Ramaco Resources(METC) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Ramaco Resources' unaudited condensed consolidated financial statements, including balance sheets, statements of operations, cash flows, and notes on key events like Class B tracking stock Unaudited Condensed Consolidated Balance Sheets This section provides the unaudited condensed consolidated balance sheets, detailing assets, liabilities, and equity as of June 30, 2023, and December 31, 2022 Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $177,802 | $147,489 | | Cash and cash equivalents | $33,883 | $35,613 | | Total Assets | $660,391 | $596,339 | | Total Current Liabilities | $142,058 | $162,845 | | Current portion of long-term debt | $25,333 | $35,639 | | Total Liabilities | $323,286 | $287,141 | | Total Stockholders' Equity | $337,105 | $309,198 | - Total assets increased to $660.4 million from $596.3 million at year-end 2022, primarily driven by increases in property, plant, and equipment, inventories, and accounts receivable, while total liabilities also increased mainly due to higher long-term debt[22] Unaudited Condensed Consolidated Statements of Operations This section presents the unaudited condensed consolidated statements of operations, detailing revenue, operating income, and net income for Q2 and YTD periods Condensed Consolidated Statements of Operations (in thousands) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $137,469 | $138,655 | $303,829 | $293,537 | | Operating Income | $10,046 | $42,687 | $41,913 | $95,577 | | Net Income | $7,556 | $33,280 | $32,813 | $74,751 | | Diluted EPS | $0.17 | $0.74 | $0.73 | $1.66 | - Net income for Q2 2023 was $7.6 million, a significant decrease from $33.3 million in Q2 2022, primarily due to higher cost of sales and selling, general, and administrative expenses, which compressed operating margins despite relatively stable revenue[23] Unaudited Condensed Consolidated Statements of Cash Flows This section outlines the unaudited condensed consolidated statements of cash flows, detailing cash movements from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands) | Activity | Six months ended June 30, 2023 | Six months ended June 30, 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $49,578 | $109,301 | | Net cash used for investing activities | ($43,834) | ($63,545) | | Net cash used for financing activities | ($7,474) | ($23,815) | | Net change in cash | ($1,730) | $21,941 | - Net cash from operating activities decreased by more than half to $49.6 million in the first six months of 2023 compared to $109.3 million in the prior year period, primarily due to lower net income and unfavorable changes in working capital, including increased inventories and accounts receivable[29] Notes to Financial Statements This section provides detailed notes to the financial statements, covering significant accounting policies, recent corporate actions, and legal proceedings - On June 12, 2023, the company reclassified its common stock to Class A common stock and created a new Class B common stock to track the performance of its Carbon Ore-Rare Earth (CORE) assets, with an initial distribution of 0.2 shares of Class B for every one share of existing common stock[50][51][52] CORE Revenue for Q2 2023 (in thousands) | Revenue Source | Amount | | :--- | :--- | | Total Royalty Revenue | $2,103 | | Total Infrastructure Revenue | $5,159 | | Total CORE Revenue | $7,262 | | 20% of Cash Available for Dividend | $1,452 | - A U.S. Court of Appeals decision on July 20, 2023, reinstated a jury's $7.7 million verdict in the company's favor in a legal proceeding against its insurance carrier, also determining the company is entitled to attorney's fees and a new trial on damages for inconvenience and aggravation[81] - Subsequent to the quarter's end, on July 31, 2023, the Board declared a quarterly cash dividend of $0.125 per share for Class A stock and an initial quarterly cash dividend of $0.165 per share for Class B stock, both payable on September 15, 2023[102] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses operational and financial results, highlighting the impact of lower coal prices, the creation of Class B tracking stock for CORE assets, and the decrease in net income and Adjusted EBITDA due to margin compression and cost pressures[116] Results of Operations This section analyzes the company's operational performance, detailing changes in tons sold, revenue per ton, cost of sales, and SG&A expenses for the quarter and year-to-date periods Q2 2023 vs Q2 2022 Performance | Metric | Q2 2023 | Q2 2022 | Change | | :--- | :--- | :--- | :--- | | Tons Sold (thousands) | 715 | 584 | +23% | | Revenue per Ton Sold | $192 | $238 | -19% | | Revenue per Ton Sold (FOB mine) | $165 | $215 | -23% | | Cost