November 2, 2023 - Warrior Met Coal, Inc. (NYSE: HCC) ("Warrior" or the "Company") has announced results for the third quarter of 2023. Warrior is the leading dedicated U.S.-based producer and exporter of high-quality steelmaking coal for the global steel industry.
Warrior reported net income for the third quarter of 2023 of $85.4 million, or $1.64 per diluted share, a decrease from net income of $98.4 million, or $1.90 per diluted share, in the third quarter of 2022. Adjusted net income per share for the third quarter of 2023 was $1.85 per diluted share compared to adjusted net income per share of $2.10 per diluted share in the third quarter of 2022. The Company reported Adjusted EBITDA of $145.8 million in the third quarter of 2023 compared to Adjusted EBITDA of $171.6 million in the third quarter of 2022. Warrior’s quarterly sales volumes rose 51% to 2.3 million short tons and the Company produced 1.9 million short tons.
"As evidenced by our sales volumes, demand for shipments from our global contracted steelmaking customers as well as for spot cargoes from Asia was strong," commented Walt Scheller, CEO of Warrior. "We continued to see improved performance from our transportation partners and at the McDuffie Terminal, which allowed us to ship more volume and reduce our excess inventory. Warrior has had a larger ratio of spot volume this quarter, mainly due to the end of the strike and the quality change at Mine 4. Normally, we sell most of our spot volumes into our natural markets of Europe and South America, but both regions have offered a limited number of spot transactions this year. As such, Warrior has directed the majority of its spot business to China, India and other South Asian countries. However, our average net selling price was impacted by the freight differentials associated with the Pacific Basin, and in particular China, additionally impacted by the negative arb in relation to the PLB FOB Australia.
"We believe the rapid and steep rise in the PLV Index price is based upon strong demand from China and India, supply disruptions out of Australia, specifically for premium hard coking coals, and a severe lack of liquidity supporting the inadequate index system.
"Also of note, we successfully executed tender offers for our senior secured notes as part of our ongoing commitment to effectively manage our balance sheet. By taking advantage of favorable market conditions, we reduced our leverage by $146.1 million, or nearly 50%, enhancing our already strong debt to equity ratio," Mr. Scheller concluded.
Additional Financial Results
Cost of sales for the third quarter of 2023 were $260.4 million compared to $203.4 million for the third quarter of 2022. Cash cost of sales (free-on-board port) for the third quarter of 2023 were $258.8 million, or 62% of mining revenues, compared to $202.0 million, or 54% of mining revenues in the same period of 2022. Cash cost of sales (free-on-board port) per short ton decreased to $114.66 in the third quarter of 2023 from $134.78 in the third quarter of 2022, primarily attributable to a decrease in average net selling prices and its effect on Warrior's variable cost structure, primarily for wages, transportation and royalties. Those decreases were offset partially by additional employee-related costs associated with a 44% increased headcount, which primarily comprised of the returning employees from the labor strike.
Selling, general and administrative expenses for the third quarter of 2023 were $11.1 million, or 2.6% of total revenues and were slightly higher than the same period last year due to higher employee-related costs.
Depreciation and depletion expenses for the third quarter of 2023 were $34.0 million, or 8.0% of total revenues and were flat on a percentage basis with the prior year comparable quarter. Warrior recorded net interest income of $7.3 million during the third quarter of 2023, which compares to net interest expense in the prior year of $5.7 million. Interest income earned on our cash investments in the current quarter exceeded interest expense on our outstanding notes and equipment leases.
Business interruption expenses were $0.3 million in the third quarter, representing ongoing legal expenses associated with labor negotiations. In the prior year comparable quarter, these expenses represent non-recurring expenses for incremental safety, security, legal and labor negotiations and other expenses that were directly attributable to the labor strike.
The loss on early extinguishment of debt of $11.7 million resulted from the extinguishment of $146.1 million of our 7.875% Senior Secured Notes due 2028 ("Notes") from the Restricted Payment Offer (as defined below) and Concurrent Tender Offer (as defined below) that concluded in September. The loss represents the premiums paid to retire the debt, accelerated amortization of debt discount, and fees incurred in connection with the transaction.
Income tax expense was $16.8 million in the third quarter of 2023 on income of $102.2 million primarily driven by an income tax benefit for depletion expense and foreign-derived intangible income.
Cash Flow and Liquidity
Net working capital, excluding cash, for the third quarter of 2023 increased by $8.8 million from the second quarter of 2023, primarily reflecting higher trade accounts receivable due to higher sales volumes and the timing of sales partially offset by the draw down of inventories.
Cash flows used in financing activities for the third quarter of 2023 were $166.8 million, primarily due to the retirement of debt and related fees in connection with the consummation of the Restricted Payment Offer and Concurrent Tender Offer of $154.4 million, principal repayments of financing lease obligations of $8.8 million and the payment of the regular quarterly dividend totaling $3.7 million.
The Company’s total liquidity as of September 30, 2023 was $810.1 million, consisting of cash and cash equivalents of $686.8 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.
Restricted Payment Offer and Concurrent Tender Offer
The financial result of the Offers was the early extinguishment of debt of $146.1 million and a loss on the early extinguishment of debt of $11.7 million. In addition, the Company will have the ability from time to time to make one or more restricted payments in the form of special dividends to holders of the Company's common stock and/or repurchases of the Company's common stock in the aggregate amount of up to $299.9 million consistent with the terms of the Capital Allocation Policy adopted by our Board of Directors (the "Board"). Any future special dividends or stock repurchases from excess cash flows will be at the discretion of the Board and subject to a number of factors including business and market conditions, future financial performance and other strategic investment opportunities.
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