Contura Announces Second Quarter 2018 Results
BRISTOL, Tenn., August 16, 2018 – Contura Energy, Inc., a leading U.S. coal supplier, today reported results for the second quarter and year-to-date through June 30, 2018.
• Net Income from continuing operations of $75 million for the second quarter 2018 compared with $18 million in the same period last year
• Adjusted EBITDA of $86 million for the quarter compared with $73 million in the same period last year
• Merger with Alpha progressing with important milestones achieved; transaction expected to close before year-end, likely in early- to mid-fourth quarter
• Strong Trading and Logistics performance, increasing 2018 guidance to 5.6 million to 6.2 million tons
• Cumberland soft clay issue mitigated ahead of schedule; mine back to full operation
(millions, except per share)
|Three months ended June 30, 2018||Three months ended June 30, 2017||Six months ended June 30, 2018||Six months ended June 30, 2017|
|Net income per diluted share||$7.24||$1.69||$12.91||$4.57|
|Operating cash flow||$145.9||$44.0||$115.6||$186.2|
|Tons of coal sold||4.4||4.1||8.2||8.4|
1. Excludes discontinued operations.
2. From continuing operations.
3. These are non-GAAP financial measures. A reconciliation of Net Income to Adjusted EBITDA is included in tables accompanying the financial schedules.
4. Includes discontinued operations.
“Between another robust result from our Trading and Logistics segment and the continued progress we are making toward consummating our transaction with Alpha, this past quarter was a very productive one for Contura Energy,” said Kevin Crutchfield, chief executive officer. “I am proud of our teams across the organization for delivering an overall strong quarterly performance despite the headwinds we faced through the geologic challenges at Cumberland and a subpar rail performance that capped what could have been even greater returns from our export sales.”
Total revenues in the second quarter were $528.9 million. Coal revenues, excluding freight and handling fulfillment revenues, in the second quarter were $423.9 million, with Central Appalachia (CAPP) coal revenues accounting for $152.2 million, Trading and Logistics (T&L) accounting for $201.0 million, and Northern Appalachia (NAPP) coal revenues totaling $70.7 million. Comparatively, in the second quarter 2017, CAPP revenues were $111.2 million, T&L revenues were $179.3 million, and NAPP accounted for $77.3 million of the $367.9 million in total coal revenues.
CAPP coal shipments for the second quarter 2018 were 1.2 million tons at an average per-ton realization of $128.51, compared to 1.0 million tons at $112.37 per ton in the prior year second quarter. Contura shipped 1.6 million tons of NAPP coal during the quarter at an average per-ton realization of $44.98, down from 1.8 million tons at $42.08 per ton in the second quarter 2017. As previously announced, NAPP volumes in the quarter were impacted by geologic conditions including a reduced coal seam thickness and localized soft clay issues. 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 second quarter 2018, while the average T&L realization decreased from $138.97 per ton to $123.39 per ton during the same period.
Freight and handling fulfillment revenues and other revenues in the second quarter 2018 were $101.3 million and $3.8 million, respectively, compared with $69.7 million and $2.1 million, respectively, in the prior year period.
Total costs and expenses during the second quarter 2018 were $444.2 million and cost of coal sales was $331.6 million, compared with $406.6 million and $286.9 million, respectively, in the same period a year ago. Total expenses were negatively impacted by approximately $5.8 million in net demurrage costs due to poor rail service throughout the quarter, affecting primarily export met shipments. The cost of coal sales in CAPP for the quarter averaged $75.93 per ton, up from $73.13 in the prior year period. The CAPP cost includes $1.12 per ton in idle costs. NAPP costs at $40.95 per ton were impacted by the aforementioned geologic conditions experienced during the quarter, which reduced production volume. NAPP costs included idle costs of $0.96 per ton. In the year ago period, NAPP cost of coal sales averaged $33.01 per ton. In the T&L segment, the cost of coal sales during the second quarter 2018 was $108.85 per ton versus $119.03 per ton in the second quarter 2017.
Selling, general and administrative (SG&A) expenses for the second quarter 2018 were $12.0 million, down from $26.3 million in the year ago period. The year ago period included approximately $12.0 million in expenses related to the special dividend, business development expenses, and costs related to the company’s filing of a registration statement with the SEC. Included in the SG&A costs for the second quarter 2018 are approximately $1.8 million in non-cash stock compensation and accrued expenses of $2.5 million related to incentive bonus plans. Depreciation, depletion and amortization was $11.2 million during the second quarter and amortization of acquired intangibles was $1.1 million, compared with $8.9 million and $14.6 million respectively, in the same period last year, excluding discontinued operations.
