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Aug. 4, 2021, 4:50 p.m. EDT

10-Q: WARRIOR MET COAL, INC.

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(EDGAR Online via COMTEX) -- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis provides a narrative of our results of operations and financial condition for the three and six months ended June 30, 2021 and June 30, 2020. You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing in this Form 10-Q and the audited financial statements for the year ended December 31, 2020 included in our Annual Report on Form 10-K for the year ended December 31, 2020 (the "2020 Annual Report"). Some of the information contained in this discussion and analysis or set forth elsewhere in this Form 10-Q, including information with respect to our plans and strategy for our business and related financing, includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results could differ materially from the results described in, or implied by, the forward-looking statements contained in the following discussion and analysis. Please see "Forward-Looking Statements." Overview

We are a U.S. based, environmentally and socially minded supplier to the global steel industry. We are dedicated entirely to mining non-thermal met coal used as a critical component of steel production by metal manufacturers in Europe, South America and Asia. We are a large-scale, low-cost producer and exporter of premium met coal, also known as hard coking coal ("HCC"), operating highly-efficient longwall operations in our underground mines based in Alabama, Mine No. 4 and Mine No. 7.

In light of the uncertainties regarding COVID-19, the Chinese ban on Australian coal and the Collective Bargaining Agreement ("CBA") negotiations, discussed in further detail below, we are not providing full year 2021 guidance at this time. We continue to appropriately adjust our operational needs, including managing our expenses, capital expenditures, working capital, liquidity and cash flows. In addition, as a precautionary measure, we borrowed $70.0 million under the ABL Facility on March 24, 2020 (the "ABL Draw") in order to increase the Company's cash position and preserve financial flexibility. In June 2020, we reduced the principal amount of the outstanding ABL Draw by $30.0 million. As of June 30, 2021, the Company had an aggregate principal amount of $40.0 million drawn under the ABL Facility. We intend on retaining the funds in cash to preserve liquidity amid the uncertainties previously mentioned. We also delayed spending the $25.0 million that we budgeted for the development of Blue Creek until there is clarity on these uncertainties and temporarily suspended our Stock

Repurchase Program. Our financial approach continues to focus on cash flow management and protecting the balance sheet in order to strategically move through this period of uncertainty and mitigate potential long-term impacts to the business (see Liquidity and Capital Resources below).

Collective Bargaining Agreement

Our CBA contract with the United Mine Workers of America ("UMWA") expired on April 1, 2021, and the UMWA initiated a strike. We believe that we are well positioned to fulfill anticipated customer volume commitments for 2021 of approximately 4.4 to 5.0 million metric tons through a combination of existing coal inventory of 456 thousand metric tons and expected production during the rest of 2021. For now, we have idled Mine No. 4 and scaled back operations at Mine No. 7. We expect production to continue at Mine No. 7, although at lower than usual rates. In connection with the idling of Mine No. 4 and reduced operations at Mine No. 7, we incurred idle mine expenses of $10.9 million for the three months ended June 30, 2021. These expenses are reported separately in the Condensed Statements of Operations and represent expenses incurred, such as electricity, insurance and maintenance labor. Due to the strike, we have also incurred approximately $7.0 million of business interruption expenses for the three months ended June 30, 2021. These expenses represent incremental expenses incurred as a direct result of the strike. These expenses are also presented separately in the Condensed Statements of Operations. While we have business continuity plans in place, the strike may still cause disruption to production and shipping activities, and our plans may vary significantly from quarter to quarter in 2021.







                                                                 For the three months ended                 For the six months ended
                                                                          June 30,                                  June 30,
                                                                   2021                 2020                 2021                 2020
        (in thousands)
        Segment Adjusted EBITDA                              $      71,994           $ 28,266          $     124,633           $ 98,090
        Metric tons sold                                             1,653              1,335                  3,424              2,981
        Metric tons produced                                         1,084              1,920                  3,054              3,824
        Gross price realization(1)                                     100   %            100  %                  97   %             94  %
        Average selling price per metric ton                 $      135.97           $ 119.15          $      126.09           $ 127.62
        Cash cost of sales per metric ton                    $       91.82           $  97.35          $       89.16           $  94.16
        Adjusted EBITDA                                      $      65,214           $ 20,299          $     111,881           $ 82,325
        


(1) For the three and six months ended June 30, 2021 and 2020, our gross price realization represents a volume weighted-average calculation of our daily realized price per ton based on gross sales, which excludes demurrage and other charges, as a percentage of the Platts Index price. Segment Adjusted EBITDA

our operating performance as compared to the operating performance of other companies in the coal industry, without regard to financing methods, historical cost basis or capital structure;

vary from the presentations of other companies. As a result, cash cost of sales as presented below may not be comparable to similarly titled measures of other companies.







                                                                For the three months ended                    For the six months ended
                                                                         June 30,                                     June 30,
                                                                 2021                  2020                   2021                    2020
        (in thousands)
        Cost of sales                                      $      152,765          $ 130,777          $     307,115               $ 282,291
        Asset retirement obligation accretion                        (432)              (369)                  (865)                   (738)
        Stock compensation expense                                   (560)              (478)                  (982)                   (927)
        Cash cost of sales                                 $      151,773          $ 129,930          $     305,268               $ 280,626
        


Adjusted EBITDA







                                                                 For the three months ended                 For the six months ended
                                                                          June 30,                                  June 30,
                                                                   2021                 2020                 2021                 2020
        Net (loss) income                                            (4,681)         $ (9,161)         $      (26,036)         $ 12,384
        Interest expense, net                                         8,477             8,255                  17,170            15,788
        Income tax (benefit) expense                                 (6,626)           (4,425)                 17,006            (1,184)
        Depreciation and depletion                                   40,151            22,156                  73,054            50,848
        Asset retirement obligation accretion (1)                       805               733                   1,610             1,466
        Stock compensation expense (2)                                5,544             1,991                   7,240             3,724
        Other non-cash accretion (3)                                    360               353                     721               706
        Non-cash mark-to-market loss on gas hedges (4)                3,288                 -                   2,818                 -
        Business interruption (5)                                     7,020                 -                   7,020                 -
        Idle mine costs (6)                                          10,876                 -                  10,876                 -
        Other (income) expense (7)                                        -               397                     402            (1,407)
        Adjusted EBITDA                                      $       65,214          $ 20,299          $      111,881          $ 82,325
        


(1)Represents non-cash accretion expense associated with our asset retirement obligations.

