Alpha Metallurgical Resources, Inc.

Greetings and welcome to the Alpha Metallurgical Resources Second Quarter 2022 Results Conference Call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President at Corporate Communications. You may begin.

Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's second quarter 2022 earnings release and the associated SBC filing. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to gap measures. Participating on the call today are office chairman and chief executive officer, David Stetson, and president and chief financial officer, Andy Edmund. Also participating on the call are Jason Whitehead, our chief operating officer, and Dan Horn, our chief commercial officer. With that, I'll turn the call over to David.

Thanks, Emily. Good morning, everyone, and thank you for joining us. Just over six years ago, I joined the office team During those years, we have certainly experienced our share of obstacles and hurdles, and on many occasions we had our share of people questioning whether Alpha would survive those ordeals. I come before you today as proud as ever of the accomplishments of the Alpha team, humbled by the opportunity given me six years ago to be part of that team, and confident that this team will be stronger and achieve more in the coming years than during my tenure as CEO. We have always been transparent in our goals at Alpha. We knew that a heavy debt load would make navigating markets more difficult. We knew it was essential to invest in our people and our assets to grow output. And lastly, our shareholder base has been very loyal, and that loyalty had to be rewarded. Over the past four years, we've clearly laid out the plans and actions we needed to take in order to accomplish those goals. To that end, let me share with the great news from the second quarter. This is our first earnings call since fully paying off the remaining term loan balance in early June, completing our long-term debt elimination. As you know, deleveraging has been a top priority for us. Just over a year ago, Andy laid out a plan to reduce and possibly eliminate our debt by 2023. His laser-focused approach to our financial management, as well as actions taken to shore up all aspects of our balance sheet, enabled his time frame to be realized in the second quarter, well ahead of anyone's expectations. Couldn't be prouder of Andy and the entire executive team for their discipline in seeing this through to completion. It has not only transformed our balance sheet, but I believe it marks the start of a new chapter for the company as a more flexible, resilient organization that is better able to withstand the inevitable cycles of our industry. The strategic and tactical decisions of the team, along with strong markets we experienced this year, allowed us to post back-to-back record performance, with the second quarter generating a just EBITDA of nearly $700 million. The decision and leadership of Jason over the past three years of bringing on new and more efficient minds, as well as upgrades to our preparation and transportation infrastructure, is reflected in this record EBITDA. Our shareholders have been loyal and supportive of both our short and long-term strategies over these past years. Our board's decision in May to increase our share repurchase program to $600 million reflected our appreciation for that loyalty. We have made significant progress in buying back our shares with approximately $268 million spent to acquire 1.9 million shares representing roughly 10% of our issued and outstanding shares when the program began. In our previous earnings call, we not only spoke to you about our dedication to eliminating debt, but we began the conversation of our plan for the long-term growth and sustainability of Alpha. I tasked Dan's team to provide us with a marketing plan that would complement our vast and diverse resource base, and Jason's team with aligning our safe production with our vision of those future markets and demands while maintaining a competitive cost structure. As always, both Dan and Jason generated not only a roadmap to bridge our current production and customer base with our vision of what Alpha will be in 15 years from now, but they've already begun executing on that next chapter of what we fully expect to be a long, successful life for Alpha. In order to fully execute on these strategic goals, we need the company to be staffed and running well administratively. Behind-the-scenes efforts of Roger's team allows Alpha to stay focused on our safety and environmental stewardship efforts while maintaining the critical support framework a company needs in areas like legal, human resources, and land. In addition to his duties as general counsel, Roger leads all these support and efforts. We have been engaged in succession planning to ensure the company is equipped with leadership it needs for the near term and that we are continually cultivating a deep bench of talent within the organization. to step up as needed in the future. After all, any well-run company is larger than a single person. It should leverage the expertise and knowledge of the team to advance the company's goals. And I believe this tracks exactly how Alpha has achieved so much in recent history. Over these past years, I've been fortunate to be surrounded by the best management team in the industry, a team that navigated some of the most difficult financial operations and marketing hurdles that could have easily led to value destruction. Instead, with courageous decision-making and flawless execution, we are reporting another record quarter now as a debt-free company with robust capital return programs. I believe the future is bright for Alpha, and that confidence has informed my decision to make an important personal announcement today. I've been thinking about retirement for some time, especially knowing that we've built a strong and experienced team that can lead Alpha for decades to come. So I've decided that later this year is the right time to hand over the CEO reins to Andy Edson. The board of directors met last week and formally and unanimously appointed Andy to serve as CEO beginning on January the 1st, 2023. He will join the board as a director at that time. As of December 31st, 2022, I will transition the role of executive chairman of the board which allows me to step away from day-to-day management and take on a higher-level oversight role. Andy and I have been working closely over the last few years, taking steps to prepare for a seamless transition. Over this time, he has taken on an increasingly broader scope of responsibility and has complete confidence in his ability to step into the CEO role at the end of the year. Andy is intelligent, experienced, and highly qualified. He shares my vision for continuing to solidify Alpha as the industry leader that we are. I know he will serve Alpha extremely well as the next CEO. I want to thank my board of directors and our shareholders for the dedicated and unwavering support during my tenure as CEO of Alpha. With that, I will now turn the call over to Andy to share some additional details about the transition plan for his current role and his vision for the company. Thanks, David. Good morning, everyone. Before I get started, I want to take a moment to acknowledge the incredible work that David has done