Yesterday, Warrior Met Coal, Inc. (Warrior) reported results for the third quarter of 2018, ended 30 September. Warrior is the leading dedicated US-based producer and exporter of high quality metallurgical (met) coal for the global steel industry.
Warrior reported third quarter 2018 net income of US$52.6 million, or US$1.00 per diluted share, compared to third quarter 2017 net income of US$119.7 million, or US$2.27 per diluted share, which included a US$37.6 million, or US$0.71 per diluted share, income tax benefit reflecting the impact of the favorable Internal Revenue Service Private Letter Ruling the company received in the third quarter of 2017. Excluding one-time transaction and other expenses, adjusted earnings per share for this quarter were $1.06 per diluted share. The company reported Adjusted EBITDA of US$94.1 million for the third quarter 2018 compared to Adjusted EBITDA of US$107.3 million in 3Q17.
Year-to-date, Warrior reported net income of US$322.6 million, or US$6.09 per diluted share, compared to net income of US$357.9 million, or US$6.79 per diluted share, in the same period of 2017. Excluding one-time transaction and other expenses, adjusted earnings per share year-to-date were US$6.30 per diluted share compared to the same period in 2017 of US$7.03 per diluted share. Year-to-date Adjusted EBITDA was US$439.4 million compared to US$431.4 million in the same period of 2017.
“The market for high quality premium met coal remained strong in the third quarter, with robust customer demand continuing to be supported by steel production in our key markets,” commented Walt Scheller, CEO of Warrior.
“Warrior is performing in line with our increased guidance for the year as we continue to benefit from a price environment supported by a tight supply/demand balance and favorable Chinese policies. With the recent successful completion of two scheduled longwall moves, our success in maintaining high levels of production during this time was the result of good planning, preparation, communication, and outstanding work by our employees.”Operating Results
The company produced 1.8 million short t of metallurgical coal in 3Q18, compared to 1.6 million short t produced in 3Q17. Production levels were reduced somewhat as a result of two longwall moves, both of which were completed slightly better than expected and on schedule. The company continues to make good progress toward its nameplate annual capacity of 8 million short t. In the first nine months of the year, the company produced 5.8 million short t of metallurgical coal.Total revenues were US$273.3 million for the third quarter of 2018, including US$264.9 million in mining revenues, which consisted of metallurgical coal sales of 1.7 million short t at an average net selling price of US$159 per short t, net of demurrage and other charges.
Average net selling price rose 10.2% compared to the third quarter of 2017, reflecting the strength of the prevailing market conditions. Warrior capitalised on the strong pricing environment in the quarter by achieving a gross price realisation of 97% which was lower compared to prior periods primarily due to a rising price environment. Beginning in the first quarter of 2018, the company’s gross price realisation has been calculated as a volume weighted-average of its daily realised price per tonne based on gross sales, which excludes demurrage and other charges, as a percentage of the Platts Premium Low Volatility (LV) Free-On-Board (FOB) Australia Index price (the Platts Index).
Cost of sales for the third quarter of 2018 were US$167.2 million, or 63.1% of mining revenues, and included mining costs, transportation and royalty costs. Mining costs were lower in the third quarter of 2018 than the same period last year primarily due to a decrease in met coal sales of 0.4 million short t and the port of Mobile (Alabama) being closed for approximately three days due to Tropical Storm Gordon. Selling, general and administrative expenses for the third quarter of 2018 were US$7.4 million, or 2.7% of total revenues, which were US$1.9 million less than the same period last year. Transaction and other expenses were US$3.3 million in the third quarter of 2018 and were related to the completion of a secondary offering of common stock by certain existing stockholders. Depreciation and depletion costs for the third quarter of 2018 were US$26.1 million, or 9.5% of total revenues. Warrior incurred interest expense of US$10.1 millionduring the third quarter of 2018. The company did not incur any income tax expense for the third quarter of 2018 due to its planned utilisation of net operating losses (NOLs).
Cash flow and liquidity
The company continued to generate strong cash flows from operating activities in the third quarter of 2018 of US$102.3 million, compared to US$116.1 million in the third quarter of 2017. Net working capital, excluding cash, decreased by US$21.2 million from the second quarter of 2018, primarily due to higher accrued expenses associated with interest on its US$475.0 million in aggregate principal amount of 8.00% Senior Secured Notes due 2024 (the Notes) and lower accounts receivable on lower sales volumes. Capital expenditures for the third quarter of 2018 were US$24.2 million, resulting in free cash flow of US$78.2 million. The company’s available liquidity as of 30 September 2018 was US$225.6 million, consisting of cash and cash equivalents of US$130.2 million and US$95.4 million of available borrowings under its asset-based revolving credit agreement, net of outstanding letters of credit of US$4.6 million.
Read the article online at: https://www.worldcoal.com/coal/01112018/warrior-met-coal-shares-3q18-results/