reserve base as of September 30, 2021[86] - The company plans to grow production to approximately 5 million clean tons of metallurgical coal, subject to market conditions and capital deployment[86] - In Q3 2021, 0.6 million tons of coal were sold, with 75% in North American markets and 25% in export markets[88] - Increased demand and significantly higher U.S. steel prices in 2021 are attributed to global economic recovery and large-scale government stimulus measures[90] Recent Developments - Ramaco has contracted to sell 1.67 million tons of coal for 2022 domestic sales at an average price of $196 per short ton FOB mine, representing 54% of projected 2022 production[92] - The company entered into an Asset Purchase Agreement to acquire assets for $30 million, with closing expected in mid-November 2021[94] - The Board of Directors authorized the initiation of a regular quarterly dividend starting in the first quarter of 2022[95] - The Revolving Credit Facility was increased by $10 million to $40 million, and its maturity date was extended to December 31, 2024[96] Results of Operations | (In thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Revenue | $76,377 | $39,459 | $195,889 | $117,769 | | Operating income (loss) | $8,767 | $(7,582) | $17,032 | $(10,741) | | Net income (loss) | $7,035 | $(4,776) | $21,120 | $(162) | | Adjusted EBITDA | $17,805 | $637 | $47,429 | $19,863 | - Net income and Adjusted EBITDA were significantly higher in both the three and nine months ended September 30, 2021, compared to the same periods in 2020[97] - Sales volumes increased by 45% during the nine months ended September 30, 2021, compared to the same period in 2020, largely due to the recovery from COVID-19 impacts[97] Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 - Coal sales revenue increased 94% to $76.4 million in Q3 2021, driven by a 50% increase in tons sold (644 thousand tons) and a 35% increase in revenue per ton sold (FOB mine) to $105/ton[100] - Cost of sales increased to $54.8 million due to higher tons sold, with cash cost per ton sold (FOB mine) rising slightly to $72/ton from $69/ton[101] - Interest expense, net, increased to $0.9 million from $0.3 million, primarily due to the issuance of Senior Notes in July 2021[104] Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 - Coal sales revenue increased 66% to $195.9 million for YTD 2021, with tons sold increasing 45% to 1.8 million tons and revenue per ton sold (FOB mine) increasing 13% to $98/ton[109] - Cash cost per ton sold (FOB mine) improved to $68/ton from $70/ton, primarily due to higher production volumes leveraging fixed costs[110] - Other income for YTD 2021 was $7.2 million, primarily from the $5.4 million CARES Act Employee Retention Tax Credit[114] Liquidity and Capital Resources - At September 30, 2021, the company had $46.7 million in cash and cash equivalents and $27.1 million available under existing credit agreements[119] - Cash flows from operating activities were $37.8 million for the first nine months of 2021[120] - Capital expenditures totaled $17.6 million for mine development and infrastructure during the first nine months of 2021[123] - The company believes current cash on hand, cash flow from operations, and available liquidity will be sufficient to meet capital expenditure and operating plans[121] - The $8.4 million PPP Loan was fully forgiven by the SBA on July 29, 2021[135] Off-Balance Sheet Arrangements - At September 30, 2021, the company had no material off-balance sheet arrangements[137] Non-GAAP Financial Measures - Adjusted EBITDA is defined as net income plus net interest expense, stock-based compensation, depreciation and amortization expenses, and any transaction-related costs[139] | (In thousands) | 3 Months Ended Sep 30, 2021 | 3 Months Ended Sep 30, 2020 | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :----------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net income (loss) | $7,035 | $(4,776) | $21,120 | $(162) | | EBITDA | $16,307 | $(581) | $43,049 | $16,316 | | Adjusted EBITDA | $17,805 | $637 | $47,429 | $19,863 | - Non-GAAP revenue per ton (FOB mine) and Non-GAAP cash cost per ton sold are presented to provide comparable metrics excluding transportation costs[140][143] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to comprehensive quantitative and qualitative disclosures about market risk, as detailed in the company's Annual Report - Quantitative and qualitative disclosures about market risk are incorporated by reference from Item 7A of the company's Annual Report[145] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of September 30, 2021, with no significant internal control changes Disclosure Controls and Procedures - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, at a reasonable assurance level[146] Changes in Internal Control over Financial Reporting - There were no significant changes in the company's internal control over financial reporting during the quarter ended September 30, 2021, that materially affected or are reasonably likely to materially affect it[148] Part II. Other Information Item 1. Legal Proceedings Management believes no pending legal matters will materially affect financial condition, cash flows, or results of operations - Management believes no pending litigation, disputes, or claims will have a material adverse effect on the company's financial condition, cash flows, or results of operations[151] - A description of legal proceedings is included in Note 8 of the financial statements[151] Item 1A. Risk Factors This section refers to risk factors detailed in the Annual Report on Form 10-K, with no material changes reported - Risk factors are described in Item 1A of the company's Annual Report and other SEC filings[152] - There have been no material changes in the company's risk factors from those described in its Annual Report[153] Item 4. Mine Safety Disclosures Mine safety disclosures, as required by regulations, are provided in Exhibit 95.1 of this Quarterly Report - Mine safety disclosures are included in Exhibit 95.1 to this Quarterly Report[154] Item 6. Exhibits This section lists all exhibits filed with the Quarterly Report, including senior notes indentures, officer certifications, and mine safety disclosures - Exhibits include Indenture and First Supplemental Indenture for the 9.00% Senior Notes due 2026[158] - Certifications of the Chief Executive Officer and Chief Financial Officer are included pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[158] - Mine Safety Disclosure is filed as Exhibit 95.1[158] Signatures This section contains the official signatures of the registrant's authorized officers, affirming the report filing on November 2, 2021 - The report was signed by Randall W. Atkins, Chairman, Chief Executive Officer and Director, and Jeremy R. Sussman, Chief Financial Officer, on November 2, 2021[162]