Contura reported net income from continuing operations of $74.6 million, or $7.24 per diluted share, for the second quarter 2018. In the second quarter 2017, the company had net income from continuing operations of $18.4 million or $1.69 per diluted share.
Total Adjusted EBITDA was $86.1 million for the second quarter, compared with $73.1 million in the prior year quarter, adjusted to remove the impact of discontinued operations.
Liquidity and Capital Resources
Cash provided by operating activities, including discontinued operations, for the second quarter 2018 was $145.9 million and capital expenditures for the second quarter was $18.9 million. As expected, working capital provided significant cash in the second quarter, including $60.0 million from accounts receivable and $22.2 million from reduced inventories, offset by $15.6 million used in accounts payable. In the prior year period, the cash provided by operating activities was $44.0 million and capital expenditures were $18.6 million. Capital expenditures of $4.0 million from discontinued operations are excluded from the prior year total.
At the end of June 2018, Contura had $199.3 million in unrestricted cash. Total long-term debt, including the current portion of long-term debt as of June 30, 2018, was approximately $367.1 million. At the end of the quarter, the company had total liquidity of $314.4 million, including cash and cash equivalents of $199.3 million and $115.1 million of unused commitments available under the Asset-Based Revolving Credit Facility. As of June 30, 2018, the company had no borrowings and $9.9 million letters of credit outstanding under the Asset-Based Revolving Credit Facility.
Alpha Merger Update
On April 30, 2018, the company jointly announced a definitive merger agreement with ANR, Inc. and Alpha Natural Resources Holdings, Inc. (together, “Alpha”), which is expected to create the largest metallurgical coal supplier in the U.S. complemented by a cost-competitive thermal coal portfolio.
Since the merger announcement, several key milestones have been achieved. On July 2, 2018, Contura and Alpha received early termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). The company also announced on July 16, 2018 that Contura had filed a confidential registration statement on form S-4 with the U.S. Securities and Exchange Commission (SEC).
The transaction is expected to close prior to year-end 2018, likely in early- to mid-fourth quarter. As previously indicated, the merger is expected to generate synergies in the range of $30 million to $50 million annually.
For additional information regarding the transaction, see the presentation titled “Contura + Alpha: Transformative Combination” at www.conturaenergy.com/financials.
Other Business Updates
On July 2, 2018, the company announced an updated 2018 production outlook for the Cumberland mine, its longwall thermal coal mine located in NAPP. Due to unforeseen geologic conditions including reduced coal seam thickness and localized soft clay influences within the coal seam, both production and processing were temporarily slowed. Full coal production resumed August 1, 2018 at the Cumberland mine as the previously announced challenges due to localized geologic conditions are no longer impacting production or processing.
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 reclamation bonds required to effectuate the permit transfer for those properties have since been submitted to the state of Wyoming by Blackjewel L.L.C. and, along with the permit transfer applications, are under review by the Wyoming Attorney General and the Wyoming Department of Environmental Quality.
2018 Full-Year Guidance
None of the guidance ranges described herein include any potential effects of the transaction with Alpha, which is expected to close prior to year-end 2018.
The company expects total 2018 coal shipments to be 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 and guidance for the T&L segment is increased to 5.6 million to 6.2 million tons from a range of 5.0 million to 5.6 million tons. As previously announced, NAPP shipments, sold primarily into thermal markets, are now anticipated to be between 6.1 million and 6.5 million tons in 2018.
As of July 31, 2018, 68% of the midpoint of anticipated 2018 CAPP coal shipments were committed and priced at an average expected per-ton realization of $131.48, with an additional 18% committed and either unpriced or priced based on various indices. Based on the midpoint of guidance, 100% of anticipated 2018 NAPP coal shipments were committed and priced at an average expected per-ton realization of $43.71.
Contura is maintaining its previously announced guidance for 2018 CAPP cost of coal sales per ton of $70.00 to $75.00. As recently updated, NAPP cost estimates are projected to be between $35.00 to $38.00 per ton due to unexpected geologic conditions that temporarily impacted both production and processing. 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 $9 to $15 per ton for the full-year 2018.
