Alpha Metallurgical Resources, Inc. Q1 FY2025 earnings call

• Extreme weather in Jan and Feb negatively impacted first quarter results, including cost of coal sales and tons shipped. • Took actions like cutting production at higher cost operations and reducing wages. • Secured amendment to asset-based lending facility, increasing size to $225 million and extending maturity to May 2029. • Operations faced challenges from severe weather and geologic issues, but saw improved costs in March and expect continuation. • Idled roughly 500,000 tons of production annually by closing Long Branch Surface Mine and idling a section at Jerry Fork Mine. • Implemented market-driven pay reductions. • Kingston Wildcat project continues on schedule with some CapEx adjustments. • DTA working through a 2-week outage as part of equipment upgrade program.

Adjusted EBITDA for the first quarter was $5.7 million. 3.8 million tons were shipped. Met segment realizations decreased quarter-over-quarter, with average realization of $118.61 in Q1 vs $127.84 in Q4. Export met tons priced against Atlantic Indices realized $119.39 per ton, while those priced on Australian indices realized $107.44. Cost of coal sales for the Met segment increased to $110.34 per ton in Q1 from $108.82 per ton in Q4. SG&A excluding non-cash items decreased to $12.6 million in Q1 from $14.3 million in Q4. CapEx for the quarter was $38.5 million, down from $42.7 million in Q4. As of March 31, 2025, unrestricted cash was $448 million, down from $481.6 million on Dec 31, 2024. Unused availability under ABL was $112.9 million, with total liquidity $485.8 million down from $519.4 million at Dec 31, 2024.

• Reduced metallurgical coal shipment guidance to 13.8 million to 14.8 million tons and thermal coal sales volumes to 800,000 to 1.2 million tons, total shipment expectations 14.6 million to 16 million tons. • Lowered CapEx guidance to $130 million to $150 million, a reduction of $27 million at midpoint. • 50% of metallurgical tonnage committed at average price $133.04, 45% committed but not priced, thermal byproduct fully committed at average price $80.75. • No share repurchases in Q1 due to soft Met coal markets.

• Extreme weather and geologic challenges negatively impacted first quarter results. • Weak steel demand and uncertain trade policies weighing on realizations. • Continued softness in Met coal markets. • DTA outage could cause shipment delays. • Uncertainty around shifting tariff and trade policies impacting business.

Q: Per Jason's comments, it sounds like there have been some more recent cost-cutting measures, and you've maintained your cost guidance. So I imagine that these measures have mostly offset the loss of fixed-cost absorption, but curious if you had any additional thoughts and how we should really think about cadence of costs from here?

A: Hey, Nick. Yes, that was an important thing to us as you picked up on. We've now taken well over a million tons out of our original guidance from last November as far as production and sales and while we did blip up our cost guidance a little bit back in February, being able to take that many tons out while continuing to hold guidance relatively firm is a pretty good accomplishment. The team has worked really hard to do that. I do think as we continue through the year, we'll maintain more pressure. Obviously, all options remain on the table and there could be some other opportunities where some mines maybe aren't performing the way we need them to in this market. But I think at this point, we feel like we're in pretty good shape with the portfolio. And also I think the team's done a really nice job of focusing on the areas to improve that can be improved. There are always more opportunities. Jason likes to refer to the land of opportunity. We've always got more room to make improvements, and we stay pretty acutely focused on that.

Q: Nick Giles: Andy, that's very helpful. I appreciate that. Just on really the volumes and the CapEx, should we think about your $35 million CapEx cut at the midpoint? Should we think about this as primarily growth-related? And so what would you ultimately need to see to bring some of these growth projects back into production? And maybe just in response to your comments just then, I mean is there a way to quantify potential downside we could see to guidance from here if the market remains unchanged. Thank you.

A: Hi. This is Jason, and I'll take the first part of that at least, but I think most of the capital reductions are related to the closures that we announced earlier today, and it's really about just re-racking and re-deploying the assets from those closures to offset items that were budgeted for other operations in the company. Additionally, there's a little bit of growth CapEx that we've decided to take on in-house and take margins away from third-party providers, and we see some real opportunity there to reduce spend. So, really, I don't see any impact on the future of the business by any of these changes.

Q: Nick Giles: That's good to hear. Thanks for that, both Jason and Andy. Let me just one more, if I could, on the realization side. Realizations, obviously, remain under pressure. So, Dan, I was wondering if you could just speak to mixing the quarters ahead and kind of what you're seeing out there, per end market, whether it be from a CFR basis, some of the transportation differentials, any considerations as we model future quarters?

