Ramaco Resources(METC) - 2022 Q1 - Quarterly Report

Cautionary Note Regarding Forward-Looking Statements This section outlines the inherent risks, uncertainties, and assumptions associated with forward-looking statements, including impacts from global events and economic conditions - Forward-looking statements are subject to a number of risks, uncertainties, and assumptions, including the impact of the COVID-19 pandemic, economic conditions in the metallurgical coal and steel industries, and the Russia-Ukraine conflict[9][10][13][16] PART I. FINANCIAL INFORMATION This part presents the company's financial statements, management's discussion and analysis, market risk disclosures, and controls and procedures Item 1. Financial Statements This section includes the unaudited condensed consolidated financial statements, comprising the balance sheets, statements of operations, statements of stockholders' equity, and statements of cash flows, along with detailed notes explaining the company's business, accounting policies, debt, equity, commitments, revenue, income taxes, earnings per share, related party transactions, and subsequent events Unaudited Condensed Consolidated Balance Sheets Presents the company's financial position at specific dates, detailing assets, liabilities, and equity | Metric | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | Change (in thousands) | | :----------------------------- | :------------------------------ | :------------------------------- | :-------------------- | | Cash and cash equivalents | $71,472 | $21,891 | +$49,581 | | Total current assets | $141,601 | $86,761 | +$54,840 | | Total Assets | $406,364 | $329,033 | +$77,331 | | Total current liabilities | $76,230 | $46,660 | +$29,570 | | Total liabilities | $154,429 | $117,959 | +$36,470 | | Total stockholders' equity | $251,935 | $211,074 | +$40,861 | Unaudited Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net income over specific periods, reflecting operational performance | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | YoY Change (%) | | :---------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------- | | Revenue | $154,882 | $43,455 | +256.4% | | Total costs and expenses | $101,992 | $42,211 | +141.6% | | Operating income | $52,890 | $1,244 | +4152.4% | | Net income | $41,471 | $4,143 | +901.0% | | Basic Earnings per common share | $0.94 | $0.10 | +840.0% | | Diluted Earnings per common share | $0.92 | $0.10 | +820.0% | Unaudited Condensed Consolidated Statements of Stockholders' Equity Outlines changes in stockholders' equity, including net income, stock-based compensation, and dividends | Metric | January 1, 2022 (in thousands) | March 31, 2022 (in thousands) | | :---------------------- | :----------------------------- | :---------------------------- | | Total Stockholders' Equity | $211,074 | $251,935 | | Net income | — | $41,471 | | Stock-based compensation | — | $1,887 | | Dividends paid | — | $(2,497) | Unaudited Condensed Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities over specific periods | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :-------------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash from operating activities | $77,369 | $499 | | Net cash from investing activities | $(19,742) | $(3,725) | | Net cash from financing activities | $(7,920) | $3,015 | | Net change in cash and cash equivalents | $49,707 | $(211) | | Cash and cash equivalents, end of period | $72,513 | $6,499 | Notes to Unaudited Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the unaudited condensed consolidated financial statements NOTE 1—BUSINESS Describes the company's core operations, industry, and key external factors impacting its business environment - Ramaco Resources, Inc. operates and develops high-quality, low-cost metallurgical coal in southern West Virginia, southwestern Virginia, and southwestern Pennsylvania[27] - The company is actively monitoring the impacts of the COVID-19 pandemic and the Russia-Ukraine conflict, noting potential volatility in commodity markets and inflationary pressures on steel products and supply costs[28][29] - The European Union ban on Russian coal, effective in August, could create further tightness in metallurgical coal markets, as Russia was the third-largest exporter in 2021, accounting for 10% of global metallurgical coal trade[30] NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines the key accounting principles and methods used in preparing the interim financial statements - The interim financial statements are unaudited and prepared pursuant to SEC rules, with certain disclosures condensed or omitted[31] - The company is self-insured for workers' compensation claims, with an estimated aggregate liability of $3.6 million at March 31, 2022[34][35] - Sales to the top four customers accounted for approximately 70% of total revenue for the three months ended March 31, 2022[39] NOTE 3—PROPERTY, PLANT AND EQUIPMENT Details the company's property, plant, and equipment, including changes and depreciation over periods | Category | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :------------------------------ | :------------------------------- | | Plant and equipment | $175,557 | $167,019 | | Mining property and mineral rights | $26,953 | $26,064 | | Construction in process | $19,978 | $9,972 | | Capitalized mine development costs | $110,736 | $104,291 | | Total property, plant and equipment, net | $245,930 | $227,077 | | Depreciation and Amortization | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :---------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Total depreciation and amortization | $8,680 | $6,155 | NOTE 4—DEBT Provides information on the company's debt instruments, outstanding balances, and compliance with covenants - At March 31, 2022, there was no amount outstanding under the Revolving Credit Facility, with $39.6 million remaining availability[46] - The company was in compliance with all financial covenants under the Credit Agreement at March 31, 