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spk01: Good morning, everyone, and welcome to the Suncook Energy first quarter 2024 earnings call. My name is Angela, and I'll be coordinating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. I will now hand you over to your host, Chantalou Agueral, Vice President Finance and Treasurer. Please go ahead.
spk03: Thanks, Angela. Good morning, and thank you for joining us this morning to discuss Suncook Energy's first quarter 2024 results. With me today are Mike Rippey, Chief Executive Officer, Catherine Gates, 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 SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call. With that, I'll now turn things over to Katherine.
spk00: Thanks, Shantanu. Good morning, and thank you for joining us on today's call. Before we get started, I'd like to congratulate Mike Rippey on his previously announced retirement in two weeks. Mike's leadership and contributions have been crucial to the success of Suncoke during his tenure. I've had the privilege of working closely with Mike over the past several years and look forward to having him as an advisor for the company. The entire Suncoke team wishes him the best in his retirement. Moving to first quarter results, I wanted to share a few highlights before turning it over to Mark to discuss the results in detail. First, I'd like to thank all of our Suncoke employees for their contributions to our very good first quarter results. Our domestic Coke plants continue to run at full capacity with strong operational performance. Our logistics terminals delivered excellent results handling 5.5 million tons during the quarter. We saw higher volumes at our domestic terminals due in part to East Coast port congestion caused by the unfortunate incident in Baltimore, which favorably impacted results. Through our collective efforts, we delivered consolidated adjusted EBITDA of $67.9 million. From a balance sheet perspective, We ended the first quarter with a strong liquidity position of $470.1 million. Our gross leverage was approximately 1.86 times on a trailing 12-month adjusted EBITDA basis at the end of the quarter. Looking ahead, we're pleased to have all of our spot blast and foundry Coke sales finalized for the full year. With this strong start, We are well positioned to achieve our full year adjusted EBITDA guidance range of $240 to $255 million. With that, I'll turn it over to Mark to review our first quarter earnings in detail. Mark?
spk02: Thanks, Kathryn. Turning to slide four. Net income attributable Suncoke was 23 cents per share in the first quarter of 2024, up 4 cents versus the prior year period. Adjusted EBITDA for the first quarter of 2024 was $67.9 million compared to $67.1 million in the first quarter of 2023. The increase in adjusted EBITDA was primarily driven by higher blast coke sales volumes and higher volumes at our domestic logistics terminals, partially offset by lower volumes at CMT. Moving to slide five to discuss our domestic coke business performance in detail. First quarter domestic coke adjusted EBITDA was $61.4 million and coke sales volumes were 996,000 tons. The domestic coke fleet continues to run at full capacity and the increase in adjusted EBITDA as compared to the prior year period was primarily driven by higher blast coke sales volumes. Our full year domestic Coke sales tons guidance remains approximately 4.1 million tons. As Catherine mentioned earlier, all spot blast and foundry Coke sales are finalized for the full year. Given the strong performance this quarter from our domestic Coke segment, we're well positioned to achieve full year domestic Coke adjusted EBITDA within our guidance range of $238 to $245 million. Now moving on to slide six to discuss our logistics business. Our logistics business generated $13 million of adjusted EBITDA in the first quarter of 2024, compared to $13.5 million in the first quarter of 2023. The decrease in adjusted EBITDA was primarily due to lower throughput volumes at CMT, partially offset by higher volumes at our domestic terminals. CMT also recognized limited API2 price adjustment benefit during the quarter. Our terminals handled combined throughput volumes of approximately 5.5 million tons during the first quarter of 2024, as compared to 5.3 million tons during the same prior year period. Our domestic terminals handled 3.6 million tons in Q1 2024. making it the best quarter in terms of volume for the domestic terminals in the past five years the increase in volume was driven in part by the unfortunate bridge incident in baltimore which caused east coast port congestion we are pleased with the excellent results from our logistics segment in the first quarter and are well positioned to achieve our logistics full year 2024 adjusted EBITDA and volume guidance, which remain unchanged. Now turning to slide seven to discuss our liquidity position for Q1. Suncoke ended the first quarter with a cash balance of $120.1 million. Cash flow from operating activities generated $10 million and was negatively impacted by the timing of working capital changes of approximately $50 million in the quarter. We expect this impact to reverse over the course of the year, and we are reaffirming our full year operating cash flow guidance of $185 to $200 million. We paid $9 million in dividends at the rate of 10 cents per share this quarter and spent $15.5 million on CapEx. In total, We ended the quarter with a strong liquidity position of $470.1 million. With that, I will turn it back over to Catherine.
