Peabody Energy Corporation

Welcome to the Peabody second quarter earnings call. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. At that time, I will instruct everyone on how to participate. And at this time, I would now like to turn the conference over to Alice Theranos, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining Peabody's earnings call for the second quarter of 2022. With me today are President and CEO Jim Grech and CFO Mark Furbeck. Within the earnings release, you'll find our statement on forward-looking information, as well as the reconciliation of non-GAAP financial measures. We encourage you to consider the risk factors referenced there, along with our public filings with the SEC. I'll now turn the call over to Jim.

Thanks, Alice, and good morning, everyone. In the second quarter, our diversified assets delivered strong results, generating free cash flow of over $340 million and adjusted EBITDA of $578 million, our highest in more than a decade, despite ongoing weather and logistical challenges. We continue to expect a strong second half with higher projected volumes compared to the first half of the year in all our segments and markets although volatile, supporting continued high prices. During the quarter, we delivered increased sales volumes in every segment except the PRB, capturing strong market prices, which resulted in higher margins. With cash generated, we continue to strengthen our balance sheet by advancing our debt reduction strategy with voluntary repurchases, bringing us closer to eliminating all senior secured debt, which will allow us greater financial flexibility in the future. Before I expand on the quarter, I would like to sincerely thank our global employees for their continued focus on working safely and efficiently, which has been truly remarkable given the adverse weather and logistics challenges we have been facing. Without the dedication of our talented workforce, we would not have had the outstanding second quarter results we are reporting today. Now, turning to global coal markets. Across the globe, all coal price indices remain at elevated levels representing a dynamic demand that continues to test the ability of supply in most of our market segments. The outlook for all our operating segments continues to be favorable with the constrained base serving a market that is reallocating the scarce availability of coal. Seaborne coal markets are currently facing disruption resulting from the Russia-Ukraine conflict, while coal supply in Australia continues to be challenged by weather and staff absenteeism primarily as a result of continued COVID impacts, and in the U.S., coal exports continue to be challenged by eastern rail logistics issues. Seaborne thermal prices remain near record levels, as around the globe, coal fuel generation is called upon for energy security and reliability. High natural gas prices are providing strong economic incentives for generators to maximize coal generation. Evidence of this is the restart of available coal fuel generation in Europe. The Russia-Ukraine conflict is also impacting markets. The cessation of coal imports from Russia by European countries is creating the need to source from alternative locations, including Australia and the U.S. Furthermore, reduced Russian gas pipeline flows into Europe and an LNG terminal outage in the U.S. are further challenging international gas supply. Actions to ration gas supply in preparation for the European winter including the recent 15% reduction of use EU agreement, further support coal fuel generation. Compounding these issues, Australian supply continues to be challenged by historically high levels of rainfall, with most recent supply interruptions associated with heavy July rain. And in the U.S., rail performance is limiting export volume, further constraining near-term supply. Overall, global thermal coal markets remain robust, with pricing at historical record levels that is incentivizing high-energy coal to markets where it provides the most value. Within the seaborne metallurgical market, anticipated steel output for July to September has been tripped in North Asia and Europe as a result of falling steel prices and high distributor inventories. There are signs of weakening end-user demand due to falling economic confidence in the face of increasing inflationary pressures globally. As steelmakers introduce output production cuts, we have seen a weakening of incremental metagogical coal demand. Moving forward and offset to some of this impact are steelmakers in Atlantic markets switching away from Russian coal imports and seeking supply from other regions such as Australia, U.S., and Canada, particularly for PCI coals. Robust thermal coal prices are above met coal prices, which is creating switching opportunities for European buyers who can overcome technical barriers. And this dynamic can be viewed as a positive for the met coal market balance in the coming months. While energy shortages and inflationary concerns in some markets present a risk to near-term industrial activity, the underlying market fundamentals remain constructive as metallurgical coal supply remains static. In the United States, the coal markets continue to be tight as supply remains constrained. Transportation issues linger in the PRB, and demand for coal has increased to meet summer electricity demand. Overall, electricity demand increased more than 4% year-over-year, positively impacted by weather and economic activity. Year-to-date, electricity generation from thermal coal has declined year-over-year due to coal conservation by utilities to build coal stocks, given concerns with rail performance. U.S. natural gas prices remain elevated, at levels not seen since 2008, with weather driving market tightness. And this is occurring even with a