2022[48] - The 9.00% Senior Unsecured Notes due 2026 had an outstanding principal balance of $34.5 million at March 31, 2022, with an effective interest rate of approximately 10.45%[51] NOTE 5—LEASES Details the company's lease assets and liabilities, reflecting its obligations under lease agreements | Lease Type | March 31, 2022 (in thousands) | December 31, 2021 (in thousands) | | :--------- | :---------------------------- | :------------------------------- | | Financing lease right-of-use assets, net | $12,296 | $9,128 | | Total right-of-use assets | $12,302 | $9,153 | | Total lease liabilities | $10,055 | $8,085 | NOTE 6—EQUITY Outlines changes in equity, including stock-based compensation and shares available under incentive plans - Stock-based compensation expense for the three months ended March 31, 2022, totaled $1.9 million, up from $1.1 million in the prior year[59] - As of March 31, 2022, approximately 5.2 million shares of common stock were available for grant under the Long-Term Incentive Plan (LTIP)[58] - Total unrecognized compensation cost related to unvested restricted stock, restricted stock units, and performance stock units was $8.7 million, $3.7 million, and $5.2 million, respectively, at March 31, 2022[62][64][66] NOTE 7—COMMITMENTS AND CONTINGENCIES Details the company's various commitments and potential liabilities, including reclamation bonds and legal matters - Total reclamation bonding requirements were $20.8 million at March 31, 2022[67] - Contingent liabilities under take-or-pay transportation arrangements totaled $12.8 million at March 31, 2022[68] - The company filed an appeal on April 1, 2022, regarding a court decision that reduced a jury award in its favor from $7.7 million (plus $25.0 million for inconvenience) to $1.8 million[70][73] NOTE 8—REVENUE Breaks down revenue by category and geographic market, along with outstanding performance obligations | Revenue Category | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :--------------- | :--------------------------------------------- | :--------------------------------------------- | | North American revenue | $60,094 | $20,107 | | Export revenue, excluding Canada | $94,788 | $23,348 | | Total revenue | $154,882 | $43,455 | - As of March 31, 2022, outstanding performance obligations for the remainder of 2022 include approximately 1.5 million tons for contracts with fixed sales prices averaging $188/ton and 0.2 million tons for contracts with index-based pricing mechanisms[74] NOTE 9—INCOME TAXES Presents information on the company's effective tax rates for different reporting periods | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Effective tax rate (excluding discrete items) | 19.5% | 5% | NOTE 10—EARNINGS PER SHARE Details the calculation of basic and diluted earnings per share, including net income and share counts | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------------------- | :-------------------------------- | :-------------------------------- | | Net income (in thousands) | $41,471 | $4,143 | | Basic weighted average shares outstanding (in thousands) | 44,181 | 43,443 | | Diluted weighted average shares outstanding (in thousands) | 44,908 | 43,443 | | Basic Earnings per share | $0.94 | $0.10 | | Diluted Earnings per share | $0.92 | $0.10 | NOTE 11—RELATED PARTY TRANSACTIONS Discloses transactions and balances with related parties, such as royalty payments to Ramaco Coal, LLC - Production royalty payables to Ramaco Coal, LLC (a related party) were $0.9 million at March 31, 2022, compared to $0.4 million at December 31, 2021[79] - Royalties paid to Ramaco Coal totaled $2.0 million for the three months ended March 31, 2022, up from $1.1 million in the prior year period[79] NOTE 12—SUBSEQUENT EVENTS Reports significant events occurring after the balance sheet date, such as the acquisition of Ramaco Coal - On April 29, the company completed the acquisition of 100% of Ramaco Coal for an initial payment of $10 million and a deferred purchase price of $55 million, payable in quarterly installments through 2023[81] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance and condition, highlighting significant revenue and net income growth driven by improved metallurgical coal market conditions. It also discusses liquidity, capital resources, and non-GAAP financial measures Overview Provides a high-level summary of the company's business, operational highlights, and market positioning - Ramaco Resources is a pure-play metallurgical coal company with 39 million reserve tons and 769 million resource tons of high-quality metallurgical coal[84] - In the first quarter of 2022, 61% of coal sales were to export markets (principally Europe, South America, Asia, and Africa), compared to 54% in the first quarter of 2021[86] - The company sold 0.6 million tons of coal in the first quarter of 2022[86] Recent Developments Highlights significant recent events impacting the company, such as the acquisition of Ramaco Coal - On April 29, the company completed the acquisition of 100% of Ramaco Coal for an initial payment of $10 million and a deferred purchase price of $55 million, payable in quarterly installments through 2023[91] Results of Operations Analyzes the company's financial performance, including revenue, net income, and key operational metrics | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | YoY Change (%) | | :---------------------------------- | :--------------------------------------------- | :--------------------------------------------- | :------------- | | Revenue | $154,882 | $43,455 | +256.4% | | Net income | $41,471 | $4,143 | +901.0% | | Adjusted EBITDA | $64,058 | $11,540 | +455.1% | - Coal sales revenue increased by 256% in Q1 2022 compared to Q1 2021, driven by a 168% increase in revenue per ton sold (FOB mine) to $236/ton and a 38% increase in tons sold to 583 thousand tons, benefiting from improved domestic, spot, and index pricing for metallurgical coal[94] - Cost of sales increased to $81.3 million in Q1 2022 from $31.2 million