spk00: Thanks, Mark. Wrapping up on slide eight. As always, safety is our first priority, and we will continue to focus on strong safety and environmental performance. Robust safety and environmental standards set Suncoke apart and are central to our reliable delivery of high-quality coke and logistics services. we remain focused on safely executing against our operating and capital plan for full utilization of our Coke-making assets. We also continue to concentrate our efforts on adding new business at our logistics terminals. And while we were able to finalize all of our spot blast and foundry Coke sales for the full year, we are still focused on future opportunities to broaden our customer base. As we've demonstrated in the past, we will pursue a balanced yet opportunistic approach to capital allocation. From a growth perspective, we continue to work on developing the Granite City GPI project. We continuously evaluate the capital needs of the business, our capital structure, and the need to reward our shareholders, and we'll make capital allocation decisions accordingly. Finally, we're very pleased with the strong results in the first quarter and we expect to achieve our full-year consolidated adjusted EBITDA guidance of $240 to $255 million. With that, let's go ahead and open up the call for Q&A.
spk01: Thank you, Katherine. Everyone, if you would like to ask a question, please press star followed by 1 on your telephone keypad now. If you change your mind, please press star followed by 2. We'll pause here briefly as a question is being registered. The first question is from Lucas Pipes with B Riley Securities. Your line is open.
spk04: Hey, good morning, everyone. How are you?
spk00: Good morning, Lucas.
spk04: So my first question is on kind of the longer-term outlook for the utilization rates. One of your customers recently commented on an earnings call about kind of the Middletown contract and their desire to replace that blast furnace with a DRI. And I saw you just renewed a maintenance contract with Fluor. So it seems like you have confidence in the long-term need of your existing Coke fleet. But if you could maybe comment on that and what your outlook is, maybe first through the end of this decade and then maybe post-2032, I would really appreciate it. Thank you.
spk00: Sure. Thanks, Lucas. With respect to, I think you're referring to the Cliffs announcement for their Middletown works. Carolyn Noll Sorg- And with respect to that that announcement really has no impact on us our contract with cliffs runs through the end of 2032. Carolyn Noll Sorg- You know, in terms of sort of the next decade, if you will, I mean there's there's a long way to go till 2033 we're not going to speculate on the opportunities that are available to us in 2033 today. But what we've said before is that we have the newest coke making assets and we continue to make significant investments in them. We do that because we believe we're best positioned to serve the blast furnaces long term.
spk04: Got it. And so when you think about the upcoming more near term renewals, contract renewals, I think there's U.S. Steel at the end of this year, then Cleveland Cliffs, I think with two contracts next year, and then Algoma after that. Do you expect more of those tons to shift into either the foundry or merchant, or rather spot blast furnace coke market, or would you expect kind of your current proportion of contracted to spot volumes to stay roughly the same? through the next two, three years?
spk00: Well, with respect to the Granite City coat contract, as we said in the past, that coat contract is part of our GPI project and part of those negotiations. And with respect to our other contracts with other customers, we're always in dialogue with our customers, but we're not going to comment on any kind of contract discussion.
spk04: Okay, but if Middletown were to be a DRI in, were to convert to a DRI in 2029, I guess Middletown would maybe backfill some of the Haverhill tons. So should we expect that those contract renewals go maybe shorter in nature than they've historically been?
