August 4, 2022 - Warrior Met Coal, Inc. (NYSE: HCC) (“Warrior” or the “Company”) today announced results for the second quarter of 2022. 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 second quarter of 2022 of $297.0 million, or $5.74 per diluted share, the Company's third consecutive quarter of record quarterly net income and earnings per share, in over three years. This compares to a net loss of $4.7 million, or $0.09 per diluted share, in the second quarter of 2021. Adjusted net income per share for the second quarter of 2022 was $5.87 per diluted share, an all-time record high, compared to adjusted net income per share of $0.25 per diluted share in the second quarter of 2021. The Company reported Adjusted EBITDA of $431.2 million in the second quarter of 2022, an all-time record quarterly high, compared to Adjusted EBITDA of $65.2 million in the second quarter of 2021.
“We continue to realize the benefits of our premium met coal assets and efficient business model, setting new quarterly records in a number of different financial metrics, including revenue, adjusted net income and cash flow from operations,” commented Walt Scheller, CEO of Warrior. “Our mining capabilities and assets, combined with our strategically accumulated inventory, enabled us to take advantage of the macro tailwinds this quarter, capturing strong demand from customers in what has been a high, albeit volatile, pricing environment. We are particularly proud of our ability to manage through shipment delays relating to port maintenance, the lack of available rail transportation and port congestion as well as the impact of significant inflation on costs to deliver these results.”
“With our business having shown the ability to take advantage of strong pricing cycles and also withstand turbulent economic periods with disciplined expense management, we are well-positioned, despite global headwinds, heading into the second half of the year.”
The Company produced 1.7 million short tons of met coal in the second quarter of 2022 compared to 1.2 million short tons in the second quarter of 2021. The tons of met coal produced in the second quarter of 2022 were the result of running two longwalls and five continuous miner units at Mine No. 7 and one longwall and three continuous miner units at Mine No. 4. Sales volume in the second quarter of 2022 was 1.5 million short tons compared to 1.8 million short tons in the second quarter of 2021. Inventory levels rose to 735 thousand short tons at the end of June 30, 2022 from the 601 thousand short tons at the end of March 31, 2022 primarily due to shipment delays resulting from port maintenance, lack of railcar availability and port congestion in the second quarter.
Additional Financial Results
Total revenues were $625.2 million for the second quarter of 2022, including $623.3 million in mining revenues, which consisted of met coal sales of 1.5 million short tons at an average net selling price of $403.95 per short ton, net of demurrage and other charges. This compares to total revenues of $227.4 million in the second quarter of 2021. The average net selling price of the Company's met coal increased 227% from $123.36 per short ton in the second quarter of 2021 to $403.95 per short ton in the second quarter of 2022. The year-over-year increase in revenues is primarily attributed to improved met coal pricing, partially offset by lower sales volume and higher demurrage and other charges.
Cost of sales for the second quarter of 2022 were $191.1 million compared to $152.8 million for the second quarter of 2021. Cash cost of sales (including mining, transportation and royalty costs) for the second quarter of 2022 were $189.8 million, or 30.5% of mining revenues, compared to $151.8 million, or 67.5% of mining revenues in the same period of 2021. Cash cost of sales (free-on-board port) per short ton increased to $123.03 in the second quarter of 2022 from $83.30 in the second quarter of 2021, reflecting a 227% increase in average net selling prices and its effect on Warrior's variable cost structure, primarily for wages, transportation and royalties, plus the impact of inflation. Transportation and royalty costs increased 140% in the second quarter of 2022 compared to the same period last year due to the higher met coal average net selling prices. Inflation accounted for an approximately $4 per short ton impact during the second quarter of 2022 due to increases in the costs of diesel, fluids, belt structure, roof bolts, cable, magnetite, rock dust and other supplies, plus labor and parts on repair and rebuilds.
Selling, general and administrative expenses for the second quarter of 2022 were $12.5 million, or 2.0% of total revenues and were higher than the same period last year driven by the acceleration of stock compensation expense for retirement eligible employees and a 40% higher stock price than last year. Depreciation and depletion expenses for the second quarter of 2022 were $30.4 million, or 4.9% of total revenues and were lower than the prior year comparable quarter due to lower sales volume. Warrior incurred net interest expense of $7.2 million during the second quarter of 2022, which was lower than the same quarter last year primarily due to a decrease in interest on our outstanding notes combined with an increase in interest income.
Business interruption expenses were $6.3 million and represent non-recurring expenses that are directly attributable to the ongoing labor strike for incremental safety and security, labor negotiations and other expenses. Idle mine expenses were $1.7 million and represent expenses incurred with reduced operations at Mine No. 4, such as electricity, insurance and maintenance labor.
Income tax expense was $68.4 million in the second quarter of 2022, which was higher than last year primarily as a result of the higher income before income taxes this quarter, which totaled $365.3 million. This expense primarily reflects the utilization of net operating losses which resulted in no cash taxes paid during the second quarter of 2022.
Cash Flow and Liquidity
The Company generated record cash flows of $329.6 million from operating activities in the second quarter of 2022, compared to $68.7 million in the second quarter of 2021. Capital expenditures for the second quarter of 2022 were $79.4 million. Free cash flow was $250.2 million in the second quarter of 2022, an all-time record, and was $196.8 million better than the second quarter of 2021. The increase primarily reflects higher realized prices, partially offset by lower sales volume.
Net working capital, excluding cash, for the second quarter of 2022 increased by $66.8 million from the first quarter of 2022, primarily reflecting an increase in trade accounts receivables due to higher prices and the timing of sales, combined with an increase in inventories due to strong production and shipment delays.
Cash flows used in financing activities for the second quarter of 2022 were $35.9 million, primarily due to the payment of regular quarterly and special dividends of $29.0 million and principal repayments of financing lease obligations of $6.9 million.
The Company’s total liquidity as of June 30, 2022 was $768.1 million, a record high, consisting of cash and cash equivalents of $644.8 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 August 1, 2022, the board of directors declared a regular quarterly cash dividend of $0.06 per share, totaling approximately $3.1 million, which will be paid on August 18, 2022, to stockholders of record as of the close of business on August 11, 2022.
In addition, on August 1, 2022, the Board declared a special cash dividend (the "August 2022 Special Dividend") of $0.80 per share of Warrior's common stock, par value $0.01 per share, to be paid on August 29, 2022, to stockholders of record as of the close of business on August 22, 2022. This represents the second special dividend in 2022 as the Company continues to demonstrate its previously stated commitment to returning cash to stockholders while driving long-term growth with its investment in the development of its Blue Creek reserves.
Any future special dividends or stock repurchases from excess cash flows will be at the discretion of the Company's board of directors 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.
Warrior updated its guidance for the full year 2022 as indicated below.
Key factors that may affect outlook include:
The Company's guidance for its capital expenditures consists of sustaining capital spending of approximately $75 - $80 million, including regulatory and gas requirements, and discretionary capital spending of $110 - $120 million for the 4 North portal construction, deposits on two new sets of longwall shields and the development of the Blue Creek project for which the Company has budgeted $45 million for 2022.
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