of Sales (millions) | $99.2 | $76.6 | +29% | | Total Cost per Ton Sold | $139 | $131 | +6% | - For Q2 2023, despite a 23% increase in tons sold, revenue decreased by 1% year-over-year due to a 19% drop in revenue per ton, while cost of sales increased by 29% driven by higher sales volume and inflationary pressures[118][119] YTD 2023 vs YTD 2022 Performance | Metric | YTD 2023 | YTD 2022 | Change | | :--- | :--- | :--- | :--- | | Tons Sold (thousands) | 1,472 | 1,167 | +26% | | Revenue per Ton Sold | $206 | $252 | -18% | | Revenue per Ton Sold (FOB mine) | $176 | $225 | -22% | | Cost of Sales (millions) | $209.7 | $157.9 | +33% | - Selling, general, and administrative (SG&A) expenses increased 63% in Q2 2023 and 26% in the first six months of 2023 compared to the prior year periods, primarily due to increased compensation from higher headcount and increased spending on professional services to support growth[121][126] Liquidity and Capital Resources This section reviews the company's liquidity position, including cash, credit facility availability, and significant cash uses for capital expenditures, debt repayments, and dividends - As of June 30, 2023, the company had $33.9 million in cash and cash equivalents and $28.9 million available under its Revolving Credit Facility[128] - Significant uses of cash in the first six months of 2023 included $48.0 million for capital expenditures, $24.8 million in debt repayments related to the Ramaco Coal and Maben acquisitions, and $11.1 million in dividend payments[130] - The company intends to pay separate dividends on Class A and Class B common stock, which will likely result in a new use of cash in future periods, subject to Board discretion[132] Non-GAAP Financial Measures This section provides reconciliations of non-GAAP financial measures, specifically detailing the calculation of Adjusted EBITDA from net income Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $7,556 | $33,280 | $32,813 | $74,751 | | Adjusted EBITDA | $30,014 | $57,859 | $78,267 | $121,917 | - Adjusted EBITDA decreased significantly to $30.0 million in Q2 2023 from $57.9 million in Q2 2022, reflecting the compression in margins from lower coal prices and higher costs[116][139] Item 3. Quantitative and Qualitative Disclosures about Market Risk This section indicates no material changes to the disclosures about market risk from those included in the company's Annual Report on Form 10-K - The company refers to Item 7A, "Quantitative and Qualitative Disclosures about Market Risk," of its Annual Report for disclosures about market risk, indicating no material changes during the quarter[145] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of the end of the period, the principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective[146] - There were no changes in the company's internal control over financial reporting during the quarter ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls[147] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reports no pending litigation expected to have a material adverse effect on its financial condition, referring to Note 7 for details - The company reports no pending litigation, disputes, or claims that are expected to have a material adverse effect on its financial condition, cash flows, or results of operations[152] Item 1A. Risk Factors This section updates risk factors, primarily focusing on those related to the new Class B common stock structure, including exposure to overall company risks, Board discretion over asset reattribution, potential conflicts of interest, and dividend uncertainty - The company introduced new risk factors related to its Class B common stock structure, which was created to track the performance of its Carbon Ore-Rare Earth (CORE) assets[154] - Key risks for Class B stockholders include being subject to the risks of the entire company, not just the CORE assets, and having no direct legal rights to the specific assets attributed to CORE[154] - The Board of Directors has the discretion to reattribute assets and liabilities between the Class A and Class B stock, change dividend policies, and even convert all Class B shares into Class A shares, which creates uncertainty for investors[155][158][184] - The tracking stock structure could create conflicts of interest for the Board and management, as decisions benefiting the company as a whole may not be in the best interest of a particular class of stock[166] Item 4. Mine Safety Disclosures This section refers to Exhibit 95.1 for information on mine safety violations and other regulatory matters as required by the Dodd-Frank Act - Information regarding mine safety violations required by Section 1503(a) of the Dodd-Frank Act is included in Exhibit 95.1 to the Quarterly Report[188]