May 2, 2019 - Warrior Met Coal, Inc. (HCC) today announced results for the first quarter of 2019. Warrior is the leading dedicated U.S. based producer and exporter of high quality metallurgical coal for the global steel industry.
Warrior reported first quarter of 2019 net income of $110.4 million, or $2.14 per diluted share, compared to net income of $178.7 million, or $3.36 per diluted share, in the first quarter of 2018. Adjusted net income per share for the first quarter of 2019 was $2.30 per diluted share compared to $3.42 per diluted share in the first quarter of 2018. The Company reported Adjusted EBITDA of $181.0 million in the first quarter of 2019, compared to Adjusted EBITDA of $216.4 million in the first quarter of 2018.
“Warrior’s results in the first quarter reflect the continuing strong demand from our customers for our premium met coal,” commented Walt Scheller, CEO of Warrior. “We remain focused on maximizing our production to take advantage of the favorable pricing environment, and, to that end, we completed another strategic longwall move at the end of the quarter. In light of the current environment, we are pleased to be maintaining our sales and production guidance for the year and to be continuing our commitment to returning capital to our shareholders.”
The Company produced 2.3 million short tons of met coal in the first quarter of 2019, 9.5% more than the amount produced in the first quarter of 2018. Sales volume in the first quarter of 2019 was 2.1 million short tons which is consistent with the first quarter of 2018.
Additional Financial Results
Total revenues were $378.3 million for the first quarter of 2019, including $369.7 million in mining revenues, which consisted of met coal sales of 2.1 million short tons at an average net selling price of $176.37 per short ton, net of demurrage and other charges. Warrior continued to capitalize on a favorable pricing environment in the quarter by selling its met coal at 98% of the quarterly Australian premium low-volatility hard coking coal (“HCC”) index average price (the “Australian LV Index”).
Cost of sales for the first quarter of 2019 were $182.6 million, or 49.4% of mining revenues, and included mining costs, transportation and royalty costs compared to $190.7 million, or 46.2% of mining revenues in the same period of 2018. Cash cost of sales (free-on-board port) per short ton decreased to $86.80 in the first quarter 2019 from $89.82 in the first quarter of 2018, primarily due to higher production volume and lower spending.
Selling, general and administrative expenses for the first quarter of 2019 were $8.9 million, or 2.4% of total revenues. Depreciation and depletion costs for the first quarter of 2019 were $22.2 million, or 5.9% of total revenues. Warrior incurred interest expense, net of $8.6 million during the first quarter of 2019.
Income tax expense was $28.0 million in the first quarter of 2019 and represents a noncash expense that reflects the utilization of the Company’s net operating losses (“NOL”). The Company did not have income tax expense in the first quarter of 2018 due to a full valuation allowance recorded against deferred income taxes.
Cash Flow and Liquidity
The Company continued to generate strong cash flows from operating activities in the first quarter of 2019 of $126.4 million compared to $193.7 million in the first quarter of 2018. Net working capital, excluding cash, for the first quarter of 2019 increased by $49.2 million from the fourth quarter of 2018, primarily reflecting an increase in trade accounts receivable due to increased sales and timing of receipts and an increase in inventories due to an increase in production volume. Approximately $50.0 million of cash receipts due in the first quarter were received on April 1, 2019. Capital expenditures and mine development costs for the first quarter of 2019 were $30.0 million, resulting in free cash flow of $96.4 million. Cash flows used in financing activities for the first quarter were $147.3 million primarily due to the retirement of debt in connection with the consummation of the Restricted Payment Offer and Concurrent Tender Offer.
The Company’s available liquidity as of March 31, 2019 was $275.3 million, consisting of cash and cash equivalents of $154.9 million combined with $120.4 million available under its Amended and Restated Asset-Based Revolving Credit Agreement (the “ABL Facility”), net of outstanding letters of credit of $4.6 million.
Restricted Payment Offer and Concurrent Tender Offer
On March 25, 2019, the Company announced the results of its offer to purchase (the “Restricted Payment Offer”), in cash, up to $150,000,000 principal amount of the Company’s outstanding 8.00% Senior Secured Notes due 2024 (the “Notes”), at a repurchase price of 103% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to but not including the date of repurchase thereof and the results of its cash tender offer (the “Tender Offer” and, together with the Restricted Payment Offer, the “Offers”) to purchase up to $150,000,000 principal amount of the Notes at a repurchase price of 104.25% of the aggregate principal amount of such Notes, plus accrued and unpaid interest to but not including the date of repurchase thereof.
Based on the results of the Offers, the Company was permitted to make one or more restricted payments in the form of special dividends to holders of the Company’s common stock and/or repurchases of the Company’s common stock in the aggregate amount of up to $299,401,000 (the “RP Basket”) without having to make another offer to repurchase Notes. The Company intends to use the RP Basket to pay the April 2019 Special Dividend (as defined below) and make repurchases under the New Stock Repurchase Program (as defined below).
New Stock Repurchase Program
On March 26, 2019, the Company announced that its board of directors (the “Board”) approved the Company’s second stock repurchase program (the “New Stock Repurchase Program”), authorizing repurchases of up to an additional $70.0 million in the aggregate of its outstanding common stock. The Company had fully exhausted its previous stock repurchase program of $40.0 million of its outstanding common stock. The New Stock Repurchase Program does not require the Company to repurchase a specific number of shares or have an expiration date and may be suspended or discontinued by the Board at any time without prior notice. Warrior intends to fund repurchases under the New Stock Repurchase Program from cash on hand and/or other sources of liquidity.
On April 23, 2019, the Board declared a special cash dividend (the “April 2019 Special Dividend”) of $4.41 per share of Warrior’s common stock, par value $0.01 per share. The Special Dividend, totaling an aggregate payment of approximately $230.0 million, will be paid on May 14, 2019, to stockholders of record as of the close of business on May 6, 2019. Warrior expects the Special Dividend will be funded through cash on hand.
Regular Quarterly Dividend
On April 23, 2019, the Board also declared a regular quarterly cash dividend of $0.05 per share, totaling approximately $2.6 million, which will be paid on May 10, 2019, to stockholders of record as of the close of business on May 3, 2019.