Warrior Met Coal, Inc.

company's earnings press release located in the investor section of the company's website at www.warriormetcoll.com. In addition to the earnings release, the company has posted a brief supplemental slide presentation to the investor section of its site at www.warriormetcoll.com. Here today to discuss the company's results are Mr. Walt Scheller, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer. Mr. Scheller, you may begin your remarks.

Thanks, Operator. Hello, everyone, and thank you for taking the time to join us today to discuss our second quarter 2023 results. After my remarks, Dale will review our results in additional detail, and then you'll have the opportunity to ask questions. We were pleased to deliver another strong quarter in which we were able to leverage our operational excellence to grow sales and production volumes by 15% over last year's second quarter. which, as you may remember, set record highs for several metrics, including coal pricing. The big change to note from a year ago at this time is that hard coking coal pricing is 46% lower, which resulted in a decreased average net realized selling price for our premium coal in the second quarter of 48%. In contrast to this softening during the quarter, we saw positive improvement in the performance of our logistics partners, including continued progress in logistic upgrades at the McDuffie terminal. Most importantly, the significant overhaul to shiploader number one belt structure discussed last quarter, which was out of service most of the second quarter, has now been completed. The result of this and other improvements to the terminal means that most of our outbound logistics metrics are returning to normal ranges, allowing our vessels to be loaded within schedule and delivered to our customers on time. However, the overhaul timing and severe weather disruptions slightly impacted our vessel loadings in the second quarter. Nonetheless, the export terminal remains a long-term work in progress, and we remain committed to working with the Alabama State Port Authority to achieve a beneficial outcome. Looking at demand, output from the global steel producers was largely in line with our expectations for the second quarter. Most steel producing regions experienced stable output, although below previous year's comparable results. Global steel prices have pulled back from their highs in April, indicating softer demand emerging from certain segments. The promise of a broader economic recovery in China has yet to deliver material results, as the country has struggled to find ways to stimulate its property sector and domestic consumption. As a result, despite strong production metrics during the quarter, we expect Chinese steel production to be lower in the second half of the year to be in line with China's stated goal of lower year-over-year output. During the second quarter, the supply of steelmaking coal, mainly coming from Australia, saw a noticeable improvement as evidenced by the increased flow of seaborne coal. Favorable weather in Australia and better performing logistics in the U.S. contributed to the improved supply of steelmaking coal. However, year to date, exports from Australia continue to trail the same period last year, primarily due to a very weak first quarter this year. Mongolian exports continue to outperform expectations with significantly higher volumes than the previous year's results. Our primary pricing index, the PLV FOB Australia, declined by $62 per short ton over the course of the quarter. Most of the correction occurred in April, while the index remained range-bound for the last two months of the quarter. The index closed the quarter at $211 per short ton, which represents about a 22% correction from its high point in April, and about a 40% correction from its highest point established in February. Similarly, the PLV CFR China Index corrected heavily in the first part of the quarter from $286 per short ton to approximately $203 per short ton, where it remained stable for the remainder of the quarter. According to the World Steel Association monthly report, global pig iron production increased by approximately 1% in the first six months of 2023 as compared to the same period last year. The production increase was mainly driven by strong results from Chinese production, which grew by 2.7% during the period. Additionally, India continued its higher trend by growing 6.8% during the period. Our second quarter sales volume of 1.8 million short-tons was 15% higher than the comparable quarter last year. The increase was driven by the improved performance of our rail transportation provider and the McDuffie terminal, which enabled us to export more product. In addition, better than expected production drove an increase in sales volume for the quarter. Our sales by geography in the second quarter breaks down as follows. 47% into Europe, 19% into South America, 33% into Asia, and 1% into the U.S. The increase in Asian sales were primarily driven by spot volume sold into China during the second quarter. Production volume in the second quarter was better than expected and totaled 1.9 million short tons compared to 1.7 million short tons in the same quarter of last year, representing a 15% increase. This is the highest quarterly production output since the first quarter of 2021. Both mines operated at higher capacity levels in this quarter with a 54% higher headcount compared to the prior year's comparable quarter. In addition, we began to see the impact on production of the eligible employees that returned to work from the labor strike, although we expect the full impact of their return to show up over the second half of this year. This should also improve our production costs per short-ton. The higher production over sales volume in the second quarter drove our coal inventory up to 760,000 short-tons from 659,000 at the end of the first quarter. Now that our logistics partners and the terminal are performing better than in recent past, we expect to draw down inventory over the second half of this year. We were pleased to welcome back the approximately 250 eligible union represented workers that returned to work during the second quarter, while we negotiated in good faith toward a new labor contract. This addition to our workforce should also