May 6, 2022 - Warrior reported net income for the first quarter of 2021 of $146.2 million, or $2.83 per diluted share, making this our second consecutive quarter of record quarterly net income and earnings per share, in over three years. This compares to a net loss of $21.4 million, or $0.42 per diluted share, in the first quarter of 2021. Adjusted net income per share for the first quarter of 2022 was $2.97 per diluted share compared to adjusted net loss per share of $0.08 per diluted share in the first quarter of 2021. The Company reported Adjusted EBITDA of $243.8 million in the first quarter of 2022, an all-time record quarterly high, compared to Adjusted EBITDA of $47.1 million in the first quarter of 2021.
“The hard work we undertook over the past few years is paying off, as we continued our strong upward trajectory to deliver our third straight quarter of strong profitability, including an all-time record quarterly Adjusted EBITDA,” commented Walt Scheller, CEO of Warrior. “Our ability to leverage our strong operational base allowed us to take advantage of continued record pricing while also continuing to focus on managing expenses and increasing cash flows. Demand for high quality premium coal remains on the upswing, and we are driving toward full operational mode.”
“In addition, the war in Ukraine created a backdrop for further global supply constraints and price volatility, with urgent demand for non-Russian met coal. We are well positioned to continue meeting our customers’ commitments in the face of expected future global economic volatility.”
The Company also announced the relaunch of the development of its Blue Creek mine, a strategic growth project that it expects will deliver significant future returns to shareholders. “We expect Blue Creek to significantly enhance Warrior’s already existing world class hard coking coal portfolio of assets and to build on our highly focused business strategy as a premium pure-play met coal producer,” Scheller said. Warrior has issued a separate press release and presentation providing more detail on the development of its world class Blue Creek growth project, both of which can be found on its website at www.investors.warriormetcoal.com.
The Company produced 1.5 million short tons of met coal in the first quarter of 2022 compared to 2.2 million short tons in the first quarter of 2021. The tons produced in the first quarter of 2022 resulted from running both longwalls and four continuous miner units at Mine No. 7 and the longwall and two continuous miner units at Mine No. 4. Sales volume in the first quarter of 2022 was 1.1 million short tons compared to 2.0 million short tons in the first quarter of 2021. Inventory levels rose to 601 thousand short tons at the end of March 31, 2022 from the 243 thousand short tons at the end of December 31, 2021 primarily due to shipment delays near the end of the first quarter. In addition, one hundred thousand tons of expected shipments were delayed and moved into the second quarter due to port congestion, maintenance and equipment failures which lowered our first quarter financial results. We believe these delays reduced Adjusted EBITDA by approximately $40.0 million, net income by $32.0 million and diluted net income per share by $0.63.
Additional Financial Results
Total revenues were $378.7 million for the first quarter of 2022, including $382.4 million in mining revenues, which consisted of met coal sales of 1.1 million short tons at an average net selling price of $339.34 per short ton, net of demurrage and other charges. This compares to total revenues of $213.8 million in the first quarter of 2021. The average net selling price of the Company's met coal increased 220% from $106.04 per short ton in the first quarter of 2021 to $339.34 per short ton in the first quarter of 2022. The year-over-year increase in revenues is primarily attributed to improved met coal pricing, partially offset by lower sales volume.
Cost of sales for the first quarter of 2022 were $135.3 million compared to $154.4 million for the first quarter of 2021. Cash cost of sales (including mining, transportation and royalty costs) for the first quarter of 2022 were $134.4 million, or 35.1% of mining revenues, compared to $153.5 million, or 74.2% of mining revenues in the same period of 2021. Cash cost of sales (free-on-board port) per short ton increased to $119.23 in the first quarter of 2022 from $78.64 in the first quarter of 2021, reflecting a 220% increase in average net selling prices and its effect on Warrior's variable cost structure, primarily for transportation and royalties, as well as the impact of inflation. Transportation and royalty costs increased 118% in the first quarter of 2022 compared to the same period last year due to the higher met coal average net selling prices. Inflation accounted for an approximate $3 per short ton impact due to increases in the costs of belt structure, roof bolts, cable, magnetite, rock dust and other materials and supplies.