As previously announced, 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 increased to a range of $72 million to $82 million, due primarily to additional capitalization of development work in NAPP while the longwall was idled and the company’s strategic decision to convert a CAPP mine from a third-party contract operation to a company-operated mine. 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.
|in millions of tons||Low||High|
|Contura Trading & Logistics||5.6||6.2|
|Costs per ton||Low||High|
|Margin per ton||Low||High|
|Contura Trading & Logistics||$9||$15|
|In millions (except taxes)||Low||High|
|Idle Operations Expense||$10||$12|
|Cash Interest Expense||$25||$27|
1. Based on committed and priced coal shipments as of July 31, 2018. Committed percentage based on the midpoint of shipment guidance range.
2. Actual average per-ton realizations on committed and priced tons recognized in future periods may vary based on actual freight expense in future periods relative to assumed freight expense embedded in projected average per-ton realizations.
3. Includes estimates of future coal shipments based upon contract terms and anticipated delivery schedules. Actual coal shipments may vary from these estimates.
4. CAPP committed tons and price information represent captive Contura production and does not include Trading and Logistics.
5. Excludes expenses related to non-cash stock compensation, accrual of incentive bonus and non-recurring business development expenses.
ABOUT CONTURA ENERGY
Contura Energy is a private, Tennessee-based coal supplier with affiliate mining operations across major coal basins in Pennsylvania, Virginia and West Virginia. With customers across the globe, high-quality reserves and significant port capacity, Contura Energy reliably supplies both metallurgical coal to produce steel and thermal coal to generate power. For more information, visit www.conturaenergy.com.
ADDITIONAL INFORMATION FOR INVESTORS
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction. BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO READ THE FORM S-4 AND THE JOINT PROXY STATEMENT AND PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. The joint proxy statement and prospectus, as well as other filings containing information about Contura and Alpha will be available without charge at the SEC’s Internet site (www.sec.gov). Copies of the joint proxy statement and prospectus can also be obtained, when available, without charge, from Contura’s website at www.conturaenergy.com. Copies of the joint proxy statement can be obtained, when available, without charge, from Alpha’s website at www.alphanr.com.
For additional financial information about Contura, please visit www.conturaenergy.com/financials.
This news release includes forward-looking statements. These forward-looking statements are based on Contura’s expectations and beliefs concerning future events and involve risks and uncertainties that may cause actual results to differ materially from current expectations. These factors are difficult to predict accurately and may be beyond Contura’s control. Forward-looking statements in this news release or elsewhere speak only as of the date made. New uncertainties and risks arise from time to time, and it is impossible for Contura to predict these events or how they may affect Contura. Except as required by law, Contura has no duty to, and does not intend to, update or revise the forward-looking statements in this news release or elsewhere after the date this release is issued. In light of these risks and uncertainties, investors should keep in mind that results, events or developments discussed in any forward-looking statement made in this news release may not occur.
FINANCIAL TABLES FOLLOW
Use of Non-GAAP Measures
In addition to the results prepared in accordance with generally accepted accounting principles in the United States (GAAP) provided throughout this press release, Contura has presented the following non-GAAP financial measure: Adjusted EBITDA. The company uses Adjusted EBITDA to measure the operating performance of its segments and allocate resources to the segments. This non-GAAP financial measure excludes various items detailed in the attached reconciliation tables.
The definition of this non-GAAP measure may be changed periodically by management to adjust for significant items important to an understanding of operating trends. This measure is not intended to replace financial performance measures determined in accordance with GAAP. Rather, it is presented as a supplemental measure of the company’s performance that management finds useful in assessing the company’s financial performance and believes is useful to securities analysts, investors and others in assessing the company’s performance over time. Moreover, this measure is not calculated identically by all companies and therefore may not be comparable to similarly titled measures used by other companies.
CONTURA ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
CONTURA ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(Amounts in thousands, except share and per share data)
CONTURA ENERGY, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Amounts in thousands)
CONTURA ENERGY, INC. AND SUBSIDIARIES ADJUSTED EBITDA RECONCILIATION
(Amounts in thousands)
CONTURA ENERGY, INC. AND SUBSIDIARIES RESULTS OF OPERATIONS
(Amounts in thousands, except per ton data)