Alpha Metallurgical Resources, Inc.

Greetings and welcome to Alpha Metallurgical Resources Third Quarter 2023 Results Conference Call. At this time, all participants are on the listen-only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded. I would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin. Greetings and welcome to the Alpha Metallurgical Resources Third Quarter 2023 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 would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now 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 third quarter 2023 earnings release and the associated SEC filings. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Alpha's Chief Executive Officer, Andy Edson, and our President and Chief Operating Officer, Jason Whitehead. Also participating on the call are Todd Muncy, our Chief Financial Officer, and Dan Horn, our Chief Commercial Officer. With that, I'll turn the call over to Andy.

Thanks, Emily, and good morning, everyone. Earlier today, we announced our third quarter 2023 results with adjusted EBITDA of $154 million. As we mentioned in our pre-release a few weeks ago, our Q3 results were impacted by some challenging events, including a mechanical failure at Dominion Terminal Associates. This caused a delay in vessel loading, which in turn delayed shipments and revenue. With some additional clarity into what we believe the balance of the year will hold, as well as the understanding that there will be some tonnage that carries over into 2024, we tightened and lowered our shipment volume guidance for 2023. We're focused on finishing 2023 very strongly, and I'm seeing evidence of this throughout the organization. Operationally, across the company, our year-to-date performance against two important safety metrics, TRIR and NFDL, are both better than the national average. With the recent closure of slab camp, Alpha's years-long transition to a pure-play metallurgical company is complete, and we just opened our newest metallurgical mine in October, the Techmate Pelton Mine at the well-known Elk Run Complex. The Elk Run preparation plan and loadout are planned to come online early in 2024. Last week, we completed the refinance of our asset-based revolving credit facility, securing more favorable terms and a longer duration than the previous facility. And, as has become standard, our share buyback program continues executing, utilizing all of our free cash flow for the quarter. We have returned more than $940 million to stockholders in the form of buyback since the program's inception in March of 2022, with roughly $560 million left on the newly extended $1.5 billion board authorization. Following the most recently declared dividend payout, which will occur in December, the dividend program will cease, and our capital return efforts will be fully focused on the repurchase program, contingent upon market conditions and cash flow levels. There are good things happening all across the company. In recent weeks, we've also worked through the budgeting and preparation process for 2024, which we expect will be another year of what Alpha has become known for. Safe production, being good stewards of the environment, creating shareholder value, returning capital, delivering outstanding customer service, and challenging ourselves to raise the bar and perform better than before. Based on the midpoint of next year's total shipment guidance that we announced this morning, we have allocated roughly 25% of our overall tonnage to the domestic market on a fixed price basis. The balance will be available for export into a global met market that has demonstrated strength in recent weeks, and according to the current Australian premium, Lobol Futures is expected to retain strength well into next year. As those who have followed Alpha for some time will recall, we usually place between a quarter to a third of our overall business in the domestic market. Year to year, that can fluctuate based on several decision points, including market strength, pricing, logistics, and outlook for the coming year. We have longstanding relationships with domestic customers that we look forward to continuing to serve, and locking in the domestic contracts also serves our company well by solidifying a base of business for the year. Within our 2024 guidance, we expect to spend roughly $225 million in CapEx next year, which is divided into three parts. Sustaining or maintenance CapEx is expected to, again, measure about $10 per produced ton, or about $171 million for the year. This amount corresponds to the volume guidance midpoint of 17.1 million tons. The second portion of our CapEx is development CapEx, which we expect to be about $33 million in 2024, and is the first half of development costs for the Kingston Soil Project. Jason will have more to share on that later. Lastly, we assume $21 million in capital spending will be rolled over from this calendar year to the next due to timing and availability of certain equipment, parts, and contract labor. We also provided more information in the release on special capital needed for infrastructure and equipment upgrades at Dominion Terminal Associates, our export facility in Newport News that loads and ships the bulk of our coal to international customers. Alpha has a 65% ownership stake in DTA, and together with the terminal's leadership and our partner, we're assessing needs and building a rough timeline for recommended improvements. Importantly, we believe the necessary improvements at DTA can occur over a period of time, so the facility can still be utilized while renovations occur. In terms of cost, we will continue to supply our portion of DTA's usual operating expenditures, and Alpha expects to invest an incremental $25 million in 2024 to begin this work, with the next several years likely requiring a similar annual investment.