SunCoke Energy, Inc.

Good day and welcome to the third quarter 2024 Suncoke Energy, Inc. Earnings Conference Call. All participants will be in listen-only mode. Should 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. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Shantanu Agrawal, Vice President, Finance, and Treasurer. Please go ahead.

Thanks, Megan. Good morning, and thank you for joining us this morning to discuss Suncoke Energy's third quarter 2024 results. With me today are Catherine Gates, President and Chief Executive Officer, 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 Catherine.

Thanks, Shantanu. Good morning, and thank you for joining us on today's call. This morning, we announced Suncoke Energy's third quarter results. I want to share a few highlights from the quarter. as well as some updates on our 2024 key initiatives. First, I would like to thank all of our employees for their contributions to our results. Our domestic coke plants continued to run at full capacity, and our logistics terminals again had strong results. Through our collective efforts, we delivered consolidated adjusted EBITDA of $75.3 million during the quarter. This includes a one-time gain of $9.5 million due to a regulatory exemption received from the Department of Labor that eliminates the majority of our legacy federal black lung liabilities. From a leverage perspective, we ended the quarter at 1.86 times on a trailing 12 months adjusted EBITDA basis. Finally, we are increasing our guidance and now expect full-year consolidated adjusted EBITDA between $260 to $270 million primarily driven by favorable logistics performance and the gain from the Department of Labor regulatory exemption. Turning to slide four to discuss progress on our 2024 key initiatives. We announced several other important accomplishments this morning that demonstrate progress on our 2024 key initiatives and position us well for the future. First, we're pleased to have reached an agreement with the United States Department of Labor regarding our legacy federal black lung liabilities. In exchange for a one-time payment of $36 million to the Department of Labor, Suncoke received a regulatory exemption eliminating the majority of Suncoke's accrued black lung liabilities, totaling $45.5 million. As a result, we recognized a $9.5 million pre-tax gain during the quarter. Going forward, our annual legacy expenses will be lower, and the year-to-year volatility will be greatly reduced. In addition, SunCoke will not be subject to potential higher collateral requirements in the future. Second, we've extended our Granite City Coke supply agreement with U.S. Steel through June 30, 2025, with the option for U.S. Steel to extend for an additional six months. The agreement is for reduced tonnage coupled with lower economics compared to the current contract. This extension is part of the ongoing GPI project work, and we expect it to bridge the period before a final agreement may be reached. Finally, we signed a three-year barge-to-rail coal handling agreement at our KRT logistics facility. To handle the incremental volume, we will be undertaking a $12 million expansion project that will increase our barge unloading capacity from 2 million tons per year to 5 million tons per year. This project is expected to be completed in Q2 2025, after which the contract will begin. The contract builds upon this year's spot barge business at KRT. With that, I'll turn it over to Mark to review our third quarter earnings in detail. Mark?

Thanks, Kathryn. Turning to slide five. Net income attributable to Suncoke was $0.36 per share in the third quarter of 2024, up $0.28 versus the prior year period. The increase was primarily driven by the one-time $9.5 million pre-tax gain on the elimination of legacy black lung liabilities. lower depreciation expense, lower income tax expense, and favorable logistics performance also contributed to the increase in net income attributable to Suncoke, but were partially offset by unfavorable performance in the domestic Coke segment. Consolidated adjusted EBITDA for the third quarter of 2024 was $75.3 million compared to $65.4 million in the prior year period. The increase in adjusted EBITDA was primarily driven by the gain on the extinguishment of black lung liabilities, higher volumes at domestic logistics terminals, and higher API2 price adjustment benefit at CMT, partially offset by lower cold to coke yields on our long-term take or pay contracts. Moving to slide six to discuss our domestic coke performance, business performance in detail. Third quarter domestic coke adjusted EBITDA was $58.1 million, and coke sales volumes were 1,027,000 tons. While domestic coke fleet continued to run at full capacity, the decrease in adjusted EBITDA as compared to the prior year period was primarily driven by lower coal-to-coke yields on our long-term take-or-pay contracts. Due to the lower coal-to-coke yields we've been experiencing throughout the year, Coupled with adverse weather impacts from Hurricane Helene and Q4, we are revising our full year domestic coke adjusted EBITDA guidance range to $230 million to $235 million from previous guidance range of $238 million to $245 million. Now moving on to slide seven to discuss our logistics business. Our logistics business generated $13.7 million of adjusted EBITDA in the third quarter of 2024, as compared to $8.4 million in the third quarter of 2023. The increase in adjusted EBITDA was primarily driven by higher transloading volumes from our domestic terminals and higher API2 price adjustment benefit at CMT. We recognize the full API2 price adjustment benefit in Q3 and expect this to remain consistent in the fourth quarter. Our terminals handled combined throughput volumes of 5.8 million tons during the third quarter of 2024 as compared to 5 million tons during the same prior year period. Our domestic terminals handled 3.8 million tons in the third quarter of 2024 as compared to 2.9 million tons during the same prior year period, driven by new business. Given the strong year-to-date results from our logistics segment, we are increasing our logistics adjusted EBITDA guidance to $47 million to $52 million for the full year. Additionally, we are increasing our full year 2024 total logistics volume guidance to approximately 22 million tons, with CMT handling approximately 8 million tons and domestic terminals handling approximately 14 million tons. Now turning to slide eight to discuss our liquidity position for Q3. Suncoke ended the third quarter with a cash balance of $164.7 million and a fully undrawn revolver of $350 million. Net cash provided by operating activities was $107.2 million. Operating cash flow includes the impacts of the one-time payment of $36 million to the DOL and cash receipts from accounts receivable of approximately $68 million received in early July. We paid $10.1 million in dividends at the rate of 12 cents per share this quarter and spent $15.1 million on CapEx. In total, we ended the quarter with a strong liquidity position of $514.7 million. With that, I will turn it back over to Catherine.

