SunCoke Energy, Inc. Q3 FY2025 earnings call

Management Statement and Operational Highlights

• Announced Q3 2025 consolidated adjusted EBITDA of $59.1 million, a sequential improvement but not to expected extent.
• Completed acquisition of Phoenix Global on August 1, with integration activities ongoing and synergies expected in 2026. Phoenix's financial results reported in Industrial Services segment.
• Extended coke-making agreement with U.S. Steel at Granite City through end of 2025.
• Revised consolidated adjusted EBITDA guidance range to $220 million - $225 million, inclusive of 5 months of Phoenix results and impact of deferral of ~200,000 coke tons sale due to customer breach.
• Announced quarterly dividend of $0.12 per share payable December 1, 2025, 25th consecutive quarter.
• Discussed liquidity position: ended Q3 with cash balance $80.4 million, revolver availability $126 million, net cash provided by operating activities $9.2 million (negatively impacted by Phoenix acquisition-related items), net borrowing on revolver $199 million, cash acquired from Phoenix $24.3 million, net purchase consideration for Phoenix $295.8 million, CapEx $25.5 million, dividends $10.1 million.
• Updated CapEx guidance to ~$70 million, free cash flow guidance range negative $10 million to 0, operating cash flow expected $62 million - $72 million.

Segment Performance

• Domestic Coke: Third quarter 2025 adjusted EBITDA was $44 million with coke sales volumes of 951,000 tons. Compared to prior year period, adjusted EBITDA decreased due to mix of contract and spot sales, unfavorable economics on Granite City contract extension, lower cold coke yields at Haverhill, and weather event at Indiana Harbor. Full year 2025 Domestic Coke adjusted EBITDA is expected to be between $172 million and $176 million, reflecting impact of deferral of approximately 200,000 coke sales tons.
• Industrial Services: Includes former Logistics segment and Phoenix Global. Third quarter 2025 adjusted EBITDA was $18.2 million, driven by addition of 2 months of Phoenix Global results but partially offset by lower transloading volumes at logistics terminals. Full year 2025 Industrial Services adjusted EBITDA is expected to be between $63 million and $67 million, reflecting 5 months of Phoenix Global results and lower-than-expected volume improvement at logistics terminals due to weak market conditions. Consolidated adjusted EBITDA for third quarter 2025 was $59.1 million, and full year 2025 consolidated adjusted EBITDA is now expected to be between $220 million and $225 million.

Guidance

• Full year 2025 Domestic Coke adjusted EBITDA: $172 million - $176 million (reflecting deferral of ~200,000 coke sales tons).
• Full year 2025 Industrial Services adjusted EBITDA: $63 million - $67 million (inclusive of 5 months of Phoenix Global contribution, partially offset by lower volumes at logistics terminals due to weak market conditions).
• Full year 2025 consolidated adjusted EBITDA: $220 million - $225 million.
• CapEx guidance: ~$70 million.
• Free cash flow: expects $70 million unfavorable impact for full year due to deferral of cash receipts from customer breach; previously updated free cash flow guidance included favorable impact from tax law changes and lower CapEx but now also has this unfavorable impact.
• Intends to pursue all legal means to recover losses from customer breach, with possible conclusion later this year or early next year.

Risks

• Customer breach of contract: Deferral of approximately 200,000 coke tons sale due to one customer's breach, impacting consolidated adjusted EBITDA guidance and free cash flow.
• Legal risk: Uncertainty regarding enforcement of the contract with the breaching customer; need to actively pursue legal remedies to recover financial losses, but legal strategy and outcome are uncertain.

Question and Answer

Q: Following the deferral of the 200,000 tons, what is your level of confidence that incremental deferrals won't occur? And which facilities is this deferral from?

A: The 200,000 tons are for 2025 and contemplate production and storage of that coke. Don't specify specific facilities in detail, but the breaching customer is Algoma, and we make and produce coke for Algoma out of Haverhill facility.

Q: What do the remedies currently look like?

A: We think we have an enforceable contract, working with counsel on long-term take-or-pay contracts, pursuing all legal remedies to recover financial losses from their breach.

Q: If the contract cannot be enforced, where do you go next?

A: We think the contract will be enforced and are pursuing proper legal avenues, and the assumed production and storage of coking inventory doesn't impact our ability to recover financial losses, expecting to recover through the process.

Q: Sticking with the Domestic Coke business, talk about strategy for 2026 if unable to renew Granite City and Haverhill production under long-term contract?

A: For 2026, optimistic with full year of Phoenix results and expected synergies. Coke business has pillars like Middletown (contract through 2032), Indiana Harbor (through 2035), and Jewell foundry. With Haverhill, active discussions with Cliffs; if can't contract full capacity, may sell into spot market or rationalize facility. With Granite City, active discussions with U.S. Steel regarding contract extension; if can't extend, may not continue running facility as tied to U.S. Steel, expecting 2026 results stronger than 2025.

Q: Any updates on Granite City GPI project negotiations?

A: Discussions are confidential and ongoing, more to say when giving 2026 guidance.

Q: Break out how much of the $18 million in adjusted EBITDA was specifically from Phoenix?

A: When announced Phoenix acquisition, LTM EBITDA was around $60 million annually, can use that as proxy; more refined number will be given in 2026 guidance.

Q: From customer volume perspective, 3.8 million tons shipped from legacy Phoenix business over 2 months, is that a good run rate?

A: Roughly, 1.9 million tons of customer volume service per month is a good proxy to get to the $60 million annual EBITDA mentioned.