drive incremental production and sales volumes of approximately 500,000 short tons. primarily occurring in the second half of this year, as reflected on our recently revised guidance. During the second quarter, we spent $147 million on CapEx and mine development. CapEx spending was $136 million, which included $97 million on the Blue Creek project, which I'll discuss more in a moment. At the halfway point of the year, we've spent about 45% of our midpoint of targeted CapEx spending for the year. Mine development spending was $11 million during the second quarter. We expect development of mine for it will be completed in the third quarter. Turning to the development of our world-class Blue Creek outset, during the second quarter, we continued to make substantial progress on the project. And I'm pleased to share that our work remains on schedule. As you may remember, we relaunched the development of Blue Creek Mine in May 2022. At that time, the company estimated Total capital expenditures for the project ranged from $650 to $700 million over the projected five-year development period. This estimate was derived in late 2021 based on engineering feasibility studies and the best available information at the time, with the understanding that the company would be able to better understand the needs of the project as development continued. Since then, based on further information and changed circumstances from the initial assumptions, companies continue to refine and de-risk the project to enhance the value-generating ability at Blue Creek, including making the project scope changes that should result in lower operating costs, increased flexibility to manage risks, and the availability of multi-channel transportation methods. These changes will require incremental capital expenditures, a compelling investment which we are confident will enhance the value-creating potential of a completed Blue Creek. We do not believe these changes will impact the timeline of the project. Let me share some details on the new scope of work. While we originally planned to transport coal from Blue Creek Mine via an overland belt to a third-party owned and operated barge loadout facility, we now plan to build a belt conveyor system to a railroad loadout to transport the majority of the coal, which we expect will result in lower operating costs and move volumes faster to the port. We will also build and operate a barge loadout ourselves rather than utilizing a third-party provider. This change in scope is expected to increase the total capital expenditures for the Blue Creek Mine by approximately $120 to $130 million over the remainder of the project development period. We believe that the potential economic benefits associated with this scope change should provide Warrior with an inherently robust and cost-competitive outbound logistics model that will provide additional flexibility to manage multi-channel transportation methods. In addition, the company is experiencing inflationary cost increases ranging from 25 to 35 percent in both operating expenses and capital expenditures for its existing mining operations since late 2021. The company is also experiencing inflationary pressures at Blue Creek, especially in relation construction materials, and certain equipment that is expected to continue during the remainder of the project development period. As a number of key material contracts are currently being negotiated and due to uncertainty regarding future inflation rates, the company is not providing an estimate of the impact of inflation at this time. However, as the company negotiates and enters into contracts for the larger project components, the company expects that more information will become available to allow it to provide revised guidance. While cost inflation has impacted the cost side of the equation of the project economics, these inflationary pressures are expected to be offset by an inflationary increase in a long-term price assumption for steelmaking coal. Subject to the considerations discussed above, our revised estimate of capital expenditures in 2023 for the development of Blue Creek Mine is approximately $250 to $300 million and is subject to change. The increase in 2023 capital expenditures estimate is primarily driven by the change in transportation scope discussed previously. The company currently expects development spending at Blue Creek to be the highest in 2023 and 2024, with 2024 being a similar amount to 2023 that is subject to change. I'll now ask Dale to address our second quarter results in greater detail. Thanks, Walt.

For the second quarter of 2023, the company recorded net income on a GAAP basis of $82 million, or $1.58 per diluted share, representing a significant decrease over the record-setting net income of $297 million, or $5.74 per diluted share, in the same quarter of last year. Non-GAAP adjusted net income for the second quarter, excluding the non-recurring business interruption expenses, was $1.63 per diluted share. This compares to an all-time record high of adjusted net income of $5.87 per diluted share in the same quarter of 2022. These decreases quarter over quarter were primarily driven by the softening steelmaking coal market since the record highs that we saw in the second quarter of 2022. We reported adjusted EBITDA of $130 million in the second quarter of 2023 compared to an all-time record-setting $431 million in the second quarter of last year. The quarterly decrease was primarily driven by the 48% lower average net realized selling prices of our steelmaking coal in a softening coal market, additional employee-related costs due to higher headcount, and the cumulative impact of inflation on supplies and electricity. These were partially offset by the 15% increase in sales volume. Our adjusted EBITDA margin was 34% in the second quarter of 2023, compared to 69% in the same quarter of last year. Total revenues were $380 million in the second quarter of 2023, compared to $625 million in the second quarter of last year. This 39% decrease was primarily due to the 48% lower average net realized selling prices of our steelmaking coals, all set partially by the 15% increase in sales volume. Other revenues were higher in the second quarter of 2023, primarily due to the fact that the prior year included a marked market loss of $15 