SunCoke Energy, Inc.

Good day and welcome to the Suncoke Energy second quarter 2025 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 Agarwal, Vice President, Finance, and Treasurer. Please go ahead.

Thank you. Good morning, and thank you for joining us this morning to discuss Suncook Energy's second quarter 2025 results. With me today are Catherine Gates, President and Chief Executive Officer, and Mark Marinko, Senior Vice President and Chief Financial Officer. This conference call is being webcast live on the investor relations section of our website, and a replay will be available later today. Following management's prepared remarks, we'll open the call for Q&A. 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 our reconcilations 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 second quarter results. I want to share a few highlights before turning it over to Mark to discuss the results in detail. We delivered Q2 2025 consolidated adjusted EBITDA of $43.6 million driven by the timing and mix of contract and spot Coke sales, as well as lower volumes at CMT. During the quarter, we announced the acquisition of Phoenix Global for $325 million. We are happy to share that we received the necessary regulatory approvals faster than anticipated and now expect to close on August 1st. Additionally, we amended and extended our revolving credit facility originally due June 2026 during the month of July. The covenants are similar to the previous agreement, and it is now maturing in July 2030. Earlier today, we also announced a 12 cents per share dividend payable to shareholders on September 2, 2025. From a balance sheet perspective, we ended the second quarter with a strong liquidity position of $536.2 million. I'd like to take this opportunity to review the fundamentals of the Phoenix acquisition. Let's turn to slide four. Phoenix Global is a leading provider of mission-critical services to major steel-producing companies. Suncoke will purchase 100% of the common units of Phoenix for $325 million on a cash-free, debt-free basis, representing an acquisition multiple of approximately 5.4 times on a March 31, 2025, last 12 months adjusted EBITDA of $61 million. This transaction is expected to be immediately accretive for Suncoke. We will fund the purchase through a combination of cash on hand and borrowing on our amended and extended revolver, which is fully undrawn with $325 million of borrowing capacity. We expect to recognize between approximately $5 and $10 million in annual synergies from this transaction. After closing, we will plan to host investor conferences where we will share updated guidance for Suncoke, including Phoenix. Turning to slide five to revisit the transaction benefits to Sunco. Phoenix is an excellent strategic fit with the core elements of our business, namely customers, capabilities, and contracts. With the addition of these operations, Sunco's reach will now extend to new industrial customers, including electric arc furnace operators that produce carbon steel and stainless steel. Phoenix's global footprint will add to our existing Brazil footprint, as well as select international markets. Phoenix's operations provide high-value, site-based services that are mission-critical to operational efficiency and reliability for steel mills. Suncoke has a reputation as a critical partner in the steel value chain and as a reliable provider of high-quality industrial services through our logistics business. Similar to Suncoke, Phoenix's contracts are long-term in nature with contractually guaranteed fixed revenue and pass-through components. Additionally, under its current contracts, Phoenix does not take ownership of major consumables, reducing exposure to commodity price volatility. Phoenix offers a well-capitalized asset portfolio, having invested approximately $75 million since June 2023 on new equipment or the refurbishment of existing equipment. New customers and new markets provide multiple paths for future organic growth. By leveraging Suncoke's strong financial position and operational excellence, we will build upon Phoenix's success to better serve our existing and new customers. Following the closing of the transaction, we expect Phoenix's operations will be combined with our logistics segment to form a new industrial services segment. We are pleased to have a strong operator within Suncoke to lead the new operations, in addition to our engineering and technical teams. He will be joined by certain Phoenix employees whose knowledge and experience will be beneficial to the successful integration. We are excited to welcome Phoenix's team members to the Suncoke family as we build on the strong foundation set by the business in recent years. With that, I'll turn it over to Mark to review our second quarter earnings in detail. Mark?

