CONSOL Energy Inc. Common Stock

Good morning and welcome to CEIX First Quarter 2021 Earnings Call. All participants will be in listen-only mode. If 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. Please note that this event is being recorded. I'd like to turn the conference over to Mr. Nathan Tucker, Director of Finance and IR. Please go ahead.

Thank you, Nick, and good morning, everyone. Welcome to Consol Energy's first quarter 2021 earnings conference call. Any forward-looking statements or comments we make about future expectations are subject to some risks, which we have outlined in our press release and in our SEC filing, and are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. We do not undertake any obligations of updating any forward-looking statements for future events or otherwise. We also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on Form 8K, which is also posted on our website. We also filed our 10-Q for the quarter ended March 31st, 2021 with the SEC this morning. You can find additional information regarding the company on our website, www.consolenergy.com. On the call with me today are Jimmy Brock, our Chief Executive Officer, Mitesh Jakar, our Chief Financial Officer, Dan Connell, our Senior Vice President of Strategy, and Bob Braithwaite, our Vice President of Marketing and Sales. In his prepared remarks, Jimmy will provide a recap of our key achievements during the first quarter of 2021 and specific insights on operations and sales. Mitesh will then provide an update on our liability management program, including our recently completed tax-exempt financing, our financial results, and 2021 guidance. In his closing comments, Jimmy will lay out our key priorities for the remainder of 2021. After the prepared remarks, there will be a Q&A session in which Dan and Bob will join us as well. This morning, we posted a supplemental slide deck on our website, which we will refer to on today's call. With that, let me turn it over to our CEO, Jimmy Brock.