million on our gas hedges. In addition, gas revenues were lower in the second quarter of this year due to a 70% decrease in natural gas prices. The Platts Premium Low Ball FOB Australian Index price on average was $184 per short ton lower in the second quarter of 2023 compared to the same quarter of last year. The index price averaged $220 per short ton for the second quarter. Demerrage and other charges reduced our gross price realization to an average net selling price of $209 per short ton in the second quarter of 2023, compared to $404 per short ton in the same quarter of last year. Demerrage and other charges were $9 million lower compared to last year's second quarter, of which demerrage was the largest decrease of $6 million. Higher demurrage and other charges in the second quarter of last year were the result of temporary delays in vessel loadings due to severe weather and port congestion. Cash cost of sales were $229 million, or 62% of mining revenues in the second quarter, compared to $190 million, or 30% of mining revenues in the second quarter of 2022. Of the $39 million increase in cash cost of sales, $29 million was due to the 15% increase in sales volumes, and $10 million was attributed to higher production costs, primarily on higher headcount, plus 15% higher production volumes and the impact of inflation. Our headcount was 54% higher this second quarter compared to the last year due to a focus on hiring workers during the labor strike, and partly related to the workers that returned from the labor strike in the second quarter of this year. Production costs include the wages, onboarding, and training costs associated with the workers that returned over the quarter, and we should see an improvement in our cost per ton later this year as we get the incremental volumes. Inflation accounted for approximately $3 million of the higher cost, or $1.50 per short ton, resulting from higher costs for supplies and electricity. Cash cost of sales per short ton, FOB port, was approximately $129 in the second quarter compared to $123 in the second quarter of 2022. While premium steelmaking coal prices were 46% lower in the second quarter of this year compared to last year, our average net realized selling prices were 48% lower. This resulted in lower transportation royalty costs on a per ton basis, which were offset by higher wages and employee benefits on 54% higher headcount that drove higher production volumes and associated production costs, such as supplies, repairs, and maintenance. Transportation and royalty costs were 41% of our cash costs per ton in the second quarter, compared to 54% in the same quarter last year. Despite the higher production costs and inflation, cash margins were $80 per short ton in the second quarter. SG&A expenses were about $13 million, or 3.5% of total revenues in the second quarter of 2023, and were slightly higher than last year's second quarter, primarily due to an increase in employee-related expenses. The interest income earned on our cash investments well exceeded the interest expense on our outstanding notes and equipment leases during the second quarter of 2023. primarily due to our high cash balances earning good investment returns. Our second quarter income tax expense reflects an income tax benefit for depletion expense and foreign-derived intangible income. During the second quarter, we incurred incremental non-recurring business interruption expenses of $4 million, which were lower by 44% than last year. The decrease is primarily due to the end of the labor strike. These non-recurring expenses were primarily for incremental safety and security, legal and labor negotiations, and other expenses. We expect to incur ongoing legal expenses associated with the ongoing labor negotiations. Turning to cash flow, during the second quarter of 2023, free cash flow was a negative $22 million, primarily due to the higher Blue Creek CapEx spending. This was the result of cash flows generated by operating activities of $125 million, less cash used for capital expenditures and mine development costs of $147 million. Free cash flow in the second quarter of 2023 was negatively impacted by a $7 million increase in net working capital from the first quarter of 2023. Increase in net working capital was primarily due to an increase in inventories as a result of higher production. combined with lower accrued expenses. Despite the higher capital spending associated with the Blue Creek project to date, we have generated free cash flow of $87 million, of which $46 million was returned to stockholders in the form of a special dividend earlier this year on top of the regular quarterly dividends. Our total available liquidity at the end of the second quarter was $951 million, representing a decrease of $35 million or 4% over the record high first quarter and consisted of cash and cash equivalents of $827 million and $123 million available under our ABL facility. As Walt described earlier, the multi-channel transportation scope change for the new Blue Creek mine is expected to provide flexibility, optionality, and to do risk a single mode of transporting our coal down the river. In addition, we expect to benefit from a reduction in total transportation costs from not using a third party to build and operate the barge loadout and move the coal faster to the port. The incremental capital of $120 to $130 million for the total scope changes did not have a material impact on the original project economics of NPV and IRR at the illustrative $150 net coal price. We have spent approximately $173 million on the project today and have sufficient liquidity on hand to cover the expected $250 to $300 million to be spent in 2023. While the scope changes will require additional capital expenditures, we believe our strong cash flow generation and current available liquidity, as well as the ability to finance a portion of the total expenditures through equipment leases, allows us to be opportunistic as we evaluate any additional funding options for Blue Creek with the goal of maintaining an efficient and low cost of capital. Finally, turning to our outlook and guidance for 2023, we believe we are on track to achieve our revised targets as outlined in the outlook section of our earnings release. I'll now turn it back to Walt for his final comments.