spk00: You know, Lucas, as I said before, I mean, we're not, you know, we've We're not going to comment on our contract discussions with our customers, and we're not going to speculate. So I really can't help you more than that.
spk04: Okay. No, that's appreciated. On the Granite City side, could you maybe update us on kind of what the most recent update is in terms of In terms of your conversations with U.S. Steel, obviously, we're all following the news, and it seems tricky, but would appreciate your color on where that project stands today.
spk00: Sure. Well, with respect to the GPI project, we are continuing to work with U.S. Steel on the GPI project. We are doing the detailed engineering for what would be a first-of-its-kind project right now. And so we'll continue to work with U.S. Steel on the GPI project, and we would look forward to working with Nippon in the future.
spk04: Got it. Any sort of timing when that detailed engineering might be completed?
spk00: That's an ongoing project with U.S. Steel, and I'm not going to comment further on it.
spk04: Okay, okay. And order of magnitude, if... what sort of capital might we be looking at? Assume there are costs for a conversion. So I'd be curious about kind of the cash component, but then also any sort of reclamation liabilities that might be assumed would be very helpful to understand what the capital commitments might be.
spk03: Thank you. Hey, Lucas. Yeah, this is Shantanu. I mean, as we have said before, right, I mean, obviously, kind of as we, when we, you know, announced this project, we said, like, you know, based on at that point of time, the project was kind of assumed, and that's how we are progressing right now, is it's going to, you know, be a thing about from a cash CapEx perspective, it's two years of our free cash flows, plus some revolver borrowing, right? And that still is the case as we move forward with this project so we haven't really given out uh cap like in a specific number but that's kind of the order of magnitude is roughly you can think about it is two years of our free cash flows plus some revolver borrowing that is very helpful i i appreciate all the color i'll i'll turn it over for now thank you thank you thanks lucas
spk01: Thank you. As a reminder, everyone, if you would like to ask a question, please press the dial followed by one on your telephone keypad. The next question is from Nathan Martin with Benchmark. Your line is open.
spk05: Thanks, operator. Good morning, everyone. Congrats on the first quarter results, and Mike, congratulations on your retirement. Best of luck there.
spk02: Much appreciated. Thanks.
spk05: Moving over to logistics segment for a second, multi-year highs, tons handled there. I think that's mainly logistics X, CMT. You guys mentioned in your prepared remarks, a lot of that was driven by increased shipments due to the outage at Baltimore. No update to your logistics volume guidance, it didn't look like. So it's the expectation that tons kind of come down in subsequent quarters. as Baltimore reopens, or is there a possibility you exceed that original guidance if current levels kind of remain elevated?
spk03: Thanks, Nathan. I mean, you know, yeah, as we said, you know, Q1 from a domestic terminal's perspective was one of the, was the best quarter in the last five years, right? So it was definitely an exceptional quarter. As we've seen, right, like you saw the last year, the logistics business could be quite volatile, right? I mean, as we sit here today, what we're looking at the market, we are affirming our guidance, you know, if the market kind of remain up and down and weak, that's what we expect. But if, you know, we see a pickup in the out year, you know, later wrap of the year, we can pick up more volumes and you will see that in the results. But as we sit here today, what we're seeing, we confirm our guidance and we stick with the $30 to $35 million of logistics EBITDA.
spk05: I appreciate that shot. And I guess just, just thinking, you know, the Baltimore port looks like the main deep draft terminal is not scheduled or part of it to be reopened until the end of May. It would just make some sense. Maybe do you still think you'll have some benefit here in the second quarter?
spk03: Not, not much. I mean, you know, we saw kind of some pickup, you know, at the start, like when it happened, and then we saw some in Q2, but it's really not driving the results that much as we sit here today.
