Arch Resources, Inc.

Good day and welcome to the Arch Resources, Inc. Second Quarter 2022 Earnings Conference Call. Today's conference is being recorded. I would now like to turn the call over to Doug Sloan, Senior Vice President of Strategy. Please go ahead.

Good morning from St. Louis and thanks for joining us today. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the Private Securities Litigation Reform Act. Forward-looking statements, by their nature, address matters that are, to different degrees, uncertain. These uncertainties, which are described in more detail in the annual and quarterly reports that we file with the SEC, may cause our actual future results to be materially different than those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by law. I'd also like to remind you that you can find a reconciliation of the non-GAAP financial measures that we plan to discuss this morning at the end of our press release, a copy of which we have posted in the investor section of our website at archrsc.com. Also participating on this morning's call will be Paul Lang, our CEO, John Drexler, our COO, and Matt Gilgham, our CFO. After formal remarks, we'll be happy to take your questions. With that, I'll now turn the call over to Paul.

Thanks, Dec, and good morning, everyone. We appreciate your interest in ARCH and are glad you could join us on the call this morning. I'm pleased to report that the ARCH team delivered record earnings for the third straight quarter in Q2, as well as record coking coal realizations and record coking coal margins. I view these strong results as a testament to the team's excellent work in building out our premier metallurgical platform and, in the process, are exceptionally strong cash generating capabilities. Even with these impressive accomplishments, it's important to underscore that our Q2 results would have been stronger still if not for two issues. The first being poor rail and logistical service, and the second related to the cash costs in our metallurgical segment. As you know, inadequate rail service has been a persistent issue in all of our operations in recent quarters, and I'm disappointed to report that the situation has extended itself into the first month of Q3. While we continue to engage with our rail carriers on more or less a continuous basis, the reality is there's only so much we can do to rectify the situation. In Q2, our eastern operations saw an incremental improvement in rail service over Q1, while the western railroads' performance actually declined. However, based on assurances from the railroads, We remain hopeful that their overall service will continue to recover as we move through the balance of the year. But progress remains painfully slow, and the situation is extraordinarily frustrating for all of our customers. The other item that acted to dampen our second quarter financial results was a localized geologic issue at Lear South. While that issue had no effect on our Q2 cooking sales volumes, we actually built inventory during the quarter. it was a significant contributor in pushing up our metallurgical segment's costs. Obviously, some of the increase we saw in the quarter was attributable to higher material and supply costs in the current inflationary environment, as well as higher sales-sensitive costs related to our record average selling price. However, the largest component of our cost increase for the segment stemmed from our tougher-than-anticipated cutting conditions we encountered at Lear South. While John will share some additional details, let me say that we fully expect those conditions to improve significantly in late August, which should lead to an improving cost performance in our metallurgical segment as the year proceeds. While we're pleased with the company's strong financial results in Q2, we believe the progress we made on a range of other strategic initiatives are just as noteworthy, if not so more, given that they position the company for ongoing success and value creation well into the future. Among the team's significant accomplishments during the second quarter, ARCH reduced total indebtedness by $136 million, or 42 percent, ended the quarter in a net debt positive cash position of about $95 million, reached the targeted funding level for a recently established thermal mine reclamation fund of $130 million, inclusive of the July payment, deployed more than $280 million via dividends and convertible security settlements under capital return program. In short, we stayed true to our clear, consistent, and actionable strategy for long-term value creation by continuing to fortify our financial position while simultaneously returning excess cash to shareholders through our recently relaunched capital return program. As we stated in the past, we view this program as the centerpiece of our value proposition and an excellent way to drive long-term value for our shareholders. It's important to add here that, in addition to the $280 million of capital we returned in Q2, we also declared today a quarterly dividend of $119 million, or $6 per share, payable in September. I should note that this figure, while significant, would have been higher if not for $138 million bill in our Q2 accounts receivable balance that was precipitated by a heavy June shipping schedule to overseas customers. Fortunately, the impact of this is simply a timing issue, which is to say we expect those funds, as the cash is received, will be returned to shareholders via future dividends or other capital return mechanisms. As you know, The amount of the dividend was driven by our recently implemented capital return formula, which envisions returning 50% of our discretionary cash flow we generate each quarter to shareholders as a dividend. As for the other 50% of our discretionary cash flow, we've stated our intention of putting that cash to work in a variety of other value-driving ways, including share buybacks. While the board is still evaluating the optimal use of the second 50%, if you will, it clearly views share buybacks as an effective means of returning capital to shareholders, and likewise, views ARCH stock as an attractive investment option. To that end, the board recently increased the company's buyback authorization to $500 million. Bringing this all together, I'm particularly pleased to report that inclusive of the just-declared September dividend, we'll have deployed just over $400 million since the start of the year under our capital return program. Simultaneously, we've taken substantial steps towards lowering our overall risk profile by reducing our debt by over $417 million, or 70%, and finishing contributions to the thermal mine reclamation fund. Before turning the call over to John, I'd like to spend a few minutes talking about the dynamics we're currently seeing in the global coking coal markets. As you know, coking coal markets have softened markedly in recent weeks, with high-volume coal off the U.S. East Coast now being assessed at $249 per metric ton. While this is a considerable decrease from the 1st of April, when the assessed price was $480 per metric ton, it's still a strong number from a historical context. and remains at a highly profitable price level for ARCH's coking coal portfolio. The principal driver behind this significant price pullback, in our estimation, is slowing economic growth that is having the predictable impact on global steel production. Year-to-date, hot metal production is down about 5.5 percent, which, as you can imagine, is slowing seaborne coking coal demand and at the same time pressuring prices. However, we see other market dynamics, particularly in the supply arena, that should continue to supply or continue to support a healthy long-term supply and demand balance in the coking coal markets. Of particular note, coking coal exports out of Australia, traditionally the source of more than 50% of the seaboard coking supply, are undershooting the already depressed levels of 2021 by about 7% year-to-date. Additionally, The war in Ukraine threatens to trim Russian coking coal export levels, particularly once the EU's ban on Russian coal imports takes effect the second week of August. Elsewhere, US and Canadian coking coal exports are up less than 2 million tons in aggregate year to date, despite exceptionally strong pricing levels through the first half of the year. In summary, underinvestment in coking coal capacity in recent years continues to weigh heavily on the long-term outlook for global metallurgical coal supplies, which should bode well for the longer-term pricing environment. Finally, I'd like to highlight the strength in international thermal coal markets as potentially a significant support mechanism for coking coal prices. The current price for thermal coal out of Australia is around $415 per metric ton, and the price for thermal coal into northern Europe stands at roughly $390 per metric ton. It is nearly unprecedented to have thermal coal trading at a premium to coking coal, and we don't expect that to last. In fact, we would anticipate that a fair amount of global coking coal supply is already crossing over into the much larger thermal coal marketplace, which should serve to support coking coal prices over time. As you can imagine, we are exploring every opportunity to ship some of our own uncommitted coking coal volumes into the thermal markets, and have had success this week with a fourth quarter cargo out of Mount Laurel into Europe. In closing, let me reiterate that the last several months have been a period of amazing success and progress for Arch. Even with logistical constraints and typical coal mine issues, our expanded and upgraded operating portfolio continues to allow us to capitalize on this market environment while positioning the company for still greater success in the future. While the recent pullback in pricing was inevitable and arguably even healthy, we still see a constructive and profitable coke and coal market well into the future, recognizing, of course, that there's certain to be numerous twists and turns along the way. With that, I'll now turn the call over to John Drexler for some further details on our operating results. John?