May 4, 2023 - Warrior Met Coal, Inc. (NYSE: HCC) (“Warrior” or the “Company”) has announced results for the first quarter of 2023. Warrior is the leading dedicated U.S.-based producer and exporter of high quality metallurgical (“met”) coal for the global steel industry.
Warrior reported net income for the first quarter of 2023 of $182.3 million, or $3.51 per diluted share, representing a 25% increase over net income of $146.2 million, or $2.83 per diluted share, in the first quarter of 2022. Adjusted net income per share for the first quarter of 2023 was $3.57 per diluted share, compared to adjusted net income per share of $2.97 per diluted share in the first quarter of 2022, representing a 20% increase. The Company reported Adjusted EBITDA of $259.4 million in the first quarter of 2023, compared to Adjusted EBITDA of $243.8 million in the first quarter of 2022, representing a 6% increase.
“We are pleased to share another extremely strong quarter, both in terms of financial results and better-than-exp
“We are pleased to share another extremely strong quarter, both in terms of financial results and better-than-expected sales and production volumes,” commented Walt Scheller, CEO of Warrior. “Customer demand remained strong throughout the quarter, which, combined with global supply constraints, kept coal prices above historical levels. Importantly, our focus on improving performance at the Port of Mobile produced positive results, specifically through several initiatives that were implemented to improve the loading of vessels, including the allocation of personnel and resources. We continue to work closely with port personnel to improve the consistency and long-term sustainability of operations.”
“In February, the labor union representing certain of our hourly employees announced that they ended their labor strike and unconditionally offered to return to work. We continue to onboard eligible employees that are returning to work from the labor strike while continuing to negotiate towards a new labor contract in good faith. We believe that Warrior is well-positioned to capitalize on upside opportunities to our sales and production volumes in the latter half of 2023,” Mr. Scheller concluded.
Sales volume in the first quarter of 2023 was 1.9 million short tons compared to 1.1 million short tons in the first quarter of 2022, representing a 73% increase. The 73% increase in sales volume was driven by the drawdown of coal inventory levels in the first quarter due to improved performance at the McDuffie Terminal, which enabled Warrior to export more product. In addition, increased production drove an increase in sales as both Mine No. 4 and Mine No. 7 operated at higher capacity levels in this quarter compared to the prior year comparable quarter, when operations at Mine No. 4 were being restarted and both Mine No. 4 and Mine No. 7 were being operated at reduced capacity. The Company produced 1.8 million short tons of steelmaking coal in the first quarter of 2023 compared to 1.5 million short tons in the first quarter of 2022, representing a 14% increase. Inventory levels were reduced to 659 thousand short tons at the end of March 31, 2023 from 855 thousand short tons at the end of December 31, 2022.
Additional Financial Results
Total revenues were $509.7 million for the first quarter of 2023, which consisted of steelmaking coal sales of 1.9 million short tons at an average net selling price of $256.93 per short ton, net of demurrage and other charges. This represents a 35% increase and compares to total revenues of $378.7 million in the first quarter of 2022. The average net selling price of the Company's steelmaking coal decreased 23% from $339.34 per short ton in the first quarter of 2022 to $256.93 per short ton in the first quarter of 2023 due to stronger met coal market pricing last year.
Cost of sales for the first quarter of 2023 were $232.6 million compared to $135.3 million for the first quarter of 2022. Cash cost of sales (including mining, transportation and royalty costs) for the first quarter of 2023 were $231.6 million, or 46.3% of mining revenues, compared to $134.4 million, or 35.1% of mining revenues in the same period of 2022. Cash cost of sales (free-on-board port) per short ton decreased to $118.87 in the first quarter of 2023 from $119.23 in the first quarter of 2022, primarily reflecting the delayed impact of a decrease in average net selling prices and its effect on Warrior's variable cost structure, primarily for wages, transportation, and royalties offset partially by the impact of inflation. Transportation and royalty costs accounted for approximately 44% of total cash cost of sales (free-on-board port) in the first quarter of 2023 compared to 46% in the same period last year due to the lower met coal average net selling prices and its effect on our transportation and royalty costs.
Selling, general and administrative expenses for the first quarter of 2023 were $14.5 million, or 2.8% of total revenues and were higher than the same period last year due to higher employee related costs, primarily related to stock compensation expense.
Depreciation and depletion expenses for the first quarter of 2023 were $37.2 million, or 7.2% of total revenues and were higher than the prior year comparable quarter due to higher sales volume. Warrior incurred net interest income of $1.5 million during the first quarter of 2023, which compares to net interest expense in the prior year of 7.8 million. Interest income earned on our cash investments in the current quarter exceeded interest expense on our outstanding notes and equipment leases.
Business interruption expenses were $4.2 million in the first quarter and were lower than the same period last year. These expenses represent non-recurring expenses for incremental safety and security, labor negotiations and other expenses that are directly attributable to the labor strike.
Income tax expense was $29.1 million in the first quarter of 2023 on income of $211.3 million and primarily reflects our continued utilization of our net operating losses offset partially by an income tax benefit for foreign-derived intangible income and depletion expense.