Thanks, Catherine. Turning to slide six. Net income attributable to Suncoke was 2 cents per share in the second quarter of 2025 down 23 cents versus the prior year period. The decrease was primarily driven by the timing and mix of lower contract Coke sales coupled with lower economics from the Granite City contract extension in the domestic Coke segment. Additionally, CMT volumes in the logistics segment were lower due to market conditions. Finally, transaction costs of $5.2 million related to the acquisition of Phoenix Global also impacted earnings per share. Consolidated adjusted EBITDA for the second quarter of 2025 was $43.6 million compared to $63.5 million in the prior year period. The decrease in adjusted EBITDA was primarily driven by the timing and mix of lower contract Coke sales and unfavorable economics on the Granite City contract extension in the Coke segment, and lower transloading volumes at CNT in the logistics segment, partially offset by lower legacy black lung expenses in corporate and other. Moving to slide seven to discuss our domestic Coke business performance in detail. Second quarter domestic Coke adjusted EBITDA was $40.5 million, and Coke sales volumes were 943,000 tons. The decrease in adjusted EBITDA as compared to the prior year period was primarily driven by the change in mix of contract and spot Coke sales at Haverhill. Additionally, spot Coke sales margins are significantly lower than the contract Coke sales margins due to the current challenging market conditions. Lower economics and volumes at Granite City from the contract extension also impacted domestic Coke results. We believe the second quarter to be the trough of 2025. And with higher contract Coke sales expected in the second half of the year, we are reaffirming our domestic Coke adjusted EBITDA guidance range of $185 to $192 million. Now moving on to slide eight to discuss our logistics business. Our logistics business generated $7.7 million of adjusted EBITDA in the second quarter of 2025. and our terminals handled combined throughput volumes of 4.8 million tons. The decrease in adjusted EBITDA was primarily driven by lower transloading volumes at CMT due to tepid market conditions. Our previously announced barge unloading capital expansion project at KRT has been completed and is operating. We expect to see benefits from the new take or pay coal handling agreement starting in the third quarter and reaffirm our full year logistics adjusted EBITDA guidance range of $45 to $50 million. Now turning to slide nine to discuss our liquidity position for Q2. Suncoke ended the second quarter with a cash balance of $186.2 million and a fully undrawn revolver of $350 million. Net cash provided by operating activities was $17.5 million and was impacted by income tax and interest payments as well as $5.2 million in transaction costs. We spent $12.6 million on CapEx and paid $10.2 million in dividends at the rate of 12 cents per share this quarter. In total, we ended the quarter with a strong liquidity position of $536.2 million. Our free cash flow guidance has changed. As a result of the transaction costs related to the Phoenix acquisition, extension of the revolving credit facility, and the new tax bill that was recently passed. We did not previously include transaction or debt issuance costs in our free cash flow guidance, but we now expect to incur between $12 and $14 million related to these transactions during the year. Additionally, as a result of changes in tax laws, we are now expecting our cash taxes to be between $5 million and $9 million. We have also lowered our CapEx guidance to approximately $60 million during the year. We now expect our free cash flow guidance to be between $103 million and $118 million. Our operating cash flow guidance is unchanged. With that, I will turn it back over to Catherine.

Thanks, Mark. Wrapping up on slide 10. The acquisition of Phoenix is a result of Suncoke's disciplined pursuit of profitable growth to reward long-term shareholders. Suncoke is well known for our best-in-class safety, advanced technology, operational discipline, and strong financial position. We remain focused on safely executing against our operating and capital plan and maintaining the strength of our core businesses while working to integrate Phoenix's operations. Phoenix is a service provider of choice for steelmakers, and we look forward to continuously engaging with their customers to find new opportunities to expand the scope of services provided, as well as enter into new contracts at other sites. As always, we take a balanced yet opportunistic approach to capital allocation. 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 see improvement in both logistics and domestic coke in the second half of the year, and we are reaffirming our full year consolidated adjusted EBITDA guidance range of $210 to $225 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're 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, please press star, then two. The first question comes from Nick Giles with B-Riley Securities. Please go ahead.

Thank you, operator, and good morning, everyone. This is Henry Hurl on for Nick Giles. So to start off, you reaffirmed your annual guidance in My Math Implies. roughly 22% increase in quarterly EBITDA for the remainder of the year to reach the low end of your guidance at $210 million. So my question is, can you walk us through the drivers of the improvement from here, and what are your assumptions around past Coke sales volumes?