A: Yes, Nick, well, we don't -- at Alpha, we do very little CFR business. The majority of it is all FOB vessel. So there's certainly the freight market has been kind of exciting for a while. It's calmed down. Just with the global slowdown, ocean freight generally is -- rates are not very high compared to historical. So the challenge in the coming quarters is simply the steel business. You tell us how -- tell us how good the steel business will be, we'll tell you how much the prices move up because we believe they will as demand increases but we're simply not seeing the growth in steel demand that we thought we'd see.

Q: Nathan Martin: Thanks, operator. Good morning, everyone. Full year shipment guidance trim is 700,000 tons at the midpoint. Is that all export? Is there any domestic in there? Maybe how many tons do you guys expect to ship domestic versus export in '25 at this point? And then with the two operations coming offline, Jason, I think you said as well, Long Branch and Terry Fork, does that impact really your quality mix at all? It sounds like cost per ton, they are a little bit higher cost, but you guys still feel confidence with guidance?

A: Yes, Nate, this is Dan. Hey, on -- those tons that came offline would be export tons. The Jerry Fork Mine does ship some domestic business, but we'll continue to be able to ship those orders. So, think of that reduction as coming off of the seaborne market. I'll take part of the question you aimed at Jason there, too. The coal that came off is all high vol. Some of it's rather high-quality, but it's all high vol. There's no medium vol or low vol in that number.

Q: Nathan Martin: Thanks, Dan. Appreciate that. And then maybe going back to the last question that Nick asked as far as your average realized price per ton for you guys and really most of your peers probably a little bit lower than most had expected here in the first quarter. Do you guys believe there’s some discounting maybe going on to publish indices at this point to move coal? Just would appreciate any thoughts you have there, Dan?

A: Well, yes, I think I've said this before on these calls Nate. In a weak market, tends to be more discounting against the indices. In a strong market, you tend to see flat or even premiums and we are obviously in a weaker market. So short answer is yes, there's some discount against the indices, but not in every case. I can tell you we recently concluded a piece of business where we got a premium to the index. So, it's not universal that every ton is sold at a discount.

Q: Nathan Martin: Okay, great. Nice to hear. And then maybe just one more bigger picture. I think, Andy, last quarter you talked about keeping your eyes open for any potential opportunities to fortify your operations. Any updates there, what you're seeing in the marketplace?

A: No. And it's pretty obviously there's -- there are a lot of opportunities out there, lot of distressed companies and things being shot. At this point, we kind of go through the filter of what's available. We have to find something that accretion is the challenge here. We don't want to be approaching assets that could put an additional strain on the enterprise while we don't have great visibility on when this thing turns around. So it's a little bit challenging to pursue M&A right now. Also we've got to find something that truly makes Alpha better. And so for that reason we remain focused on the internal opportunities particularly the Kingston and Wildcat mine as our main focus for now because it most definitely will make the portfolio stronger in the very near-term. So right now it's kind of still a wait and see. We're always open to options but we've not seen anything that we are ready to act upon just yet.

Q: Nick Giles: Thanks so much for taking my follow-up. I know it’s early here, but as we start to think later in the year around domestic contracting, your domestic book is providing some insulation in this weak market. So would there be any consideration to increase those volumes? Are you thinking about the domestic opportunity as we head into the summer?

A: Thanks, Nick. It is, as you said, it's a little early. We will be looking at our portfolio, what the customers' needs are. Broadly speaking, we don't ever have a number in mind when we approach the domestic market. We take it as it comes. We meet with the customers, see where there we have common ground and where we don't. So I really don't have a firm answer for you there. Certainly, at this point in time, the domestic market is among the higher pricing in our book, but that can change within a matter of months. So it's something we will be looking at over the summer months here at Alpha.

Q: Nick Giles: Thanks for that Dan. And maybe if I could just sneak in one more. Just back to the market, the U. S. market specifically and there's been for several months now word of a lot of your smaller competitors that might be struggling. There's been some -- there's been plenty of evidence of that. Do you think are there still some kind of small mom and pop tons that could come out of the market? Or do you think most of the pain has been inflicted at this point?

A: Yes. I think we still think there are some tons that could come out.

Q: Nick Giles: Got it. And apologies, I promise this will be my last question. But you are very well capitalized. And so that offers some protection in these tough markets. Has this market and its prolonged nature changed the way you're thinking about your cash balance through the cycle?

A: Well, that's a good question. I mean, it's something that we constantly evaluate and it's the answer will always be different depending on where you are in the cycle. And we had a really good, call it 2.5 year run where everyone kind of gravitated toward the same answers on how they wanted to treat their balance sheet. I think we've been -- I think we were prescient in our approach about this time last year and how we decided to handle our balance sheet. We will probably -- I'm not sure we would do anything different moving forward. So it's a tough question to answer, but it's one that we ask ourselves every day.