Good morning, and welcome, everyone, to the Alpha Metallurgical Resources First Quarter 2022 Results Conference Call. My name is Tania, and I will be your moderator for today. It is now my pleasure to pass the conference over to Emily O'Quinn. Please proceed.

Thank you, Tania, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's first quarter 2022 earnings release and the associated SEC filing. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Alpha's Chair and Chief Executive Officer, David Stetson; and President and Chief Financial Officer, Andy Eidson. Also participating on the call are Jason Whitehead, our Chief Operating Officer; and Dan Horn, our Chief Commercial Officer. With that, I'll turn the call over to David.

Thanks, Emily. Good morning, everyone, and thank you for joining us. As we announced in our press release this morning, we are pleased to report back-to-back record performance with adjusted EBITDA of $504 million in the first quarter. While market forces are undeniably central factors in our ability to post these kind of numbers, it also wouldn't be possible without the continued safe production of our team in the groundwork, planning and execution for the last few years that have optimized our portfolio and set us on a positive trajectory. This success has also transformed our balance sheet. Since June 30, 2021, in less than 1 year's time, Alpha has paid over $450 million on our term loan. This leaves us just under $100 million in term loan borrowings, and we intend to eliminate the remaining term loan balance in the second quarter. This progress is in addition to the early discharge of some legacy liabilities that we discussed in recent quarters. I have consistently communicated my belief in the importance of deleveraging. I've been transparent about our attention to take the debt down to 0. Some may find this approach unorthodox, and I understand why it likely would not be appropriate for many other businesses. However, I firmly believe it's the best for Alpha at this time due to the cyclical nature of our business and the increasingly scarce and expensive financing opportunities available to companies like ours. Having no debt allows for greater self-sufficiency, resilience and flexibility to weather inevitable challenges of market troughs. I'm excited for the day when we can announce that our debt has been paid off. But until then, I'm very pleased to share the significant progress we've made toward that end. Another top priority is to return value to our shareholders. In March,…

Thanks, David, and good morning, everyone. I want to start by echoing David's comments about what a team effort this truly was. And there's a long list of people who contributed to the work of refining our long-term strategic plan. A massive amount of data was analyzed and these details are proprietary. We dug down to nonspecific information for the next 15 years related to coal rank, reserve life, geological challenges, market opportunities and pricing projections. We obviously don't want to get into any kind of granular details on the call, but I do believe a quick look from 30,000 feet will provide some insight to illustrate where we see Alpha heading over the next 1.5 decades. With regard to anticipated production levels, we've always been proud of our high-performing portfolio of existing operations and strong well-located reserve basis. We believe these assets should allow the company to maintain a consistent level of production similar to Alpha's recent average production rates across the next 15 years without any need for inorganic growth. Not only does this structure serve as a solid foundation for our long-term operations planning, but it also offers longevity and consistency in our shipment volumes. Another takeaway from this planning process is that we expect the company's coal rank and quality to gradually improve while maintaining the flexibility and optionality provided by a diverse product mix. Aside from our excellent record of reliably delivering coal to our customers, part of what sets out apart is our ability to provide a wide menu of products to meet very specific customer needs. As we've said before, we don't just sell what we produce, we produce what the customer wants. This is a hallmark that we expect will continue as time goes on, but our analysis also shows the capacity…