Thanks, Mark. Wrapping up on slide nine, we're pleased with the progress we've made on our key initiatives. As we close out 2024, we are dedicated to maintaining our 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 logistic services. We also have a proven track record of selling out our non-contracted coke for the full year, and 2024 is no exception. We remain focused on safely executing against our operating and capital plan for full utilization of our coke-making assets, and we're pleased to have reached an agreement for an extension of our coke supply agreement with U.S. Steel at Granite City. For our logistics segment, the new contract builds upon our existing foundation of reliable, high-quality services at KRT. We are continually pursuing future opportunities to broaden our customer base in both our domestic Coke and logistics segments. The GPI project continues to be a top priority for Suncoke. The strong fundamentals of the project remain unchanged, and we continue to work on reaching a final agreement. As always, we take a balanced yet opportunistic approach to capital allocation. We've further strengthened our balance sheet with the extinguishment of the majority of our legacy black lung liabilities while also eliminating higher future collateral requirements. As we've demonstrated in the past, 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, factoring in our favorable logistics performance and the gain from the Black Lung Liability Extinguishment, we are increasing our guidance and now expect to achieve full-year consolidated adjusted EBITDA between $260 to $270 million. With that, let's go ahead and open up the call for Q&A.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you were using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Lucas Pipes with B Reilly. Please go ahead.

Yeah, thank you very much, operator. This is Nick Giles on for Lucas. Guys, congrats on the strong results and on the increased guidance as well. My first question was on the extension of the Granite City Supply Agreement. Where's this material going?

That would really be a question for U.S. Steel. The coke is being sold to U.S. Steel.

Got it. Got it. And then should we think about this extension having any relation to the progress of the GPI project, or should we think about those as two completely separate items?

No, this is really part of the GPI project, as we've said. So this extension is built into the project. We continue to work on the GPI project. And this extension is really part of that. We see this as really a bridge while we have to, unfortunately, wait due to the government's inaction here. Frankly, it's just really unfortunate that we're stuck in the limbo of the government's delay in not approving the sale of U.S. steel to Nippon. And, you know, as a result of that, there's consequences for all parties here. And we continue to work on the GPI project with U.S. Steel. But at the same time, you know, we're facing this delay and the Granite City contract extension really bridges that period as we're in a holding pattern along with everyone else. And, you know, it's unfortunate because, you know, it has an impact to us at Granite City and our EBITDA there. But as we said, we continue to believe strongly in the project. The fundamentals of this project are so strong. And so it's something that, you know, we're willing to accept as we wait for the process to play out.

Catherine, that's crystal clear. I really appreciate all the color and clarification. Maybe just one more before I turn it over. The capital investment of $12 million at Kanawha, You mentioned some future opportunities. Could you just maybe expand on that, certain geographies you're looking to target, or have there been any capacity expansions from a customer perspective?

I can't speak to the customers in terms of expansion, but we are constantly looking for new business at our logistics terminals and at our Coke plants. And the $12 million capital project will expand our barge to rail unloading capacity from 2 million tons to 5 million tons. So it certainly allows us to bring in a greater volume of business that we had before. And we're just trying to build upon what we have put in place with this contract and the business that we saw this year.

Got it. All right. Well, guys, really nice work, and continue. Best of luck.

Thank you.

Again, if you have a question, please press star, then 1. This concludes our question and answer session. I would like to turn the conference back over to Catherine Gates, CEO and President, for any closing remarks.

Thank you all again for joining us this morning and for your continued interest in Suncoke. We look forward to speaking with you again in early 2025 when we will discuss our 2024 full year results and give 2025 guidance. Until then, let's continue to work safely and build value for all our stakeholders.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.