Cash Flow and Liquidity
The Company generated cash flows of $192.9 million from operating activities in the first quarter of 2023, compared to $70.1 million in the first quarter of 2022. Capital expenditures and mine development for the first quarter of 2023 were $82.6 million, resulting in free cash flow of $110.3 million. Free cash flow was $60.6 million higher than the first quarter of 2022 and reflected higher sales volumes offset partially by higher capital expenditures and mine development.
Net working capital, excluding cash, for the first quarter of 2023 increased by $69.0 million from the fourth quarter of 2022, primarily reflecting an increase in trade accounts receivables due to higher sales volumes and the timing of sales combined with lower accrued expenses and accounts payable.
Cash flows used in financing activities for the first quarter of 2023 were $74.8 million, primarily due to the payment of the regular quarterly dividend and special dividend totaling $50.0 million, retirements of debt of $8.0 million and principal repayments of financing lease obligations of $7.6 million.
The Company’s total liquidity as of March 31, 2023 was $985.8 million, a record high, consisting of cash and cash equivalents of $862.5 million and available liquidity under its existing Second Amended and Restated Asset-Based Revolving Credit Agreement (as amended, the “ABL Facility”) of $123.3 million, which is net of outstanding letters of credit of $8.7 million.
On April 25, 2023, our Board of Directors (the "Board") declared a regular quarterly cash dividend of $0.07 per share, totaling approximately $3.7 million, which will be paid on May 12, 2023, to stockholders of record as of the close of business on May 5, 2023.
In addition, on February 13, 2023, the Board declared a special cash dividend (the "March 2023 Special Dividend") of $0.88 per share, totaling approximately $46.4 million, which was paid on March 7, 2023, to stockholders of record as of the close of business on February 28, 2023. The Company continues to demonstrate its previous commitment to returning excess cash to stockholders while driving long-term growth with its investment in the development of its world-class Blue Creek reserves.
Any future special dividends or stock repurchases from excess cash flows will be at the discretion of the Board 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.
On February 16, 2023, the labor union representing certain of our hourly employees announced that they were ending the strike and made an unconditional offer to return to work. The Company is currently working to complete the onboarding process with the eligible employees that wish to return to work and continues to engage in good faith negotiations with the labor union representing certain of our hourly employees to reach an agreement on a new contract. Because the return to work process has not been completed, the Company has not revised its budgets, outlook and guidance as provided below to reflect the effects of the ending of the strike. The Company expects to be able to provide another update in early June 2023.
The Company's outlook and guidance for 2023 is subject to many risks that may impact performance, including the labor matters noted above, ongoing mechanical issues at the McDuffie Terminal at the Port of Mobile, ongoing rail transportation issues, market conditions in the steel and met coal industries and overall global economic and competitive conditions, all as more fully described under Forward-Looking Statements below. The Company's guidance for the full year 2023 is outlined below.
Key factors that may affect outlook include:
The Company's guidance for its capital expenditures consists of sustaining capital spending of approximately $95 - $105 million, including regulatory and gas requirements, and discretionary capital spending of $325 - $345 million for the development of the Blue Creek reserves, final payments on two new sets of longwall shields originally purchased in 2022, and the final 4 North bunker construction.
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.
Use of Non-GAAP Financial Measures
This release contains the use of certain non-GAAP financial measures. These non-GAAP financial measures are provided as supplemental information for financial measures prepared in accordance with GAAP. Management believes that these non-GAAP financial measures provide additional insights into the performance of the Company, and they reflect how management analyzes Company performance and compares that performance against other companies. These non-GAAP financial measures may not be comparable to other similarly titled measures used by other entities. The definition of these non-GAAP financial measures and a reconciliation of non-GAAP to GAAP financial measures is provided in the financial tables section of this release.
The Company will hold a conference call to discuss its first quarter 2023 results today, May 3, 2023, at 4:30 p.m. ET. To listen to the event, live or access an archived recording, please visit http://investors.warriormetcoal.com. Analysts and investors who would like to participate in the conference call should dial 1-844-340-9047 (domestic) or 1-412-858-5206 (international) 10 minutes prior to the start time and reference the Warrior Met Coal conference call. Telephone playback will also be available from 6:30 p.m. ET on May 3, 2023 until 6:30 p.m. ET on May 10, 2023. The replay will be available by calling: 1-877-344-7529 (domestic) or 1-412-317-0088 (international) and entering passcode 7491406.
Warrior is a U.S.-based, environmentally and socially minded supplier to the global steel industry. It is dedicated entirely to mining non-thermal met coal used as a critical component of steel production by metal manufacturers in Europe, South America and Asia. Warrior is a large-scale, low-cost producer and exporter of premium met coal, also known as hard-coking coal (HCC), operating highly efficient longwall operations in its underground mines based in Alabama. The HCC that Warrior produces from the Blue Creek coal seam contains very low sulfur, has strong coking properties and is of a similar quality to coal referred to as the premium HCC produced in Australia. The premium nature of Warrior’s HCC makes it ideally suited as a base feed coal for steel makers and results in price realizations near the Platts Index price. For more information, please visit www.warriormetcoal.com.
To see the full results with financial figures included, click here.