Alpha Metallurgical Resources, Inc.

Greetings and welcome to the Alpha Metallurgical Resources Third Quarter 2024 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, 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 2024 earnings release and the associated SEC 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 ALSO's Chief Executive Officer, Andy Edson, and our President and Chief Operating Officer, Jason Whitehead. Additionally, also participating on the call are Todd Muncy, our Chief Financial Officer, and Dan Horn, our Chief Commercial Officer. With that, I will turn the call over to Andy.

Thanks, Emily, and good morning, everyone. Following our pre-release a couple of weeks ago, we distributed our definitive third quarter results this morning, which include adjusted EBITDA of $49 million and 4.1 million tons shipped in the quarter. Our results for the quarter were negatively impacted by decreased coal pricing and soft market conditions, as well as some challenging geology and weather-related issues that weighed on our productivity and consequently our costs. As we continue our focus on reducing costs during this market downturn, we've made some small but meaningful changes to our production expectations, which are reflected in our guidance assumptions for next year. In general, these actions include reducing some Saturday and evening production shifts and removing sections in certain mine locations to better match production and qualities to demand, while also being mindful of our cost profile as compared to the current coal markets. In addition to these kinds of changes that are normal responses to changing market conditions, We're also in the process of ramping down at our highball Checkmate Palatin mine, moving toward a hot idle status before the end of this year. The chest processing plant, also known as Elk Run, will also idle once the Checkmate production ceases. This is the only mine or complex within the Alpha footprint that's being idled due to the current market conditions. With Checkmate being our newest mine, it was still in ramp-up mode, which means costs were still meaningfully higher than what we would have expected to see at full productive capacity. Highball indexes have dropped by roughly a third since development began a year ago at Checkmate, making the mine uneconomic in present market conditions. We're also conscious of the current highball market, which is looking imbalanced and oversupplied at the moment. Taking a mine offline is a decision we never take lightly because it obviously impacts employees and their jobs. However, after issuing a warning notice to Checkmate employees in early October, We've been successful in transferring many of our checkmate employees into other open positions within the company, allowing us to retain their expertise while staffing critical vacancies at other locations. In recent weeks, we've concluded our annual budgeting process, which produced our 2025 expectations, including the guidance we issued this morning. At the midpoint, you'll see that we expect to ship 16.7 million tons of coal next year, or about 400,000 tons less than this year's guidance midpoint. Our 2025 domestic commitments also compare similarly, with 3.7 million tons committed, or 22% of our overall sales book for next year, at an average price of $152.51, which is about $8 lower year over year, on a similar relative volume. Especially given the increasingly challenging market conditions we've experienced, I'm pleased that we were able to lock in a volume that allows us to plan for a portion of our 2025 cash flows as we look for opportunities to capture upside in the export market. As we've discussed in detail in recent calls, the management team remains focused on our liquidity position and protecting our ability to continue weathering this period of lower prices. Between July 1 and the end of the third quarter, our total liquidity increased by $150 million, or 42%. The additional cash on the balance sheet allows us to fund the capital needs of our existing portfolio while continuing to invest in important projects like the Kingston Wildcat Mine, formerly known as Kingston Sewell, which is our new low of all mine in development. Jason will talk more about Wildcat in a moment. Despite the difficult circumstances we're currently seeing in steel demand and met coal pricing, I remain optimistic about Alpha's long-term prospects. Mines like Kingston Wildcat are an exciting complement and quality enhancement to our existing portfolio. The Alpha team continues to operate safely and responsibly, even in the face of challenging conditions. October has gotten... The fourth quarter off to a good start, so we hope to keep that momentum and finish this year strong. Our strong balance sheet and lack of long-term debt provide greater flexibility to manage the business in periods of market weakness. We