Alpha Metallurgical Resources, Inc. (AMR) Earnings Call Transcript

Greetings. Welcome to the Alpha Metallurgical Resources Third Quarter 2026 Results Conference Call. [Operator Instructions] Please note this conference is being recorded. I would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may begin.

Thank you, Rob. Good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements. and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's third quarter 2026 earnings release and the associated SEC filing. Please also see the documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. On the call today, I'm joined by Alpha's Chief Executive Officer, Andy Eidson, and Chief Financial Officer, Todd Munsey, who will provide prepared remarks. Also participating on the call are our President and Chief Operating Officer, Jason Whitehead, and our Chief Commercial Officer, Dan Horn. Following the prepared remarks, we will be available to answer questions. With that, I'll turn the call over to Andy.

Thanks, Emily, and good morning, everyone. Today, we released our definitive third quarter financial results, which include adjusted EBITDA of $29.4 million and 3.9 million tons shipped. Our third quarter volumes improved compared to the first 2 quarters of the year, which were 3.6 million and 3.5 million tons, respectively. Cost pressures continue to influence our financial results, and we remain committed to managing these cost challenges and continually evaluating the portfolio against the needs of the metallurgical coal market. Speaking of the market, we have completed our annual budgeting process that culminates in the operational guidance expectations we issued today. I'll let Todd cover those in detail, but it's important to note that our 2027 guidance reflects current expectations for the coming calendar year, which includes our analysis of potential financial impact and 2027 terminal capabilities at DTA in Newport News. Following the norm-related damage that occurred in June, DTA management has worked diligently to keep operations moving and collaborate with the various parties about potential go-forward plans. As a result of these conversations, DTA believes the [ stacker reclaimer], referred to as SR1, will need to be replaced as opposed to repaired, and they've been in close contact with DTA's insurance provider about covering the replacement cost as well as potentially certain other expenses incurred due to the damage. As such, it's important to note that we do not anticipate significant capital outlets in association with the stacker reclaimer replacement process. As far as timing is concerned, a total replacement of the stacker reclaimer would be a fully custom-built requiring specialized design, engineering, construction and installation. Such work will likely require a lengthy time line, with current estimates in the 2-year ballpark. This is why we've worked so hard to establish a logistical framework that minimizes our disruption to our sales and logistics processes and allows us to keep coal moving to our customers while DTA addresses damage stacker reclaimer. This includes plan to also utilize our throughput capacity at the [indiscernible] terminal in addition to DTA. As evidenced by our more normalized third quarter shipment volumes, we are optimistic about our ability to move all the tons we need to in 2027 and beyond. As we look to next year, our guidance includes 3.5 million tons that we plan to sell to domestic customers in 2027 at an average price of $135.48 per ton. We're pleased to announce the results of the domestic negotiations, which are fixed price annual contracts. Each year's negotiation is a little different depending on the market backdrop and a variety of factors. For example, [indiscernible] made up a greater proportion of our 2027 domestic quality mix than in 2026, which influences the average price achieved in the total domestic book. All in all, we're pleased with these commitments, and we look forward to building the rest of our 2027 sales around opportunities in the [indiscernible] market. As usual, our teams are doing great work throughout the Alpha organization, and several operations have received recognition for their ethics. On the environmental front, our Paramount team in Virginia was recently honored with 3 excellence in mining awards, from the Metallurgical Coal Producers Association. Virginia Energy also awarded them with 3 safety awards at their recent ceremony. Both of Alpha's mine rescue teams continue stacking wins as well, including first and second place finishes across many categories of competition in the National Mine Rescue Contest held in August. We're extremely proud of our Paramount team that earned the top honor of National Grand Champion this year, with a perfect score for the competition. These monitors continually train, practice and challenge themselves so they're prepared to respond on when their skills are needed. So congratulations to all of those team members. I'll now turn the call over to Todd for a review of our financial results for the third quarter.

