Arch Resources, Inc.

Good morning and welcome to the ARCH Resources second quarter 2023 earnings call. All participants will be in 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 your touchtone phone. Please note this event is being recorded. I would like now to turn the conference over to Dex 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 in 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, Jack, 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 continued to execute at a high level in its core metallurgical business during Q2, delivering another first quartile cost performance. At the same time, we continue to press ahead with our simple, clear, and actionable plan for long-term success and value creation. During the quarter, the ARCH team showcased the significant cash-generating capability of the company by delivering $130 million in adjusted EBITDA and generating $151 million in discretionary cash flow, despite a softer market environment. The team then drove forward with our ongoing efforts to streamline and strengthen our balance sheet, reducing our already modest indebtedness by an incremental $13 million, and maintaining a significant net cash positive position. Finally, and perhaps most importantly, the team generated significant value for our shareholders through our robust capital return program, declaring a quarterly dividend of $75.4 million, or $3.97 per share, payable in September, and deploying $73.5 million to repurchase over 623,000 shares, or about 3.3% of the fully diluted share count. This last point, the continued generation of significant levels of discretionary cash flow, even in a weakened market environment, is one of ARCH's defining attributes. In fact, in many ways, ARCH was built for this type of environment, given our high-quality, low-cost coking coal portfolio and our ability to maintain healthy margins across the market cycle. Of course, its ability to consistently generate substantial amounts of discretionary cash flow is also the key to our capital return program, which we regard as the centerpiece of our value proposition. Since relaunching the capital return program in February 2022, just 18 months ago, ARCH has now returned nearly $1.2 billion to shareholders, inclusive of the just announced dividend. Even more noteworthy, perhaps, is the fact that when you include the capital returns from phase one of this program in 2017 through 2019 period, we've now returned an aggregate of nearly $2 billion to shareholders. That approximates the total market capitalization of the company at present. Importantly, and in addition to paying out more than $640 million in dividends, at $34.64 per share since the relaunch last year, we've used the capital return program to avoid the dilution of approximately 4.1 million shares. To put it another way, our diluted share count is approximately 18% lower today than it would have been otherwise, absent the share buybacks and the settlement of our convertible securities. And we fully expect this systematic reduction in our diluted share count to continue as we move forward. As indicated, the Board believes the current capital return program has driven and continues to drive substantial value for the shareholders and expects to continue to return 100% of our discretionary cash flows to shareholders going forward. At the same time, the board also believes that it's essential to continuously review the specifics of the capital allocation model as it evaluates the optimal means for deploying discretionary cash flows in the future, including the relative weighting of dividends versus share buybacks. As you might imagine, the board factors changes in circumstances, including movements in the company's share price into its deliberations and decision-making process. and will undoubtedly continue to do so in the future. Let's switch to the coking coal markets, which, as indicated, have softened significantly in recent months. The reason for this softening is relatively straightforward in our view. Global hot metal production continues to be constrained due to a host of macroeconomic concerns and pressures. As evidence of that fact, hot metal production for the world, excluding China, was down 2.8% through May, versus the already depressed level seen in 2022, according to the World Steel Association. Even with this weakness, however, coking coal continues to trade on the seaborne market at prices that still support healthy margins at our low-cost metallurgical operations. Again, this is by design and how the company was built. At present, high-volume coal, our principal product, is trading at $210 per metric ton off the U.S. East Coast. While demand is weak, the supply side of the coking coal markets remain constructive in our view, due principally to years of underinvestment in both new and existing coking coal capacity. Exports from Australia, the United States, and Canada, the principal suppliers of high-quality coking coal to the global seaborne market, are down nearly 3 million tons in aggregate year-to-date, against last year's already constrained level. Significantly, this drop in seaboard coking coal volume occurred despite generally strong pricing over the course of the past six years. In addition, there is evidence that recent price levels are beginning to exert pressure on marginal cost producers, news that two U.S. metallurgical complexes have closed in recent weeks. Based on this, we believe the current net back pricing is reaching the marginal cost of production and starting to pressure metallurgical coal volume. In summary, we believe ARCH is exceptionally well positioned to generate significant value in the current market environment and equally well positioned to capitalize when the global economy begins to recover and gather steam. In recent quarters, we've expanded and strengthened our world-class coking coal portfolio, increased the global reach of our high-quality coal products, reduced our indebtedness while building and maintaining a net cash positive position, greatly simplified our capital structure, and extended our industry-leading ESG practices. We're pressing ahead on all these fronts with the objectives of enhancing our position even further. Through these substantial and ongoing efforts, we believe we've laid a strong and durable foundation to the long-term value creation with the capability to generate significant levels of discretionary cash and to return robust amounts of capital to our shareholders in a broad range of market environments. With that, I'll now turn the call over to John Drexler. John?