Sure, Henry. Thanks for the question. So, you know, as we talked about, if you look at our Q1 domestic Coke EBITDA per ton, it was $55. And our Q2 Domestic Coke adjusted EBITDA per ton is around $42 a ton, right? And if you take the average of those two, we are right in the range of 46 to 48. That is kind of our annual guidance. So in Q3 and Q4, or the second half of the year, we expect to kind of get back to our average full-year EBITDA EBITDA per ton range, where the mix, you know, it was all about the mix. That's why we are talking about the mix between contract and spot sales, right? In the Q1, we were very heavy on the contract side. In Q2, we were very heavy on the spot side. So in Q3 and Q4, this will kind of become normalized and we'll have roughly 2 to 2.1 million tons of Coke sales in the second half getting us closer to the 4 million tons guidance of the total Coke sales with the average sales price, average domestic, adjusted with a margin of 46 to 48 dollars a ton. So that's kind of on the Coke side. On the logistics side, you know, we saw surprisingly lower volumes in May and June at CMT. And we are already seeing those volumes get picked up in July. There were a couple of shipments in June that did not, you know, the timing of the ship kind of shifted to July. So we're going to pick that up in Q3. So we'll go back to our normal run rate EBITDA for logistics as a whole in the second half. And that's how we are getting to our you know, fully adjusted a bit of guidance range of 210 to 225.

Understood. Thanks for that. And then could you also talk about the macro drivers of Phoenix Global? So understand you have a large share of fixed and contracted revenues in place, but hoping to get more color on what moves the needle in the long term. Thanks.

Sure. So, I think the short answer to your question is that we'll have a lot more to say on Phoenix when we go out and do our investor days and roadshow following the close. As I said, you know, we're going to be closing on August 1st, and then we'll be working through, you know, opening balance sheet, taxes, some other valuation work. So, We're going through that process now. I think what I can say in terms of drivers going forward is that we're very excited about having the EAF exposure, which really diversifies our customer base. And as I said on our call when we signed, I think it's very, very critical to us that we use this as a platform for organic growth. So when we think about drivers, we see opportunities with our technical and our engineering teams to look to the customers and expand the suite of services that we're providing at sites where we're already operating, as well as looking to new sites to bring on new business. What we said when we signed is that Phoenix had a last 12 months trailing adjusted EBITDA of about $61 million. And what I can say today is that that business, despite some of the cyclicality and some of the challenges in the steel sector right now, that is still not an unreasonable number to put out there as you think ahead to Phoenix. So we feel good about the business today and the foundation and then our opportunity to expand it, bringing our operational excellence and our engineering and technical expertise.

Thanks. I appreciate the color there. And then one more for me. Could you also talk about the recent conversations with your largest customer and if there is any potential for renewal of the Haverhill contract or any other color on how to think about your contracts that are rolling off this year and the split between contracted versus blast coke?

Yeah, absolutely. You know, frankly, we were extremely surprised by the comments on the CLIS earnings call, given that we are in active discussions with CLIS on contract renewal. As we said back in January, we knew that CLIS did not need more Coke in 2025. And that's why we announced in January that we were essentially sold out, even though, you know, the pricing in the spot market is not what we wanted it to be, but we sold out and we sold into the spot market, knowing that Cliffs would not need more Coke from us in 2025. So that is unchanged. But at the same time, we were continuing contract discussions with Cliffs and we are continuing those discussions with them today. In terms of specific detail on volumes, et cetera, as you know, we don't talk about the specifics of our contract negotiations with our customers. So I can't really say more than that. Other than that, we are in active discussions with them.

Okay. Thanks for that. And to you and your team, continue best of luck.

Thank you. Once again, if you have a question, please press star, send one. The next question comes from Nathan Martin with Benchmark Company. Please go ahead.

Thanks, operator. Good morning, everyone. Maybe just following up on that last line of questioning, like you said, surprised maybe by some of the comments Cliff's made. You know, they indicated they've got plenty of internal coke production post the Stelco acquisition that don't need any third cart of coke, you know, kind of going forward. you know, if that's the case, like, how do you guys go about finding another long-term contract for that production in Happer Hill? You know, is it a case where, you know, whoever Stelco was selling to previously, could it be a potential option? Or, you know, could the shift to Cliff's using more internal coke lead to a balance disruption in the market that needs to be addressed with, you know, supply of curtailments?

Sure. I mean, I think, you know, just the starting point is where obviously we continue to be in active discussions with Cliff, but We have also, and you've seen this over time, we've looked for ways to profitably sell our Coke when we are not selling on a long-term contract basis. So whether that is selling foundry and selling more foundry going forward, that's certainly a very profitable avenue for us. And we've continued to grow our market share in the foundry market. We would also look to profitably sell our blast Coke to other customers. So while we obviously, you know, can't get into any sort of discussions on that front, we've been able to profitably sell our blast coke, even at these depressed prices, selling into North America, we would continue to look to sell into the seaborne market if that was profitable. So that will continue to be our focus, just as it has been in the past years.