Thanks, Andy. Good morning, everyone. Adjusted EBITDA for the third quarter was $29.4 million, up from $25.6 million in the second quarter. We sold 3.9 million tons in Q3, up from 3.5 million tons in Q2. Met segment realizations increased quarter-over-quarter with an average realization of $121.9 in the third quarter compared to $118.71 in the second quarter. Export met tons priced against Atlantic indices and other pricing mechanisms in the third quarter realized $107.3 per ton while export coal priced on the Australian indices realized $150.46 per ton. These results are compared to realizations of $109.08 per ton, and $143.82 per ton, respectively, in the second quarter. The realization of our metallurgical sales in the third quarter was a total weighted average of $124.52 per ton, roughly flat against the second quarter average of $124.30 per ton. Realizations in the incidental thermal portion of the met segment were also essentially flat quarter-over-quarter at $79.44 per ton in Q3 compared to $79.36 per ton in Q2. Cost of coal sales for our met segment increased to $106.93 per ton in the third quarter, up from $103.7 per ton in the second quarter. SG&A, excluding noncash stock compensation and nonrecurring items, increased to $15 million in the third quarter compared to $13.7 million in the second quarter. Moving to the balance sheet and cash flows. As of September 30, we had $334.1 million in cash and cash equivalents as compared to $338.5 million of cash and short-term investments as of June 30. We had $184.3 million in unused availability under our ABL at the end of the third quarter, partially offset by a minimum required liquidity of $75 million. As of the end of September, Alpha had total liquidity of $443.4 million, down slightly from $447.8 million at the end of June. CapEx for the third quarter was $33.8 million, down from $45.1 million in Q2. Cash provided by operating activities was $46.9 million in the third quarter, up from $39.9 million in the second quarter. As of September 30, our ABL facility had no borrowings and $40.7 million of letters of credit outstanding. Looking ahead, we issued 2027 operational guidance this morning. For sales volumes, we expect to ship between 13.1 million and 14.1 million metallurgical tons as well as another 1.2 million to 1.6 million tons of incidental thermal coal, bringing total 2027 shipment expectations to a range of 14.3 million to 15.7 million tons for the year. For 2027 cost of coal sales, we are guiding to a range of $104 to $110 per ton. Selling, general and administrative costs are expected to be between $53 million and $59 million in 2027 excluding nonrecurring expenses and noncash stock compensation. Idle expense is expected to be between $25 million and $33 million. We anticipate 2027 net cash interest income of between $2 million and $4 million and depreciation, depletion and amortization of $148 million to $162 million. Capital expenditures, including carryover, development and maintenance capital, are expected to be in the range of $145 million to $165 million. Contributions to equity affiliates are expected to be in the range of $28 million to $37 million, which include cash contributions for DTA. Lastly, we are projecting a 2027 cash tax rate of between 0% and 5%. In terms of our committed position for 2026, at the midpoint of guidance, 87% of our metallurgical tonnage in the met segment is committed and priced at an average price of $126.69. Another 12% of our metallurgical tonnage for the year is committed, but not yet priced. The thermal byproduct portion of the met segment is fully committed and priced at the midpoint of guidance at an average price of $76.06. Coal markets remain subject to uncertainty and volatility resulting from geopolitical conflicts and global economic conditions. Improving indicators and manufacturing conditions across key alpha markets suggest that economic conditions are stable with almost all in growth territory. While global steel demand remains weak, supply-related factors, such as mine closure announcements, temporarily influenced metallurgical coal indices to rise toward the end of the third quarter with further volatility continuing after the quarter close. The Australian Premium Low-Vol Index increased from $244 per metric ton on July 1 to $272.10 per metric ton on September 30. The U.S. East Coast Low-Vol Index rose from $190 per metric ton at the beginning of the quarter to $210 per metric ton by the end of September. The U.S. East [indiscernible] Index increased from [ $157 ] per metric ton at the start of the quarter to $195 per metric ton at the quarter's close. In the U.S., East Coast High-Vol B Index rose from $147 per metric ton to $170 per metric ton at the end of the quarter. Since then, the Australian Premium Low-Vol Index has decreased from $262.20 per metric ton as of November 5, representing a drop of roughly 4% since quarter close. U.S. East Coast Low-Vol is unchanged from quarter close at $210 per ton. U.S. East Coast High-Vol A has declined about 3% to $190 per ton while High-Vol B has risen slightly to $174.50 per ton as of November 5. In the seaborne thermal market, the API2 index was $115.50 per metric ton at the beginning of July and increased to $141.40 per metric ton at the end of September. Since then, the API2 index has moved down to $136.30 per metric ton as of November 5. With that, operator, we are now ready to open the call for questions.