remain focused on safety and efficiency as we monitor the market for opportunities. So with that, I'll turn the call over to Todd for additional information about our quarterly financial results. Thanks, Andy. Adjusted EBITDA for the third quarter was $49 million, down from $116 million in Q2. We sold 4.1 million times in Q3 compared to 4.6 million in the second quarter. Met segment realizations decreased quarter over quarter with an average third quarter realization of $132.76 compared to $141.86 for the second quarter. Export met tons priced against Atlantic indices and other pricing mechanisms in the third quarter realized $129.31 per ton, while export coal priced on Australian indices realized $128.61. These are compared to realizations of $135.47 per ton and $153.52, respectively, in the second quarter. The Q3 realization for our metallurgical sales was a total weighted average of $136.35 per ton, down from $145.94 per ton in the prior quarter. Realizations in the incidental thermal portion of the MET segment increased to $76.33 per ton in the third quarter, as compared to $75.82 per ton in the second quarter. Cost of coal sales for our MET segment increased to $114.27 per ton in the third quarter, up from $109.31 per ton in Q2. The primary driver of the cost increase was reduced productivity quarter over quarter. SG&A, excluding non-cash stock compensation and non-recurring items, decreased to $13.4 million in the third quarter, as compared to $14.2 million in Q2. CapEx for the quarter was $31.5 million, down from $61.1 million in Q2. Moving to the balance sheet and cash flows, as of September 30th, 2024, we had $484.6 million in unrestricted cash, an increase of $148.5 million, or roughly 44%, from our June 30th unrestricted cash figure of $336.1 million. We had $97.5 million in unused availability under our ABL at the end of the quarter, partially offset by a minimum required liquidity of $75 million. As of the end of September, Alpha had total liquidity of $507 million, up from $356.7 million at the end of the second quarter. Cash provided by operating activities was $189.5 million in the third quarter, up from $138.1 million in Q2. The third quarter cash flows were positively impacted by a decrease in working capital of $144.5 million. As of September 30th, our ABL facility had no borrowings and $57.5 million of letters of credit outstanding, down slightly from $59.4 million in the prior quarter. In terms of our committed position for 2024, at the midpoint of guidance, 86% of our metallurgical tonnage in the MET segment is committed and priced. at an average price of $152.42. Another 14% of our MET tonnage for the year is committed but not yet priced. The thermal byproduct portion of the MET segment is fully committed and priced at the midpoint of guidance at an average price of $75.97. Due to the continued softness in the MET coal markets, we did not repurchase any shares in the third quarter under the company's share buyback program. As of October 31st, the number of common stock shares outstanding was approximately 13 million. The remaining stock buyback program authorization permits approximately $400 million in additional repurchases contingent on cash flow levels and market conditions. We have repurchased a total of 6.6 million shares under the existing plan at an average price of $165.74. Looking ahead to next year, we issued 2025 guidance this morning. We expect to ship between 15 and 16 million tons of metallurgical coal, as well as between 1 and 1.4 million tons of thermal coal byproduct. Together, this brings total anticipated shipment guidance to a range of 16.0 to 17.4 million tons. For 2025 cost of coal sales, we are guiding to a range of $103 to $108 per ton. Selling general and administrative costs are expected to be between $53 million and $59 million next year, excluding non-recurring expenses and non-cash stock compensation, a reduction of approximately 11% as compared to 2024's guidance range. Idle operations expense is anticipated to be between $18 and $28 million. We expect net cash interest income of $2 million to $10 million in depreciation, depletion, and amortization of $165 to $185 million. Capital expenditures for 2025 are expected to be between $152 million and $182 million, which includes sustaining maintenance capital, investments in mine development for the Kingston Wildcat Mine, and some carryover from 2024 due to timing and availability of supplies and contract labor. We also anticipate capital contributions to equity affiliates in a range of $44 million to $54 million, which includes both cash needed for normal operations of the DTA facility, as well as amounts expected to be spent in 2025 related to infrastructure and facility upgrades at the port. Lastly, the company expects a cash tax rate of between 0% to 5% next year. In terms of our committed and priced position for 