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Signature Sponsor
November 15, 2018 - Contura Energy, Inc. (NYSE: CTRA), a leading U.S. coal supplier, has reported results for the third quarter and year-to-date through September 30, 2018.
Highlights include:
"Beyond delivering another positive quarter, largely supported through continued success of our robust export platform, we are very pleased to have brought to a successful completion both the merger with Alpha and the refinancing of our term loans. These actions provide our company the scalability, both operationally and financially, to continue to thrive and return meaningful value to our shareholders," said Kevin Crutchfield, chief executive officer. "Our focus will now shift to achieving the operational, marketing and cost synergies we have targeted through this transaction and I am confident that we have the right team in place to complete the integration efficiently."
Financial Performance
Total revenues in the third quarter were $447.9 million. Coal revenues in the third quarter, excluding freight and handling fulfillment revenues, were $352.0 million, with Central Appalachia (CAPP) coal revenues accounting for $115.1 million, Trading and Logistics (T&L) accounting for $177.8 million, and Northern Appalachia (NAPP) coal revenues totaling $59.1 million. Comparatively, in the third quarter 2017, CAPP revenues were $108.6 million, T&L revenues were $144.9 million, and NAPP revenues were $65.7 million of the $319.2 million in total coal revenues.
CAPP coal shipments for the third quarter 2018 were 1.0 million tons at an average per-ton realization of $116.62, compared to 1.0 million tons at $105.86 per ton in the prior year third quarter. Contura shipped 1.3 million tons of NAPP coal during the quarter at an average per-ton realization of $44.88, down from 1.5 million tons at $44.57 per ton in the third quarter 2017. As previously announced, NAPP volumes in the quarter were impacted by geologic conditions, including a period of reduced coal seam thickness and localized soft clay issues, which have been resolved. In the T&L segment, coal volumes increased from 1.3 million tons in the prior year period to 1.6 million tons in the third quarter 2018, while the average T&L realization increased marginally from $112.48 per ton in the prior year's third quarter to $112.81 per ton during third quarter 2018.
Freight and handling fulfillment revenues and other revenues in the third quarter 2018 were $91.0 million and $4.9 million, respectively, compared with $61.5 million and $1.9 million, respectively, in the prior year period.
Total costs and expenses during the third quarter 2018 were $424.0 million and cost of coal sales was $307.7 million, compared with $372.6 million and $270.8 million, respectively, in the same period a year ago. The cost of coal sales in CAPP for the quarter averaged $86.38 per ton, up from $74.02 in the prior year period. CAPP costs include $1.04 per ton in idle costs. The main drivers of increased costs versus expectations were incremental use of purchased coal, which increased the cost of coal sales per ton by approximately $3.50, and higher supply costs, which increased costs by approximately $2.00 per ton. Also, higher sales-related costs resulting from strong metallurgical coal realizations continued to contribute to higher costs per ton.
NAPP costs at $46.37 per ton were impacted by the aforementioned geologic conditions experienced during the quarter and a longwall move in September, both of which reduced production volume. NAPP costs include idle costs of $1.31 per ton. In the year ago period, NAPP cost of coal sales averaged $44.51 per ton. In the T&L segment, the cost of coal sales during the third quarter 2018 was $102.42 per ton versus $100.45 per ton in the third quarter 2017.
Selling, general and administrative (SG&A) expenses for the third quarter 2018 were $12.4 million, down from $15.9 million in the year ago period. The year-ago period included approximately $5.0 million in non-cash stock compensation and $1.7 million in charges related to the company's incentive plan. Included in the SG&A costs for the third quarter 2018 are approximately $1.8 million in non-cash stock compensation and accrued expenses of $2.7 million related to incentive bonus plans. Depreciation, depletion and amortization was $11.1 million during the third quarter 2018 and amortization of acquired intangibles was $1.2 million, compared with $7.5 million and $14.9 million, respectively, in the same period last year, excluding discontinued operations.