(2)Represents non-cash stock compensation expense associated with equity awards.







        Results of Operations
        Three Months Ended June 30, 2021 and 2020
        The following table summarizes certain unaudited financial information for the
        three months ended June 30, 2021 and 2020.
                                                                                          For the three months ended
                                                                                                   June 30,
                                                                                           % of Total                               % of Total
        (in thousands)                                               2021                   Revenues               2020              Revenues
        Revenues:
        Sales                                                $     224,759                       98.8  %       $ 159,043                  97.2  %
        Other revenues                                               2,681                        1.2  %           4,658                   2.8  %
        Total revenues                                             227,440                      100.0  %         163,701                 100.0  %
        Costs and expenses:
        Cost of sales (exclusive of items shown separately
        below)                                                     152,765                       67.2  %         130,777                  79.9  %
        Cost of other revenues (exclusive of items shown
        separately below)                                            8,343                        3.7  %           7,642                   4.7  %
        Depreciation and depletion                                  40,151                       17.7  %          22,156                  13.5  %
        Selling, general and administrative                         11,115                        4.9  %           8,457                   5.2  %
        Business interruption                                        7,020                        3.1  %               -                     -  %
        Idle mine                                                   10,876                        4.8  %               -                     -  %
        Total costs and expenses                                   230,270                      101.2  %         169,032                 103.3  %
        Operating (loss) income                                     (2,830)                      (1.2) %          (5,331)                 (3.3) %
        Interest expense, net                                       (8,477)                      (3.7) %          (8,255)                 (5.0) %
        (Loss) income before income tax (benefit) expense          (11,307)                      (5.0) %         (13,586)                 (8.3) %
        Income tax (benefit) expense                                (6,626)                      (2.9) %          (4,425)                 (2.7) %
        Net (loss) income                                    $      (4,681)                      (2.1) %       $  (9,161)                 (5.6) %
        


Sales and cost of sales components on a per unit basis for the three months ended June 30, 2021 and 2020 were as follows:







                                                      For the three months ended
                                                               June 30,
                                                          2021                  2020
        Met Coal (metric tons in thousands)
        Metric tons sold                                        1,653          1,335
        Metric tons produced                                    1,084          1,920
        Gross price realization(1)                                100    %       100  %
        


(1) For the three months ended June 30, 2021 and 2020, our gross price realization represents a volume weighted-average calculation of our daily realized price per ton based on gross sales, which excludes demurrage and other charges, as a percentage of the Platts Index price. Sales for the three months ended June 30, 2021 were $224.8 million compared to $159.0 million for the three months ended June 30, 2020. The $65.8 million increase in revenues was primarily driven by a $37.9 million increase in revenues due to a 318 thousand metric ton increase in met coal sales volume combined with a $27.9 million increase in revenues related to a $16.82 increase in the average selling price per metric ton of met coal. For the three months ended June 30, 2021, our geographic customer mix was 63% in Asia, 31% in Europe and 6% in South America. For the three months ended June 30, 2020, our geographic customer mix was 75% in Europe and 25% in South America. The higher mix of sales into Asia is the result of us taking advantage of opportunities with new Chinese customers during the COVID-19 pandemic and the impact of the Chinese ban on Australian coal. Our geographic customer mix typically varies each period based on the timing of customer orders and shipments. Other revenues for the three months ended June 30, 2021 were $2.7 million compared to $4.7 million for the three months ended June 30, 2020. Other revenues are comprised of revenue derived from our natural gas operations, gains on sales and disposals of property, plant and equipment and land, as well as earned royalty revenue. The $2.0 million decrease in other revenues is primarily due to a $3.3 million loss recognized on the fair value adjustment related to our natural gas swap contracts due to an increase in natural gas futures offset partially by an increase in gas revenues due to a $1.12, or 67.7%, increase in average gas selling prices. Cost of other revenues for the period was consistent with the prior year period. Cost of sales (exclusive of items shown separately below) was $152.8 million, or 67.2% of total revenues, for the three months ended June 30, 2021, compared to $130.8 million, or 79.9% of total revenues for the three months ended June 30, 2020. The $22.0 million increase is primarily driven by a $31.0 million increase due to a 318 thousand metric ton increase in met coal sales volumes offset partially by a $9.0 million decrease due to lower costs on price sensitive transportation and royalty costs that were mined in prior periods and a concerted effort to reduce costs during this period. These decreases in costs offset the increase in met coal sales prices and its impact on our royalty and logistics variable cost structure. Depreciation and depletion expenses were $40.2 million, or 17.7% of total revenues, for the three months ended June 30, 2021, compared to $22.2 million, or 13.5% for the three months ended June 30, 2020. The $18.0 million increase in depreciation and depletion is primarily driven by a $12.9 million increase due to a 318 thousand metric ton increase in met coal sales volumes as depreciation and depletion is first capitalized into coal inventory and relieved when the . . .

Aug 04, 2021

COMTEX_390946956/2041/2021-08-04T16:50:24

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