spk05: Okay, that's fair. And then maybe specifically at CMT, you guys talked about, you know, the weak commodity markets, weak coal exports. Just curious, did you hit your coal take or pay minimum during the first quarter from the volume perspective? Maybe remind us, is that looked at on a quarterly basis, or is that annual? Because I think it's 4 million tons annually. And then, Greg, just get your thoughts on how you view export coal demand here over the next few quarters, and how do you expect your API 2 price adjustment to trend, and maybe if we use this first quarter result as a baseline.
spk03: Yeah, so on the take-or-pay, it's an annual take-or-pay, Nathan. So, I mean, obviously, you know, you can see we don't provide like kind of coal tons separately. The total CMT did 1.8 million tons, which is kind of pretty much in line and what kind of our expectation was. And we do expect to hit the take-or-pay minimum for the full year for this year. Again, you know, going back to, kind of what the expectation for the volumes and the price of the API 2 is. I mean, if you look at the futures, API 2 look pretty decent, right? I mean, it's kind of come back from the lows, but it can move pretty quickly as we have seen in the past, right? Like kind of, it can move 10, 20, 30 bucks in a matter of couple of days. And there is some, our profitability, as you know, is derived from that. So it's hard to predict, right? What we have put in the guidance, I think we feel pretty good about it. The long run outlook of the CMT terminal remains pretty attractive, and that's why, you know, we really like having this terminal. And as in the past, it has performed really well, and we continue to believe in this terminal.
spk05: Thanks for that, Shantanu. Shifting over to the domestic Coke segment real quickly. EBITDA per ton looks like came in above your full year guidance range. Maybe can you talk about the drivers behind that outperformance?
spk03: So, you know, Q1 normally is one of the quarters where we don't have a lot of outages. We are just coming out of the winter, just trying to, you know, kind of get back our facility to run. really well in Q2 and Q3. And this quarter, except the first couple of weeks of January, the weather was pretty good as well. And it helped us perform really well. On top of that, we talk about higher blast coke sales volume in Q1. And that is actually timing of that. And that is the spot blast coke sales volume timing, where it was unusually front. front-loaded in Q1 versus the previous year. So that helped our Q1 to be really, really good in terms of domestic Coke performance. For the rest of the year, I think as we reaffirm our domestic Coke EBITDA guidance of 238 to 248, it kind of tells you that we expect to run kind of as expected as we announced when we came about our guidance initially, and we kind of are on track to meet that guidance.
spk05: Okay, I appreciate that, Keller. Just to make sure I followed correctly, you said the spot last Coke sales volumes were kind of front-loaded, so more in the first quarter than maybe typical. So if that's true, how do we think about maybe the mix, the sales mix in 2Q, 3Q, 4Q, Again, as you allude to, the adjusted EBITDA per ton is going to need to come down, obviously, just to get to within your full year guidance. But is there any kind of additional plan maintenance in any given quarter that could pressure EBITDA per ton maybe in 3Q or 4Q, just for instance, or any sales mix or headwind, tailwind we should be thinking about?
spk03: no i mean uh there's obviously as i mentioned there was no outages in q1 so we expect to have outages and you know not expect we have planned outages in q3 and q4 of the year right so that'll impact our performance during that time and you know kind of from our contracted sales perspective it's kind of kind of pretty ratably laid out and then spot coke if first quarter was heavily loaded obviously like you know you know the rest of the year would kind of um even out based on that as we said you know We have 650,000 equivalent blast and foundry coke tons to sell, and that just laid out for the year. It just heavily loaded in the first quarter, so it's going to be lower in the rest half of the year.
spk05: Got it. I appreciate those comments. I'll leave it there. Best of luck in the second quarter. Thank you.
spk01: Thank you. We have a follow-up question with Lucas Pipes with Be Riding Securities. Your line is open.
spk04: Thank you so much, operator. Thank you so much for taking my follow-up question. I wondered if you could maybe give us a little bit of an update onto kind of the size of the North American blast furnace coke market. There's been the idling at Granite City. There have been some other changes on the utilization rate of the blast furnace fleet. Obviously, there are changes if you look out at the years ahead as discussed earlier. But kind of what's the status quo? Where would you put the size of the market today? Thank you.
