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spk03: Thank you for joining us this morning to discuss Suncook Energy's third quarter 2023 results. With me today are Mike Rippey, Chief Executive Officer, Catherine Grates, President, and Mark Marinko, Senior Vice President and Chief Financial Officer. Following management's prepared remarks, we'll open the call for Q&A. This conference call is being webcast live on the investor relations section of our website, and a replay will be available later today. If we do not get to your questions on the call today, please feel free to reach out to our investor relations team. Before I turn things over to Catherine, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements. The cautionary language regarding forward-looking statements in our SSE filings apply to the remarks we make today. These documents are available on our website as our reconciliations to non-GAAP financial measures discussed on today's call. With that, I'll now turn things over to Catherine.
spk05: Thanks, Shantanu. Good morning, and thank you for joining us on today's call. Earlier today, we announced SunCoke Energy's third quarter results. Before I turn it over to Mark to review the results in detail, I do want to share a few highlights from Q3. I'd like to start by thanking all of our SunCoke employees for their contributions to our third quarter results. Our domestic Coke plants operated well and continued to run at full capacity. When compared to last year's record third quarter results, we delivered lower contribution margins on non-contracted blast coke sales. Similarly, our logistics terminals continued to operate well, but saw lower volumes in pricing driven by weaker demand during the quarter. Through our collective efforts, we delivered consolidated adjusted EBITDA of $65.4 million. You know, we continue to successfully navigate through challenging market conditions with all of our non-contracted blast furnace Coke sales finalized for the remainder of the year. Earlier today, we announced a 10 cent per share dividend payable to shareholders on December 1st, 2023. From a balance sheet perspective, we ended the third quarter with a strong liquidity position of $475.9 million. Our gross leverage was approximately 1.91 times on a trailing 12-month adjusted EBITDA basis at the end of the quarter. Finally, we continue to execute against our 2023 objectives and remain well positioned to achieve the high end of our full year adjusted EBITDA guidance range of $250 to $265 million. With that, I'll turn it over to Mark to review our third quarter earnings in detail.
spk01: Mark? Thanks, Catherine. Turning to slide four, net income attributable Suncoke was $0.08 per share in the third quarter of 2023, down $0.41 versus the prior year period. Tax adjustments of $0.29 per share impacted EPS primarily due to tax law changes in the U.S. and Brazil in both 2022 and 2023. Excluding the impact of these adjustments, EPS was lowered by 12 cents per share quarter over quarter, primarily driven by lower contribution margins on non-contracted blast coke sales, partially offset by favorable cold coke yields. Adjusted EBITDA for the third quarter 2023 was $65.4 million, a decrease of $18.3 million from record results of third quarter 2022. The decrease in adjusted EBITDA was primarily driven by the lower contribution margins on non-contracted blast coke sales, partially offset by favorable cold coke yields, and lower transloading volumes and pricing in our logistics segment. Moving to slide five to discuss our domestic coke business performance in detail. Third quarter domestic Coke adjusted EBITDA was $64 million and Coke sales volumes were 1,016,000 tons. While the domestic Coke fleet has continued to run at full capacity, the decrease in adjusted EBITDA as compared to the record prior year period was primarily driven by lower contribution margin on our non-contracted blast Coke sales, partially offset by higher cold Coke yields. As Catherine mentioned, We continue to successfully navigate through difficult market conditions, and all our Coke sales are finalized for the rest of the year. Given the solid year-to-date performance of our domestic Coke segment, we are well positioned to deliver domestic Coke adjusted EBITDA on the high end of our guidance range of $234 to $242 million. Now moving on to slide six to discuss our logistics business. Our logistics business generated $8.4 million of adjusted EBITDA and handled combined throughput volumes of approximately 5 million tons during the third quarter of 2023, as compared to $12.9 million and 5.7 million tons respectively during the same prior year period. The decrease in adjusted EBITDA was primarily due to lower throughput volumes and a lower API2 price adjustment benefit at CMT. We continue to see volatility in thermal coal pricing as evidenced by CMT recognizing a limited API 2 price adjustment benefit during the third quarter. However, we expect the API 2 price adjustment to recover during the fourth quarter. Based on our year-to-date performance and anticipation of continued volatility in the market, we expect to deliver logistics full year adjusted EBITDA at the low end of our guidance range of $47 to $50 million. Now turning to slide seven to discuss our liquidity position for Q3. Suncoke ended the third quarter with a cash balance of approximately $126 million. Cash flow from operating activities generated approximately $94 million. For the quarter, Cash flow was favorably impacted by working capital changes, mainly the timing of receivables and payables. We expect this favorability to reverse in the fourth quarter. We paid $8.4 million in dividends at the rate of 10 cents per share this quarter and spent $34.1 million on CapEx. In total, we ended the quarter with a strong liquidity position of approximately $476 million. With that, I will turn it back over to Catherine.