as Alpha CEO. I've had a front row seat to the positive impact he's created, and I can attest to the critical role he's played. When we achieved a win, he never failed to give the team credit, and when we faced serious challenges, he never wilted, but seized the opportunity to turn setbacks into even greater wins. His fingerprint will forever be on this company, and we cannot thank him enough for what he has done. As he mentioned, today's announcements are a window into what Alpha's next act will look like. After paying off our debt and significantly reducing our legacy liabilities, the company is entering an exciting new phase. It will be different without the weight of our previous debt load, but I believe that the discipline, resilience, and leadership vision that brought us to this point are the same things that will propel us into an even more successful future. What this team has accomplished over the past three years is nothing short of incredible, and that is due primarily to two things. strategic vision of foundation that David created, and the unparalleled efforts of the world-class alpha team members. This new phase will continue to honor that foundation. In addition to the CEO transition we have announced today, I'm pleased to report that the board has selected Todd Monti to take over the duties of CFO as of tomorrow. Todd served the company as SV team controller since 2016, and prior to that in a number of high-level roles in our tax and accounting House Coopers. The Board has named Todd to the role of Executive Vice President and Chief Financial Officer effective as of August 9. I have great confidence in Todd's ability to excel in this new role and we look forward to bringing him into the earnings call process next quarter. Additionally and very importantly, I want to highlight one more change that will happen at year end. The Board has appointed Jason Whitehead to serve as Alpha's President in addition to his effective January 1, 2023. We all know what an integral part of this organization that Jason is. In my opinion, he's the best operator in the industry, and I'm super excited for him to take on this broader leadership role. Before I turn to the quarter's results, I want to echo David's comments about the strength of this team. Alpha will retain the benefit of David's wisdom and guidance as Executive Chairman of the Board. I think Jason, Roger, and Dan are the best in this industry, best in class, and Alpha is very lucky to have them on executive team. I'm truly humbled by the opportunity to lead this phenomenal company, and I couldn't be prouder to be a part of this team. Turning now to look at our second quarter results, I'm pleased to say that we achieved yet another record in back-to-back quarters. Excuse me, back-to-back-to-back quarters. That's three in a row. Our $695 million investment and Q2 was 38% higher than first quarter's adjusted EBITDA of $504 million. In terms of volumes, we sold 4.3 million tons in the second quarter with 4.1 million tons of that coming from our MET segment. As we mentioned in the press release, thermal market volatility has created some opportunities for crossover MET tonnage to be sold into the thermal market. We have taken advantage of this opportunity and slightly increased our shipment tons for the thermal byproduct piece of the MET segment as a result. As expected, realizations on export tonnage continued to improve quarter over quarter, with an average of $337.38 per ton realized on export business for second quarter, compared with $278.01. Export tons priced on the Australian indices continued to lead our quarter realizations to $350.56, while coal priced against Atlantic indices and other pricing mechanisms in U2 realized $321 per ton. Total weighted average realizations for our pure MET production as a whole were $304 per ton for Q2, an increase of 20% over the prior quarter's $254 per ton. Realizations in the all-other category were $61.41 for the quarter, up in comparison to the $57.39 realized in Q1, with indices having fallen off from their highs earlier in the year. We expect to see that downward pressure flowing through our realizations over the next couple of quarters. However, even with a significant drop from recent record highs, current pricing levels are still very strong relative to historic norms. Our second quarter results reflect the elevated pricing environment from the first half of this year. As a result, higher royalties and service taxes continue to drive costs higher. Met segment cost of sales in the second quarter increased to $111.36. up from first quarter levels of $103.61. Cost of coal sales in the all-over category remains flat against the prior period at just under $50 in the second quarter. SG&A, excluding non-cash comp and non-recurring items, increased to $16.8 million in Q2 as compared to $14 million in Q1. As a result of increased incentive compensation due to outperformance against budgeted metrics, we're increasing our SG&A guides for the year to a range of $55 to $59 million. This is up from a prior range of $50 to $54 million. Future capex was $41.9 million, up from $28.1 million in the prior quarter. Going to the balance sheet and cash flows, we closed out the second quarter with $161.7 million in unrestricted cash and $91 million of unused availability under our ABL. Total liquidity increased again quarter over quarter to a level of $252.8 million at the end of June. This amount is also net of our final term loan payment, which was $99.4 million on June 3 and eliminated our remaining balance and $176.3 million in share repurchases during the quarter. Cash provided by operating activities increased from $336 million in Q1 to $466 million in the second quarter. As of June 30, our ABL had no borrowings under $64 million of letters of credit outstanding, a significant reduction from one's $121 million of LLCs outstanding. We're making additional progress in our committed and priced business for 2022 with 69% of our MET tonnage in the MET segment committed and priced at the midpoint of guidance at an average price of $260.69, another 29% $89.91, and we're fully committed in price for 22 and our all other categories with an average price of $83.38. The Board of Management team has been focused on capital allocation strategies to create value for our many stakeholders and ensure that we're making the best use of our resources. To this end, we've evaluated a few potential transactions in the M&A space, but after careful consideration, we concluded that our best course of action would be to to devote resources to our share repurchase program. Since our last earnings call, we've made significant progress in buying back shares using a programmatic approach that allows for opportunistic purchasing and maximizes the efficiency of our dollars being spent. As a reminder, the board authorization is for $600 million in the program. As of August 5th, we spent a total of $268 million, or nearly half of the authorization. require roughly 1.9 million shares of Alpha's common stock at a volume-weighted average price of approximately $140 per share. As of today, we have approximately 17.17 million shares outstanding, not including the impact of approximately 220,000 fund exercise reports. With that, I will turn the call over to Jason for some details on our operational performance.