Arch Resources, Inc.

Good day and welcome to the fourth quarter 2022 ARCH Resources earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touch-tone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Dex Sloan, 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 our formal remarks, we'll be happy to take questions. With that, I'll now turn the call over to Paul. Paul?

Thanks, Dec, and good morning, everyone. We appreciate your interest in ARCH and are glad you could join us on the call today. I'm pleased to report that the ARCH team delivered another strong operating and financial performance in Q4 with adjusted EBITDA of $256.5 million, due in large part to our core metallurgical segment that had significantly improved sales volumes, unit costs, and cash margins. In short, our Q4 results served as the capstone to an exceptional year for ARCH resources. During 2022, the ARCH team achieved a record financial performance, delivering full year net income of more than $1.3 billion, or $63.88 per diluted share, generating adjusted EBITDA of $1.3 billion, and reporting operating cash flows of more than $1.2 billion, We also strengthened the balance sheet, repaying more than 70% of our indebtedness, returning us to a net cash positive position less than one year after completing our Lear South growth project and increasing the balance in our industry first thermal mine reclamation fund to the initial target level of $136 million. Finally, we relaunched our capital return program, deploying nearly $900 million over the last year which included almost $515 million in quarterly dividends and avoiding the dilution of approximately 2.9 million shares through buybacks and the settlement of more than 90% of our convertible debt. I'm pleased to report that the team continued to extend its longstanding industry leadership in environmental, social and governance performance during 2022. Setting the standard for ESG excellence in my view is one of the keys for our success and part of our social contract. Noting just a few highlights in this arena, we achieved the best safety record in the history of the company, which was approximately four times better than the industry average. We received just one SMACRA violation across our operating portfolio versus an average of 12 by our peers. And we received the 2022 Excellence in Reclamation Award, the state of Wyoming's highest reclamation honor, for the extensive and exemplary work conducted at Coal Creek, where we've now completed roughly 75% of the final reclamation work at that operation in less than two years. While these are a significant list of accomplishments, the work the team did in 2022 to lay the foundation for continued success in 2023 and beyond is equally important. As evidence of that progress, We're guiding to marketly higher sales volumes in our core coking coal franchise in 2023, as well as marketly lower unit costs for the segment. We added seven world-class Asian steelmaking customers in 2022 for 2023 shipments, thus setting the stage for long-term success in that fast-growing region. We've now contracted about 75% of our projected 2023 cooking coal output, inclusive of recent sales, and at the midpoint of our guidance. And we further augmented the sales book for our legacy thermal franchise and are now entering into the year in an effectively sold-out position with a significant contract book in the outer years as well. Before I move on, I'd like to take a moment to discuss our capital return program, which we relaunched in February 2022. As indicated, we've already used that program to reward shareholders in a very significant manner, deploying almost $900 million over the last year. As a reminder, under the program's allocation model, we target the return of 50% of the prior quarter's discretionary cash flow via dividends and the use of the second 50% of discretionary cash flow on a menu of other value-driving options, including share buybacks. In our view, both the capital return program and the allocation model remain appropriate, durable, and well aligned with shareholder interests and preferences. Given this, we fully expect these programs to remain the centerpiece of our value proposition, as well as our efforts to maximize value for our shareholders. Now let me take a few minutes to comment on the coal markets before turning the call over to John to provide some additional color on the operations. starting with the seaborne metallurgical markets. In the past, global hot metal production has acted as a primary driver for coking coal markets, which makes sense. Higher hot metal output means increased demand for coking coal. And that's what makes the current market conditions so interesting. At present, coking coal prices appear well-supported, even though global hot metal production, excluding China, was down 8.8% in 2022. coupled with the fact that roughly 20% of the global blast furnace capacity, excluding China, is idle. Today, the price for premium coking coal, FOB the vessel in Queensland, now stands at $385 per metric ton, and the price of high-vol A coking coal off the U.S. East Coast is being assessed at $325 per metric ton. Moreover, steel market dynamics are starting to show signs of improvement. With hot rolled, coil prices up around 25% in the world's major steel markets just since November. At the same time, the world's idle blast furnace capacity is starting to turn back on in the face of gradually rebounding steel demand, which is also providing additional support for coking coal markets. ARCH continues to view underinvestment in new and replacement coal supplies as the single most compelling support mechanism for the current constructive coal market dynamics. In 2022, Australian coking coal exports were down 5% or more than 9 million metric tons when compared to the already weak levels of 2021. Meanwhile, the second and third largest global suppliers of high quality coking coal, the United States and Canada, were up only mildly versus 2021. despite strong pricing throughout the course of last year. And both countries continue to significantly undershoot their pre-pandemic production levels. On top of these fundamentals, the war in Ukraine continues to constrain Russian products in the broader market, while injecting greater uncertainty into overall global coal supplies. Added to this, we view the apparent reopening of the Chinese market to Australian coals after two years of lockout, is a generally positive development. While this change in position by the Chinese will surely trigger some real sea-borne trade flows back to their natural markets, it does seem to be part of a larger rebalancing of the global coking coal supply demand equation. On the thermal side of the business, global markets have corrected significantly in recent weeks, with Asian pricing continuing to hold up better than European indices on a relative basis. We believe much of this decline in Europe is attributable to moderating demand for thermal coal in the face of a mild winter, weak economic activity, widespread energy conservation efforts, and the increasing availability of LNG imports. At the same time, Asian demand remains strong, and the Newcastle Index is currently trading at $220 per metric ton, which is well above the historical average. In summary, with the steps we took last year, ARCH is prepared to manage through a period of market weakness should world economic conditions deteriorate further. But just as importantly, we're also exceptionally well positioned to capitalize on the situation when the macro environment strengthens, global growth accelerates, and steel markets rebound. In addition, we continue to view the intermediate to longer-term coal market dynamics as constructively given the ongoing underinvestment in the space. Heading into 2023, we plan to keep our eyes squarely on a clear, concise, and actionable plan for value creation. We intend to leverage our competitive coking coal portfolio with its expanding customer base in Asia, along with the benefit of our cash-generating legacy thermal assets, to again provide significant amounts of discretionary cash through 2023 and beyond. With this, we plan to use that cash to continue to reward stockholders through the clearly articulated tenets of our capital return program. With that, I'll now turn the call over to John Drexler. John?