spk05: Thanks, Mark. Wrapping up on slide eight, safety, environmental, and operational performance are top priorities for our company. We remain focused on safely executing against our operating and capital plan for full utilization of our Coke-making assets. As mentioned in our second quarter earnings call, we completed the foundry expansion project on time and on budget. This project allows us to grow our foundry market participation while maintaining flexibility to make either blast or foundry coats. We will continue to pursue a balanced, opportunistic approach to capital allocation as we've demonstrated in the past. We continuously evaluate the capital needs of the business and our capital structure and will make capital allocation decisions accordingly. As mentioned earlier, despite challenging market conditions, we were able to finalize all of our non-contracted blast furnace coke sales for the year. Finally, based on the reliability and performance of our operating segments, we look to achieve the high end of our full year consolidated adjusted EBITDA guidance of $250 to $265 million. With that, let's go ahead and open up the call for Q&A.
spk00: Thank you, Catherine. If you'd like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask a question, please ensure your device is unmuted locally. Our first question today comes from Lucas Pipe of B Reilly. Please go ahead.
spk04: Thank you very much, operator. Thank you for taking my questions. Just a few quick ones. The first one is on the blast furnace coke side, and you mentioned kind of the weaker contributions there during the quarter. I wondered if you could remind us how those tons are typically priced and what causes variability in the contribution margin. Thank you very much.
spk05: So, thanks, Lucas. Appreciate the question. The contribution margins are dependent on what the spot blast furnace coke price sales are. And so this quarter, we've just seen lower contribution margins based on the spot sales that we had remaining for this year.
spk03: And Lucas, I would add that this is Shantanu is like, you know, we are comparing this against the Q3 2022. last year quarter, right, which was one of the highest points from a spot market perspective where the blast spoke was trading at. So the comparison is kind of a little bit unfair. And if you look at, you know, our quarterly performance over the last three quarters, it's more in line with that. So it's just kind of the comparison coming off of a really high record quarter of last year.
spk04: Got it. Got it. Now that's helpful. What are typically the lags or the lead times in that segment? So are you selling blast furnace spot coke today for Q4, for Q1 next year, for Q2 next year? How does that kind of typically flow through the business?
spk05: It's typically, Lucas, about three to six months.
spk03: It's like a quarter, right? Basically, that's what we have said before.
spk04: Got it. And it's essentially like the supply demand for Coke, kind of with that outlook, that kind of sets the price and the margin.
spk05: It does, Lucas.
spk04: And remind me, is that true for both domestic and export, or should we differentiate between the two?
spk05: No, it's the same whether we're selling into the North American market or into the seaborne market.
spk04: And is the seaborne market currently open, given where international cold prices are relative to met cold prices?
spk03: I mean, yes, the prices are a little bit depressed on the international, you know, seaborne market, right? Like there's a price at which The product will clear. It is definitely depressed, but, you know, we kind of look at all our options and see where our Coke can go.
spk04: Okay. Okay. Thank you for that. And then a couple questions on slide eight. The first is the Foundry Coke expansion project. And I wondered two things. First, can you remind us on the timing of that project? And then also the capital intensity of that project. Thank you very much.
spk05: Yes. So we completed that project actually before in Q2. And so that was actually finished a little bit early. We had originally said we would have it done by Q3. So we got that done on time. And we don't give the specifics, but as we said, you know, we expected this to be typically our CapEx is around 80 to $85 million. We were at 95, so we had built in, you know, approximately 12 to 15 for that project, Lucas.
spk04: 12 to 15 million. Got it. And is it operating at full capacity today?
spk05: It is. The screener itself is operating at full capacity. As we had said, you know, our sales are finalized for the year.
spk04: Okay. Thank you for that. On slide eight, I don't see a mentioning of Granite City. Should we assume that project is kind of off the table or low priority at this point?
spk05: That would be a no and a no. So we are continuing to work with U.S. Steel on the GPI project. So that is continuing to move forward, and it is a very, very high priority for us. I think it can be unsatisfying to have to wait to hear an announcement on this type of project. And Lucas, it's a complex project, but we've continued to work with U.S. Steel and they've continued to work with us. And we really have a strong belief that if this is consummated, it's going to be meaningfully rewarding to our shareholders. And so it's worth the time to continue to move forward with U.S. Steel on this.
spk04: And in light of the strategic process that U.S. Steel is running, has there been more or less activity since August?
spk05: We have continued to move forward. The activity remains the same.
spk04: Okay. I appreciate it. Thank you very much, and best of luck.
spk00: Thanks, Lucas. The next question is from Nathan Martin from the Benchmark Company. Please go ahead.
spk02: Thanks, operator. Good morning, everyone. Thanks for taking my questions. Just maybe one more, Catherine, on the Granite City GPI opportunity. Can you talk about maybe any of the biggest hurdles kind of remaining there on those negotiations?
spk05: You know, I would just say, you know, in saying it was complex, I mean, whether we're talking about the capital, we're talking about the siting, we're talking about all of those elements of it. Those things just take time. They're absolutely things that we can work through, but they do take time.