Thank you, Nate, and good morning, everyone. Let me start by saying I'm extremely proud of our employees and the response we've had throughout our organization to manage through a very challenging 2020 and get off to a strong start in 2021. all while staying very much on target with our core values and priorities. On the ESG front, we're pleased to announce the release of our 2020 Corporate Sustainability Report, our fourth since becoming an independent company in 2017. The report demonstrates our continued pursuit of industry-leading ethical, social, and environmental performance and disclosures. As a better coal supplier, Throughout the report, we highlight the alignment of our practices with the internationally recognized Better Coal Code of ESG operating principles specific to coal mining supply chain. Our 2020 performance included achieving an environmental compliance record exceeding 99.9% for the eighth consecutive year, reducing our water withdrawals by 24%, and reclaiming 2.9 acres for every acre disturbed across our operating footprint. The report emphasizes the synergy between our sustainability, technology, and financial strategies, which together inform and support our growth and diversification goals. At the same time, our ESG performance enables our active operations to continue to provide the cold that is reliable and affordable and is vitally important toward improving the quality of life of its end users, specifically in developing countries. Ultimately, The alignment of our strategic initiatives in these areas will drive sustainable value creation for our stakeholders. On the safety front, our Bailey Preparation Plant, the Consol Marine Terminal, and Ipman Project each had zero recordable incidents during the first quarter of 2021. Our total recordable incident rate at the PAMC finished Q1 of 21, 44% improved versus the prior year period and continues to track significantly and consistently below the national average for underground bituminous coal mines. On the operations front, not only did we end 2020 on a very strong note, but we followed that up in Q1 of 21 with our highest ever first quarter production in the history of the Pennsylvania mining complex, as well as achieving a new record low cash cost at the Pennsylvania mining complex, all while running less than a full five long-law schedule. We also continued our shift to seaborne markets by penetrating several new markets and strengthening our existing relationships. Due to our strong free cash flow generation, we bolstered our balance sheet by increasing our cash position, paying down our mandatory debt obligations, and continuing to opportunistically accelerate additional debt reduction through open market purchases. Toward the end of the quarter, We demonstrated our company's ongoing access to capital markets by pricing $75 million in tax-exempt solid waste disposable revenue bonds with an initial term of seven years. Finally, our first quarter free cash flow exceeded the free cash flow generated in the full year of 2020 and was nearly at the level of full year 2019, which demonstrates our significant earnings potential in a recovering market. We believe that this is particularly impressive when we consider the fact that coal pricing levels are still in transition and remain somewhat suppressed during Q1 of 21. This provides me further reason for optimism as economic conditions continue to improve and energy demand recovers to pre-pandemic levels. Now let me provide our Q1 21 operational performance in detail. Coal production at the Pennsylvania mining complex came in at 7 million tons in Q1 of 21, compared to 6 million tons in the year-ago quarter. The vast improvement was due to a continued increase in demand for our product, as well as no longwall moves during the quarter. We consistently ran four longwalls in Q1 of 21. However, as demand exceeded our production, we sporadically ran the fifth longwall to meet this additional demand. This recent quarter now marks the third consecutive quarter in which we have steadily increased our production as our Q1-21 quarter production improved 19% from Q4 of 20 levels and nearly 200% from Q2 of 20 levels as demand has steadily increased since the depths of the COVID-19 related shutdowns. For Q1-21, productivity at the Pennsylvania Mining Complex measured as tons per employee hour improved by an impressive 31.9% compared to Q1 of 20. We're not only increasing our overall output, but also improving our efficiencies by right-sizing our operations. On the cost front, our average cash cost of coal sold per ton was $24.44 in Q1 of 21, a new record low quarterly level at the Pennsylvania mining complex, and a nearly 25% improvement compared to the $32.41 in Q1 of 20. Our operation team was once again successful in keeping tight control over cash expenditures in the quarter, while benefiting from our improved operating leverage due to the increased production volume. The adjustments we made to our operations continued to pay dividends by allowing us to reduce our overall cash costs of COSO per ton on our producing assets. The improvement was driven by a combination of factors, including lower mine maintenance and supply costs, contractors and purchase service costs, labor expense, and project expenses. Not to be outdone, the Kansai Marine Terminal achieved a throughput volume of 4.1 million tons during Q1 of 21, establishing a new record for quarterly throughput compared to 3.4 million tons in the year-ago period. The terminal throughput volume reflects a pace of over 16 million tons per annum. Terminal revenues for the quarter came in at $18.2 million compared to $16.5 million in the year-ago quarter. Consistent with recent trends across the company, the CMT employees remained diligent in their cost control measures, and despite the 700,000-ton increase in throughput volumes, cash operating costs were basically flat at $5.3 million versus $5.2 million in the year-ago quarter. Our two core operations once again proved that they can adapt in any commodity market and thrive in improving markets. With that, let me now provide an overview of the coal markets. Demand for our product continued to strengthen in the first quarter of 2021 since the COVID-19 demand trough of Q2 of 20. As economic recovery continued and electric power and export demand improved. Henry Hub natural gas spot prices averaged $3.50 per million BTU during the quarter, or an 85% increase compared to Q1 of 20. Additionally, average PJM West day ahead power prices ended Q1 21 52% improved versus the prior year period. Consistent with these trends, the US EEIA estimates that coal share of electric generation mix was 23% for the quarter. which has significantly improved from 18% in Q1 of 20 and vastly improved from the low point of 15% in April of 2020. While natural gas prices haven't sustained above the $3 per million BTU mark that had been projected by many industry experts, we remain hopeful that overall market conditions will continue to improve due to increased global economic recovery and a relatively muted supply response. The U.S. Energy Information Administration estimates that total domestic coal demand will increase by 13% in 2021 versus 2020, while domestic coal supply is expected to increase by only 9%. In fact, we continue to see tightness in the supply of northern-out coal, and the majority of our domestic customer stockpiles are at or below target levels for this time of year. These fundamentals should help to maintain the current tightness in the domestic market that we see today. On the export front, we have seen sustained improvements in the seaborne thermal coal market since the end of the third quarter of 2020. Petco prices continue to remain supportive as a result of reduced oil production, propping up demand, and pricing for Northern App coal in high CB markets, particularly India. Global LNG prices have been elevated with the Asian spot market benchmark price ending Q1 21 more than double compared to Q1 of 20. API 2 spot prices also remained strong and ended Q1 of 21 improved by 37% compared to the prior year quarter. As such, I am very pleased to announce that we were able to capture the ongoing improvements in the export market and reported our highest export shipment quarter in the history of the PAMC. both in terms of total tonnage and percentage of tons sold. We placed 3.3 million tons into the export market in Q1 of 21, much of which was used in industrial non-power generation applications. As you can see on slide five in our supplemental slide deck, we have continued to steadily diversify our global customer base and end-use markets since 2019. In the first quarter of 2021, Our overall export volume, as a percentage of total sales volume, went up 15 percentage points versus full year of 2019, driven by a sharp increase in the portion of our tons going into the export industrial markets, which is driven by 17 percentage points. We have not only strengthened our relationships with existing global customers, but we are now serving several new international end users as well. In Q1 of 21, Exports accounted for approximately 48% of our shipments and global customers continue to provide competitive pricing opportunities compared to our domestic customers. This heightens our focus on export sales is consistent with our strategy of further reducing our exposure to declining U.S. coal market. Our move away from the large take-or-pay contract at the terminal has given us increased flexibility to serve the seaborne markets. which include continuing to present growth opportunities for our product. From a marketing perspective, it is encouraging to see that demand for our coal has continued to improve since the low point in Q2 of 20. We continue to maintain the vast majority of our core customer base and continue to see improvements in our customers' contracting appetite. Since the end of 2020, Our sales team has continued to remain opportunistic in its marketing strategy and increased our contracted position by 2.3 million tons, bringing our contracted position to 20.5 million tons in 2021 and 5.6 million tons in 2022. With that, I will now turn the call over to Mitesh to provide the financial update.