Contura reported net income from continuing operations of $14.0 million, or $1.35 per diluted share, for the third quarter 2018. In the third quarter 2017, the company had net income from continuing operations of $9.7 million or $0.89 per diluted share.
Total adjusted EBITDA was $38.8 million for the third quarter, compared with $41.5 million in the prior year quarter, adjusted to remove the impact of discontinued operations.
Liquidity and Capital Resources
Cash provided by operating activities for the third quarter 2018, including discontinued operations, was $60.7 million and capital expenditures for the third quarter were $18.4 million. In the prior year period, the cash provided by operating activities was $73.7 million and capital expenditures were $17.8 million. Capital expenditures of $3.1 million from discontinued operations are excluded from the prior year total.
At the end of September 2018, Contura had $238.1 million in unrestricted cash. Total long-term debt, including the current portion of long-term debt as of September 30, 2018, was approximately $366.6 million. At the end of the quarter, the company had total liquidity of $334.4 million, including cash and cash equivalents of $238.1 million and $96.3 million of unused commitments available under the Asset-Based Revolving Credit Facility. As of September 30, 2018, the company had no borrowings and $28.7 million in letters of credit outstanding under the Asset-Based Revolving Credit Facility.
On November 9, 2018, the merger between Contura Energy and ANR, Inc. and Alpha Natural Resources Holdings, Inc. (together, "Alpha") was completed, creating the largest metallurgical coal supplier in the U.S. complemented by a cost-competitive thermal coal portfolio.
In conjunction with the transaction closing, Contura shares were listed and began trading on the New York Stock Exchange (NYSE) under the symbol "CTRA." Concurrently, the company refinanced its and legacy Alpha's term loans with a new $550 million, 7-year term loan credit facility. The interest rate will be LIBOR plus 500bps. In addition, the company upsized its asset-backed revolving credit facility from $125 million to $225 million.
As previously announced, the merger is expected to generate synergies in the range of $30 million to $50 million annually.
Other Business Updates
On December 11, 2017, the company announced that its wholly-owned subsidiary, Contura Coal West, LLC, completed a transaction to sell the Eagle Butte and Belle Ayr mines in Wyoming, along with related coal reserves, equipment, infrastructure and other real properties, to Blackjewel L.L.C. The public comment period for the permits is currently in process, and the final transfer is expected to be completed prior to year-end 2018.
2018 Full-Year Guidance
None of the guidance ranges described herein include any effects of the transaction with Alpha, which closed on November 9, 2018. We expect to provide full-year 2019 guidance for the combined company in early 2019.
The company expects total 2018 coal shipments to be unchanged in the range of 15.4 million to 16.8 million tons. CAPP metallurgical coal guidance remains at 3.7 million to 4.1 million tons with the T&L segment remaining at 5.6 million to 6.2 million tons. NAPP shipments are expected to be between 6.1 million and 6.5 million tons in 2018.
As of October 25, 2018, 85% of the midpoint of anticipated 2018 CAPP coal shipments were committed and priced at an average expected per-ton realization of $130.13, with the remaining 15% committed and priced based on various indices. Based on the midpoint of guidance, 90% of anticipated 2018 NAPP coal shipments were committed and priced at an average expected per-ton realization of $44.45.
Contura is increasing guidance for 2018 CAPP cost of coal sales per ton to $77.00 to $81.00 to account for increased purchase coal tons and continued strength in the metallurgical coal markets leading to higher realizations and subsequently higher sales related expenses than originally anticipated. NAPP cost estimates remain in the range of $35.00 to $38.00 per ton. Additionally, costs related to the company's idle operations are expected to be between $10 million and $12 million for the full-year 2018.
The margin from Contura's T&L platform is expected to average between $9 to $15 per ton for the full-year 2018.
Contura's SG&A guidance is estimated at $32 million to $36 million, excluding one-time and non-recurring items, annual incentive bonuses and stock compensation. Capital expenditure guidance is unchanged in the range of $72 million to $82 million. Depreciation, depletion and amortization for 2018 is expected to be between $40 million and $50 million. The company expects 2018 cash interest expense to be between $25 million and $27 million. |
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