spk03: Lucas, I mean, apart from the Granite City idling, you know, things haven't really changed that much in the North American market, right? I mean, there is obviously a lot of announced EIF capacity coming online in the future in two, three, four years. But as we sit here today and, you know, you kind of think about versus the last two, three years, apart from the Granite City, Blast furnace shut down, the utilization or the coke demand hasn't changed as a whole in the North America.
spk04: Okay. Okay. So what's the market size roughly?
spk03: It's roughly, you know, kind of as we have said in our earnings deck, It's around, you know, 8 1⁄2 to 10 million tons of coke, what is kind of being produced in the U.S., in the North American market.
spk04: Got it. So this would include Algoma and DeFasco and Stelco up in Canada? Correct. Correct. And so kind of fair to say you have, what, kind of 50%, 40% of the market today?
spk03: We say we have roughly 30, 35 to 40% of the market. Because we only sell 3.6 million tons of contracted capacity, right?
spk04: Got it. Yeah. Then you sell some other blast furnace coke in North America as well, right? On a spot basis?
spk03: Yeah. It's not American, all over the world. Yeah. And then foundry as well, right? Yeah. Which we are not including in that, right?
spk04: Yeah, so the 30% to 35% would just be your contracted volumes. Right, right, yes. Yeah, yeah. And then do you have a – what is the competition on the merchant coke side? Kind of the next closest. merchant Coke supplier, how large would they be?
spk03: I mean, this is also, again, as we discussed, the only other merchant Coke producer in the U.S. is DTE. And, you know, their capacity is in the, like, 800,000 to a million ton range.
spk04: Got it. And they don't have a byproduct of an asset, right?
spk03: They do have byproduct. They have the traditional Coke production methodology.
spk04: Got it, got it, got it. Okay. That makes sense. So kind of the, if I just kind of look at this high level, integrated capacity still around 50%, is that about right?
spk03: Yeah, a little more than 50%, I would say, yep.
spk04: And how would you describe that fleet? Has it been generally well-maintained, or do you have a view on that capacity?
spk03: I mean, as you know, the Coke plants have shut down recently, right? So obviously there hasn't been much capital spent on that.
spk04: Which are the ones that shut down? Coke facilities?
spk03: The recent announcement was the Claritin, right, the two batteries that shut down.
spk04: What was their utilization rate prior to that shutdown?
spk03: Lucas, for that, I guess, you know, kind of we don't follow that that closely or, you know, you got to ask USTL for that.
spk04: Okay. I'll have to follow up with that. Okay, that's helpful, but your view is that you can compete effectively with that integrated capacity and kind of take share from there?
spk03: Yeah, I mean, if you look at last three years, right, like what we have done since coming out of COVID, right, we have maneuvered the market really well. The market has been constantly changing, as we have talked about, and we have been able to run full and kind of run really profitably. And we continue to believe that we will be able to do that in the future.
spk04: Okay. In terms of kind of your spot Coke sales today, have there been increased opportunities due to customer outages in terms of the spot blast furnace Coke market in North America?
spk03: Lucas? Dhanushka Samarakoon, he on the you know kind of we don't talk about spot blast furnace coke separately, we always talk about spot blast and. Dhanushka Samarakoon, on record, on a combined basis, given the size of the market and that part hasn't changed that's the 650,000 equivalent blast furnace coke that we sell and we intend to sell in 23 at 24. Okay.
spk04: Dhanushka Samarakoon, All right. I really appreciate the additional color. Thanks so much for taking my follow-up question, and best of luck. Thank you.
spk01: Thank you. We currently have no further questions, so I'll hand back over to Katherine to conclude.
spk00: Thank you all again for joining us this morning and for your continued interest in Suncoke. Let's continue to work safely and create value for all of our stakeholders.
spk01: Thank you. This concludes today's call. Thank you for joining. You may now disconnect your line.
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