[Operator Instructions] Our first question comes from [ George Edie ] with UBS.

Can I ask on the cost front. So cash costs, I mean, 2% higher year-on-year midpoint, even if I adjust for marginally higher midpoint sales volume. Can you maybe just talk through what goes into that and sort of potential cost sensitivities for things like diesel? And I guess, it sort of seems like a very low year-on-year cost increase given a lot in this sector are talking about a lot of input and broader sort of cost pressures.

George, this is Andy. Appreciate the question. Yes, we're actually pretty pleased with where our cost guidance is coming out for next year, although it is up a bit. I mean we've really seen the vast majority of the input cost impacts have already found their way into the system for us. So again, we would hope that there would be some relief on the diesel side. Hopefully, that situation gets resolved sometime in the near future. And even then, it will take a while to work its way through the system. But we're not saying that the input cost increase is a flat line, but the rate of increase has tailed back quite a bit. And once you bake in the impact of the diesel and all the oil adjuncts, I think we're -- currently, our run rate is pretty well reflective of that. So next year, we don't see a material amount of increase from there. .

What diesel price did you assume in guidance for '27, Andy?

Off the top of my head, I don't know. Yes, I think it was low to mid-5s on a per gallon cost.

And then what's the sensitivity if you were to sort of estimate ballpark per ton on your cash cost on, like that went back to sort of, say, mid-3s, like what's the potential production cash cost?

Well, I'll leave you to do the math on that, but we do run in the low 20 million gallons of diesel across all operations, so 20 million to 22 million gallons. So you could figure what the sensitivity is at across all the tons. .

Okay. Yes, that's perfect. And then just one more. Sort of getting back to the 16 million ton per annum level, like can you talk through how that looks? And if DTA sort of being down for the 2-year ballpark, you go flagged the constraint? Or I guess another way of asking was if markets go a lot stronger next year, could you push beyond that 15.7 million upper end do you think? Or like what is the constraining limit the higher volumes for you guys at the moment?

Yes. I mean DTA, obviously, will be a constraint. Our sales and logistics team has done a really nice job, as I mentioned in the comments -- the prepared comments. They've done a nice job of finding flexibility and optionality with other export terminal access. So there will be a point in which we can't expand any further. I'm not going to throw out a number for that because, again, the team is pretty creative in finding new pass to get tons where we need them to go. But I think we're comfortable with our current run rate. I don't think there's a huge amount of upside to that. . And we're going to need the terminals to operate well. We're going to need the railroads to perform well to hit all of our numbers the way we want to, but I think we're going to be able to get there. And it's not going to look that different year-over-year comparing to 2026. From a quality perspective, it's going a little bit different because, again, we I think we are moving around in our -- or as has been our plan, we are shifting as a lot of the -- so we've been working on a multiyear plan to shift more of our production from higher rank coals, from the low-vol and mid-vol and a little bit less on the high vol. So that will continue to develop. But I think logistically, all of that fits pretty well into what we've got planned for 2027.

Our next question comes from Nick Giles with B. Riley.

Yes. It was good to hear that there's more high-vol coal in the domestic mix, which I assume it leaves more low vol coals to send into the seaboard market. So I was wondering if you could just quantify that mix shift, maybe how many incremental tons of low vol would you be able to send export next year?

Yes. Nick, I'll throw that one over to Dan. That one is definitely -- he's got the numbers at his fingertips there.

Thanks, Andy. Nick, well, let's start by saying that the high vol that moved into the domestic market, that's called it as a little -- let's say, a little lower value coal, and that was reflected in the overall comments that we have there in the pricing. But as we ramp up the low-vol mine -- our new vol cap mine, it's kind of dynamic. So what -- you can't really compare our portfolio in '26 to what it's going to look like in '27. So as vol cap camp up, we'll have more low vol available. And broadly speaking, that's at this moment, that's all available for the seaborne market, but we've added a lot of interest in the domestic market, too, as it ramps up. But I won't give you a number, but it's several hundred thousand tons at least that would be available to go seaborne easily as well as our usual mix of high vol and quite a bit of medium vol, which is always sought after. .