spk02: Okay, got it. Maybe shifting over to the domestic Coke segment, obviously you maintain your expectations for your adjusted EBITDA at the high end of the range. If my math's correct, that only implies EBITDA of around $49 million in the fourth quarter to get you to that high end of the range, which would should be down about 15 million quarter of a quarter. So I guess the question is, given all your Coke sales are finalized, I'm wondering what are the headwinds you see in the fourth quarter that caused you to believe maybe a sequential decline like that is possible? Or maybe are you baking a little bit of conservatism into your guidance?
spk05: I appreciate the question. Yeah, no, we're really pleased with our year-to-date performance. And we have a significant amount of planned outage work in the fourth quarter. That's contemplated in our guidance. And as I think we've said before, you know, certain of our planned outages are largely expense. And so this is really, you know, it's not dissimilar to, for example, last year and some of our other fourth quarters, Nathan. And it's actually it's why, you know, we don't give quarterly guidance. But with those planned outages and this planned work, we still remain well positioned to achieve the high end of our guidance range.
spk02: So, Catherine, just maybe a little bit more on the planned outages. Are those going to affect, you know, adjusted EBITDA per ton? I mean, clearly your sales volume guidance stayed around 4 million, so I guess that doesn't necessarily get affected much. How does that kind of affect the operations outputs?
spk05: So, with these outages, you know, there's, you know, higher O&M when they occur. It does affect our EBITDA per ton, but that's fully contemplated in our guidance. It was contemplated at the beginning of the year.
spk02: Okay. All right. Okay. Maybe I'll move over to the logistics business. I mean, there I guess you did adjust your four-year guidance to the low end of the prior range, which actually looks like it would imply a $5 million or so quarter-by-quarter EBITDA increase. It would be great to get your thoughts maybe on some puts and takes there in the fourth quarter. Also curious what you guys are assuming for full year throughput. I think original guidance was 22 million tons with maybe 10 from CMT. Is there any updates on that front?
spk05: So with respect to what we're seeing for fourth quarter, as Mark mentioned, the API2 price adjustment is recovering for us. So that's part of what you're seeing coming through. And then we do expect to see higher volumes on logistics.
spk03: Raj Nadella- yeah to add to that need you know, on a full year basis, our guidance was 10 million approximately 10 million tons per cmt and approximately 12 or. Raj Nadella- Other logistics business, so we are going to be a little bit short of that on a full year basis, you know. Raj Nadella- So if you look at kind of what we have performed earlier in the year that's kind of what Q4 is going to look like. But overall, the volume will come in a little bit short, but we are guiding towards the lower end of the EBITDA guidance.
spk02: Okay. Yeah, Sean, that kind of was going to be my next question, so that makes sense that you may be a little short on the shipment guidance standpoint. I guess it would also be helpful, though, if you guys could give some more color around the split in between coal shipments and other shipments at CMT. That was kind of the bulk of the quarter-to-quarter decline it looked like from a shipment perspective. Is it more weakness in coal, or is it some of the other products you guys are moving through the terminal?
spk03: It's mostly coal. Yeah, I mean, Nate, I mean, on the CMT side, most of the variability comes from the coal side. The ancillary business is kind of more or less stable from a quarter-to-quarter basis. And, you know, obviously it comes from what the demand is, and that is kind of reflected in the API2 pricing, which drives the demand of the coal. So most of the variability comes from the coal.
spk02: Okay. Got it. Very helpful. And then maybe just in one last kind of modeling question for me, CapEx, Mark mentioned it was 34 million in the third quarter. I think that puts your year-to-date spend already about 85 million. You maintain guidance of 95. It's a pretty big fall off, I guess, in the fourth quarter to roughly $10 million. Is that right? Is that the right way to think about it or am I missing something?
spk05: No, that's the right way to think about it. You know, I mentioned earlier that we have, you know, our own planned outages at our co-plants. And, you know, those are really higher O&M. They're not CapEx heavy. So, you know, that's really what we're seeing in the fourth quarter. So we're low on CapEx there. But what we have seen is that we've seen the inflationary pressures um related to our maintenance capex and that's you know throughout the year we actually have some nominal uh capital spend on preliminary engineering work on the gpi project as well so both that you know that inflationary pressure and the uh the gpi project was not anticipated at the time that we gave our capex guidance so we and we actually anticipate capex coming in slightly above our guidance of the 95 million
spk02: Got it. So slightly above 95. Okay. So maybe it's, again, a little more than that 10 million, which would seem like it would be a little bit light just based on your run rates. Okay. Great. That's very helpful. And one more thing, actually, Catherine, the tax law changes you guys highlighted, is that just kind of a one-time thing or is there a new kind of tax rate we should assume going forward?
spk05: No, this is absolutely a one-time thing.
spk02: Okay. Perfect. I appreciate the time and the comments. I'll leave it there. Best of luck in the fourth quarter.
spk05: All right. Thanks, Nathan.
spk00: We have no further questions in the question queue, so I'd now like to hand back to Catherine Gates, president of Suncoast Energy.
spk05: All right. Well, thank you all for joining us today, and thank you for your continued interest in Suncoast.
spk00: This does conclude today's call. You may now disconnect your lines. Have a lovely day. You may now disconnect your lines. Have a lovely day.
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