Selling, general and administrative expenses for the first quarter of 2022 were $13.9 million, or 3.7% of total revenues and were higher than the same period last year driven by the acceleration of stock compensation expense for retirement eligible employees and a 40% higher stock price than last year. Depreciation and depletion expenses for the first quarter of 2022 were $25.8 million, or 6.8% of total revenues and were lower than the prior year comparable quarter due to lower sales volume. Warrior incurred net interest expense of $7.8 million during the first quarter of 2022, which was lower than the same quarter last year primarily due to a decrease in interest on our outstanding notes.
Business interruption expenses were $6.7 million and represent non-recurring expenses that are directly attributable to the ongoing labor strike for incremental safety and security, labor negotiations and other expenses. Idle mine expenses were $3.0 million and represent expenses incurred with reduced operations at Mine No. 4 and Mine No. 7, such as electricity, insurance and maintenance labor.
Income tax expense was $33.5 million in the first quarter of 2022 due to income before income taxes of $179.7 million and was higher than last year due primarily to higher income before income taxes.
Cash Flow and Liquidity
The Company generated cash flows from operating activities in the first quarter of 2022 of $70.1 million, compared to $45.2 million in the first quarter of 2021. Capital expenditures for the first quarter of 2022 were $20.4 million. Free cash flow was $49.7 million in the first quarter of 2022, which was $26.3 million better than the first quarter of 2021, and reflected higher realized prices partially offset by lower sales volume.
Net working capital, excluding cash, for the first quarter of 2022 increased by $159.0 million from the fourth quarter of 2021, primarily reflecting an increase in trade accounts receivable due to higher prices and the timing of sales.
Cash flows used in financing activities for the first quarter of 2022 were $14.0 million, primarily due to principal repayments of capital lease obligations of $7.2 million and the payment of dividends of $3.1 million.
The Company’s total liquidity as of March 31, 2022 was $556.7 million, consisting of cash and cash equivalents of $434.0 million and available liquidity under its ABL Facility of $122.7 million, which is net of outstanding letters of credit of $9.4 million.
On April 26, 2022, the board of directors declared a regular quarterly cash dividend of $0.06 per share, totaling approximately $3.1 million, which will be paid on May 13, 2022, to stockholders of record as of the close of business on May 6, 2022.
On May 3, 2022, the Board declared a special cash dividend (the "May 2022 Special Dividend") of $0.50 per share of Warrior's common stock, par value $0.01 per share, to be paid on May 20, 2022, to stockholders of record as of the close of business on May 13, 2022. The May 2022 Special Dividend will be funded through cash on hand.
Any future special dividends or stock repurchases from excess cash flows will be at the discretion of the board of directors and subject to consideration of several factors including business and market conditions, future financial performance and other strategic investment opportunities. The Company will also seek to optimize its capital structure to improve returns to stockholders while allowing flexibility for the Company to pursue very selective strategic growth opportunities that can provide compelling stockholder returns.
In light of the Company's successful performance in the first quarter of 2022, the announcement of the relaunch of the Blue Creek project and the expected market conditions for the remainder of 2022, Warrior is revising its guidance for the full year 2022 as indicated below.
Key factors that may affect outlook include:
The Company's guidance for its capital expenditures consists of sustaining capital spending of approximately $75 - $80 million, including regulatory and gas requirements, and discretionary capital spending of $90 - $95 million for the 4 North portal construction, deposits on two new sets of longwall shields and the development of the Blue Creek project for which the Company has budgeted $45 million for 2022.
The Company does not provide reconciliations of its outlook for cash cost of sales (free-on-board port) to cost of sales in reliance on the unreasonable efforts exception provided for under Item 10(e)(1)(i)(B) of Regulation S-K. The Company is unable, without unreasonable efforts, to forecast certain items required to develop the meaningful comparable Generally Accepted Accounting Principles ("GAAP") cost of sales. These items typically include non-cash asset retirement obligation accretion expenses, mine idling expenses and other non-recurring indirect mining expenses that are difficult to predict in advance in order to include in a GAAP estimate.
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