in Q1 2021, with cash cost per ton sold (FOB mine) rising to $110/ton from $59/ton, primarily due to higher sales-related costs directly associated with increased revenue per ton sold[95] Liquidity and Capital Resources Discusses the company's ability to meet short-term and long-term obligations, including cash flows and funding sources | Metric | March 31, 2022 (in thousands) | | :-------------------------------------- | :---------------------------- | | Cash and cash equivalents | $71,500 | | Available under existing credit agreements | $39,600 | | Cash flows from operating activities (Q1 2022) | $77,400 | | Capital expenditures (Q1 2022) | $(19,700) | | Dividends paid (Q1 2022) | $(5,000) | - The company expects to fund its capital and liquidity requirements with cash on hand, anticipated cash flows from operations, and available liquidity under existing credit agreements[103] - Factors that could adversely impact future liquidity include delays in product delivery, late customer payments, cost overruns, delays in mine development, and adverse changes in metallurgical coal markets[104][106] Critical Accounting Estimates Identifies key accounting estimates that require significant judgment and could materially impact financial results - There were no material changes to the company's critical accounting policies during the three months ended March 31, 2022[118] Off-Balance Sheet Arrangements Discloses any material off-balance sheet arrangements that could affect the company's financial condition - As of March 31, 2022, the company had no material off-balance sheet arrangements[119] Non-GAAP Financial Measures Provides reconciliations and explanations for non-GAAP financial measures used by management | Metric | Three months ended March 31, 2022 (in thousands) | Three months ended March 31, 2021 (in thousands) | | :---------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net income | $41,471 | $4,143 | | Adjusted EBITDA | $64,058 | $11,540 | | Metric | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :-------------------------- | :-------------------------------- | :-------------------------------- | | Revenue per ton sold (FOB mine) | $236 | $88 | | Cash cost per ton sold (FOB mine) | $110 | $59 | Item 3. Quantitative and Qualitative Disclosures about Market Risk This section refers to the disclosures about market risk provided in the company's Annual Report on Form 10-K - Quantitative and qualitative disclosures about market risk are included in Item 7A of the company's Annual Report on Form 10-K[126] Item 4. Controls and Procedures The company concluded that its disclosure controls and procedures were ineffective as of March 31, 2022, due to a previously identified material weakness in internal control over financial reporting related to IT general controls. Remediation efforts are ongoing, focusing on user access and related business process controls - Disclosure controls and procedures were ineffective as of March 31, 2022, due to a material weakness in internal control over financial reporting related to information technology general controls (ITGCs) in user access and dependent business process controls[127][128] - Remediation plans include modifying ITGCs over user access, implementing additional controls to detect user access issues, and resolving segregation of duties conflicts[129][130] - The identified material weakness did not result in any material misstatements of the company's financial statements or disclosures for the quarter ended March 31, 2022, and the year ended December 31, 2021[128] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, and a list of exhibits 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, cash flows, or results of operations. Specific details on a structural failure lawsuit are referenced in Note 7 - Management believes no pending litigation, disputes, or claims against the company will have a material adverse effect on its financial condition, cash flows, or results of operations[136] Item 1A. Risk Factors This section reiterates the risk factors from the Annual Report and highlights new or updated risks, specifically the substantial political and economic disruption caused by Russia's invasion of Ukraine and the potential harm from weakened global economic conditions and increased inflation - New or updated risk factors include substantial political and economic disruption, uncertainty, and risk due to Russia's recent invasion of Ukraine and the international community's response[138] - Weakened global economic conditions and increased inflation rates in the U.S. may harm the industry, business, and results of operations, potentially leading to decreased demand for products and increased operating costs[139][140] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is marked as 'Not applicable' in the report - This section is not applicable[141] Item 3. Defaults Upon Senior Securities This item is marked as 'Not applicable' in the report - This section is not applicable[143] Item 4. Mine Safety Disclosures Information concerning mine safety violations or other regulatory matters is included in Exhibit 95.1 to this Quarterly Report - Information concerning mine safety violations or other regulatory matters is included in Exhibit 95.1[144] Item 5. Other Information This item is marked as 'Not applicable' in the report - This section is not applicable[145] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report, including various certifications, agreements, and XBRL taxonomy documents - Exhibits include certifications from the CEO and CFO (31.1, 31.2, 32.1, 32.2), a Purchase and Sale Agreement (2.1), and various XBRL taxonomy extension documents (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE, 104)[150][148] SIGNATURES Lists the individuals responsible for signing and certifying the accuracy of the financial report - The report was signed by Randall W. Atkins, Chairman, Chief Executive Officer and Director, and Jeremy R. Sussman, Chief Financial Officer, on May 13, 2022[154]