higher supply as a result of increased production and an LNG terminal outage keeping more gas in the domestic market. Across the U.S., we are seeing growing caution regarding the pace of the energy transition, value of dispatchable capacity. Evidence of this are announcements of coal plant retirements being delayed with most utilities citing grid reliability concerns or delayed renewable projects. This speaks to continued strong coal demand for U.S. coals. Overall, we anticipate continued near-term market volatility as coal demand fluctuates and supply remains constrained across the globe. A diversified platform is positioned to participate in each of these markets, optimizing results by managing the needs of our diversified customer base. Now, turning to the second quarter. Our second quarter results were strong despite several external factors at our operations that are delaying plans to deliver increased production volumes across our platform. We have included the impact of these factors and other adjustments in our updated second half guidance, which indicates lower results for the third quarter with improvements in the fourth quarter. In our seaborne thermal segment, the impact of heavy rain and COVID-related staffing shortages continue to hinder our recovery plans to recapture full year production volumes at Wolfenjohn and Wambo. In early July, a La Nina record flooding event with more than seven inches of rain intensified productivity challenges. This event resulted in interruptions to our Wambo operations and rail services, further reducing production expectations as the mines recover from flooding. We drew down inventory to deliver second quarter sales in line with guidance. However, we've had to update second half guidance to reflect lower sales volumes, additional royalties, and other costs in the third quarter as the mines recover from these events. Our Seabourn Met segment is on track to deliver higher volumes and deliver on guidance as the year progresses. The CMJV delivered higher volumes and had its first shipments from Morvale South. At Metropolitan, we completed a longwall move in our position for higher volumes in the second half. At Shoal Creek, we transitioned to the J2 longwall panel, following production challenges in the J1 panel, and we project the mine to deliver higher volumes in the second half. Outside of our operating segment, our 50% ownership share of Middlemount benefited from strong metallurgical market dynamics, delivering nearly 400,000 attributable tons in the second quarter. Production here was also impacted by severe rains and COVID absenteeism during the quarter, which is also expected to impact third quarter production. In the PRV, further degradation of rail performance resulted in 2 million tons shipped less than nominated by customers in the first quarter and 4 million tons less in the second quarter. This has unfavorably impacted our costs as we continue to remove overburden at a higher production rate, which will benefit those operations in the future. For 2022, although we have 90 million tons under customer commitments, sales volumes will be dependent on rail performance. Our other U.S. thermal mines continue to deliver strong results with increasing volumes expected in the second half. Demand for our U.S. thermal products remains strong, and we continue to place new business with both existing and new customers. We continue to explore sales strategies that position Peabody to be the long-term producer of choice. providing our customers long-term supply security and capturing strong prices. In the PRV for 2023, we have approximately 68 million tons priced at $13.28 a ton, with an average BTU of 8,600, and our remaining uncommitted volumes are of the higher quality 8,800 BTU coal. While our other U.S. thermal segment has 16.6 million tons priced at $46.80 a ton, for 2023 delivery. In the quarter, we also issued our ESG report, which laid out the steps we have taken to strengthen our commitments and to reposition ourselves to better support the ESG targets of our stakeholders. This includes a commitment to setting targets and developing programs to enhance our position as a champion of ESG practices. Finally, we continue to advance our three renewable efforts to pursue the development of utility-scale solar and battery storage on six tracts of previous coal mining land in Illinois and Indiana. We have finalized our management team and commenced site evaluations with our project developer, Tree Oak. Our vision for the future is simple. We want to continue to strengthen our position as a coal producer of choice. We will do this by maintaining financial strength reliably delivering a diversity of products to support our customers' needs, practicing operational excellence, and championing ESG practices. This will allow us to be resilient in all cycles and to grow with our stakeholders. We are progressing this vision through multiple strategic initiatives. In our MET platform, in addition to completing development of Moorville South to improve quality and extend life at the CMJV, We continue to assess development of 70 million tons of southern reserves at North Gunyella. And in our seaborne thermal platform, we are extending the life of Longbow Underground with further long wall development. In the U.S., we continue to implement sales strategies and plans to capture incremental volumes and to give us flexibility in our mine plans to meet changing customer demands. Some examples of these activities are expansion into new areas at our wild boar complex in the Midwest, and additional mining units at Francisco and Great Gateway. And most importantly, we remain focused on the financial strength of the balance sheet with further debt repayments. I'll now turn things over to Mark to cover the financial details.