2025, our metallurgical tonnage at the midpoint of guidance is 24% committed at an average price of $152.51, with another 35% committed and unpriced. The incidental thermal tonnage at the midpoint of guidance is already 96% committed at an average price of $79.90. The remaining 4% at the midpoint of incidental thermal guidance is uncommitted. I'll now turn the call over to Jason to provide an update on operations. Thanks, Todd. Good morning, everyone. In our guidance for next year, we're projecting cost of coal sales in a range of $103 to $108 per ton, the midpoint of which is $7.50 lower than the midpoint of our current 2024 guidance range of $110 to $116. Roughly two-thirds of this reduction is expected to be realized through reduced purchase coal costs to both the lower than expected volumes and the lower pricing environment that we're experiencing. We also believe that we will realize savings of a little more than $2 per ton in 2025 through improved pricing on supplies and maintenance, such as diesel fuel, steel, roof support, and a reduction in third-party mining services expenses. Those items, along with anticipated lower sales-related expenses, are the primary drivers behind the decrease in cost guidance year over year. We've discussed in the past Alpha's investments in our manufacturing and rebuild facilities on several previous calls. We've grown our capabilities over the last few years, and when third-party and OEM manufacturers were diminishing and often unavailable, it allowed us to maintain our fleet in a condition that is set to weather market declines. It's these investments that have helped shore up our mining fleet into a healthy state that allows us to scale back investments here in the near term without negatively impacting safety or productivity. Moving to our CapEx guidance for next year, you also see we've reduced our expectations around sustaining maintenance CapEx to roughly $7 per ton, at the midpoint of volume guidance, as opposed to the $10 per ton rule of thumb that we've most recently been using. Again, this is due to the exceptional health of the AMR fleet, and it's backed up by a flattening, in some cases reversal, of inflationary pressure on materials and supplies as compared to the last couple years. At the midpoint of shipment guidance, we're expecting to sell 16.7 million tons next year. which had $7 per ton, corresponds to about $117 million in sustaining maintenance CapEx for our existing portfolio of mines. The other two categories, development and rollover CapEx, are largely devoted to our Kingston Wildcat mine. At the midpoint of guidance, we expect to spend around $40 million of development CapEx and another approximately $10 million in carryover from this year, almost all of which will go to Wildcat. As a reminder, this is the mine we've been working on in Fayette County, West Virginia, which was previously named Kingston Sewell after the name of the coal seam. It will be part of our mid-West Virginia surface region. As our teams progressed on the preparatory groundwork for this mine, they decided to rename the mine Wildcat in appreciation for its location, our ties to the community, and the rich local history of PAX West Virginia. where the Wildcats of Pax High School won the state basketball championship in 1954. In terms of development plans, we're currently working on the slope at Kingston Wildcat, which will continue throughout most of the next year. This mine will produce lowball product that we're excited to bring to market. While we anticipate the first production cuts to occur late in 2025, more significant tonnage levels are not expected until 2026. At its full run rate, we expect Wildcat to produce up to 1 million tons annually. Lastly, on these quarterly updates, we often communicate some of Alpha's safety and environmental achievements. This time, I want to send my sincere appreciation to a group of Alpha's senior leaders and remarkable employees that volunteered their time to aid Western North Carolina in the aftermath of Hurricane Eileen. They assisted in recovery efforts and road rehabilitation work that allowed residents access to their homes and businesses between Bat Cave and Chimney Rock, North Carolina. I want to thank those who prompted me for consideration and the numerous volunteers who wanted to be involved to help. To those who made the connections there on the ground, orchestrated the tactical plans, transported and loaned equipment, and finally the group of miners who are now dubbed the West Virginia Boys who impressed folks all over Central Appalachia with their skill level, drive, and fortitude. This group of individuals is a testament to Alpha's strength, and I couldn't be prouder to know and work with such an impressive group of individuals. Thank you. With those operational updates, I'll now turn the call over to Dan for an update on the markets.