I appreciate that, Catherine. Any thoughts, like, does this potentially upset supply demand balance here in North America, or not necessarily, if they continue or start using more internal coke?

Well, I think, you know, as we've said before, you know, there's a volume of coke that is needed for the volume of steel that's being produced. So, you know, if, for example, you Bliss is now using more of the Stelco Coke. Stelco Coke that was being used by another customer, as you pointed out before, would be a customer that we would pursue going forward. So from an overall kind of supply-demand balance, we would understand that as being there today, and we would try to take advantage of that if things were moving.

Nate, I would want to add a little bit. This is Shantanu. You know what I mean? If they're running at full capacity, I think the question is more on the cliff side. You know, if there is a capacity rationalization permanently on their side, on one of the blast furnaces, that definitely disrupts the supply-demand balance of coke, right? Then the structure looks very different. In the long run, if one of the blast furnaces which have been running for a longer time goes down, then yes, it definitely disturbs the supply-demand balance of coke within Canada and the U.S., and that makes it a little bit challenging for us, you know, from the contract perspective, right? But if the assumption is that they continue running the blast furnaces which they have been running and their demand stays the same, As Catherine mentioned, there is demand for that coal to go there.

Thank you, Shantanu. I appreciate that. Maybe shifting to the logistics business, again, you called out the weakness at CMT. Was that mainly coal or were there any other products there first? And then how do you view kind of export coal demand over the next few quarters? Are you guys assuming any benefit at all from price adjustment given where the indices are today?

Well, in terms of products, we move products other than coal through CMT, including iron ore and including pet coke. So there is a mix of products there, but the vast majority of the volumes there are coal for export. We have seen higher domestic pricing and higher demand as we kind of look at the market today. that higher demand domestically can impact volumes being shipped internationally just based on that pricing. But at the same time, as Shantanu mentioned earlier, we look at the volumes that we're shipping in July and we look at what we have in our plan for the balance of the year. And we're reaffirming our logistics guidance based on what we see going forward. We are comfortable with that. In terms of any sort of price adjustment mechanism, we have not had a price adjustment thus far under the new contract, and we didn't contemplate that in our guidance for 2025. Got it.

That's helpful, Catherine. And then just back to the guidance for a second. I know you reiterated your full year adjusted EBITDA guidance for the segment, but I don't think I saw any update to the volume guidance, so should we assume you still feel good about handling, I think it was around 22.9 million tons for the full year? And if so, is that increasing tonnage here in the second half versus the first half mainly expected to come from the KRT expansion?

That's right, yep.

Okay, perfect. Maybe just one final one. Again, congratulations on successfully amending and extending your revolver. Obviously, capacity did come down a little bit to 325 from 350 million. I know you previously said I think you expected to borrow about 230 million on the revolver for Phoenix. That lower capacity, does that impact your plans at all there for financing? And does it still leave enough room to continue pursuing the GPI project?

Yes. So, Nate, I mean, actually, our borrowing amount for the acquisition is lower. It's closer to $200 to $210 million on the revolver, having more cash available on the balance sheet. So we're using that. And then, you know, that leaves us more than enough capacity to kind of, you know, work through the working capital changes. As you know, we have been undrawn on the revolver for like at least a couple of years. So that leaves us enough capacity for our working capital day-to-day work. On the GPI side, now that we have done the Phoenix acquisition, If we do the GPI project, that will kind of lead us into a separate borrowing and it will be some sort of term loan or a note or something like that. So that will be a separate financing deal when we get into the GPI project.

Makes sense, Shantanu. And I guess I should just go ahead and ask, are there any updates yet? On that GPI project, any additional thoughts on discussions you guys are having with NIPON at this point?

So we are in active discussions with U.S. Steel. I guess at this point we would say U.S. Steel because it is truly, you know, U.S. Steel with NIPON. But we are in active discussions, but I don't have anything to share at this point.

Got it. I'll leave it there. I appreciate the time, Catherine and Shantanu, and best of luck in the second half.

Thank you. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Katherine Gates for any closing remarks. Please go ahead.

Thank you all again for joining us this morning and for your continued interest in Suncoke. We look forward to announcing the completion of the Phoenix Global Acquisition. Let's continue to work safely today and every day.

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