Thanks, Andy, and good morning, everyone. I want to kick off my remarks by congratulating our teams on 2 more records achieved in the first quarter. With regard to safety, our operations had the lowest quarterly accident rates of any quarter in the company's history. We also completed our best ever Q1 in water quality compliance. For some additional context from a water quality compliance perspective, the first quarter each year tends to be the most challenging of the 4 due to the weather and usual prevalence of snow and rain during the period. I think it speaks highly of our employees that they achieved new records in both of these critically significant areas of safety and environmental compliance. In addition to the internal accolades for this job well done, our workforce has recently been recognized by external organizations for their outstanding achievements in 2021. On the safety side, 5 Alpha operations were awarded the prestigious Mountaineer Guardian Award and 11 operations received West Virginia Home Safety Association Awards. Additionally, our Black Castle Mining Group earned top honors in West Virginia's DEP's Environmental Excellence Award for their reclamation work. It's important to recognize exceptional performance and celebrate when a new milestone is achieved, and I congratulate all the Alpha employees who made these well-deserved honors possible. But I also want to point out that building a record quarter for earning an annual award is only possible through the hard work and the daily commitment to focusing on our core values. I'm proud to say that I see that kind of dedication all across our operations. In recognition of the significant contributions of our employees and their continued daily work ethic, we've instituted an additional financial incentive bonus to thank our employees for all they do to fuel alpha success. Shifting…

Thanks, Jason, and good morning, everyone. As we've discussed in prior quarters, coal indices have maintained strength in the first several months of the year. Several macroeconomic factors influence metallurgical coal markets in the first quarter, including pandemic-related supply, labor and supply chain challenges that have persisted in many areas alongside rising inflationary pressure. Supply tightness from prior quarters continued into the early months of 2022. And in late February, Russian invasion of Ukraine created far-reaching global geopolitical implications. The war has also further constrained availability of metallurgical coal. The various sanctions imposed as a result of the conflict have had additional impacts on trade flows, market dynamics, and index pricing, which experienced significant volatility within the quarter. Global Indices saw the biggest wins during the quarter with the Australian premium low volume jumping from $357 per metric ton on January 1 to $515 per metric ton on March 31 and reached $518 per metric ton recently. The U.S. East Coast global indices started the quarter at $320 per metric coming and ended the quarter at $535 per metric ton and has recently settled back down to around $475 per ton. Finally, U.S. East Coast Highway A indices moved from $340 per metric ton at the start of the quarter, up to $479 per metric ton a quarter close, and it's now at a level of around $470 per metric ton. We believe Alpha is well-positioned to continue benefiting from this robust pricing environment as 53% of our metallurgical coal at the midpoint of guidance is committed and already priced. With another 40% of our metallurgical coal that is committed for 2022, but not yet priced. In an environment with this much volatility, it is especially hard to know where things may be headed, and there are signs of slowing…

The first question is from Nathan Martin with The Benchmark Company.

Great to see the progress made on the debt paydown, additional shareholder returns announced. I guess looking ahead, assuming the term loan is paying full this quarter as you guys are shooting for. How do you think about as a management team and the board capital allocation going forward from there? Is it the additional share buybacks you guys announced? Do you consider additional dividends, whether at the special, et cetera? How do you balance your approach between those 2?

Well, I'll take a shot and let Andy provide his input. So right now, Nate, we are focused on, as we said, we're focused on reducing our debt, which is under $100 million. We just announced a $600 million share repurchase program that will be executed on as we continue to execute on the 150 we announced earlier. So from where our perspective is, currently, that's where our focus is. We'll obviously be able to be back in front of the Board at the end of the second quarter numbers and then obviously, in November, again, to discuss with them where we stand from a financial perspective. Right now, our focus is purely on getting our debt repaid and executing on the $600 million share repurchase program. Andy, did you want to add anything to that?

All I would say is, Nate, a good start to Q&A. When you look around the options available to us and the discussions with the Board, at the current market levels where futures are currently sitting the valuation of the company feels a little bit off. And so it's hard to argue that there's any better investment right now than picking up our own shares. And as that develops in the coming quarters, we'll continue to have these conversations with the Board. And if a pivot is called for, we can go that direction. But for right now, that was the Board's decision, and I think it makes a lot of sense.

Got it. Appreciate those thoughts. And then Andy, maybe I have you on the cost side, I know you spoke about this last go round the possibility of cost guidance could move up if the markets and prices remained elevated. And then you mentioned the sales sensitive piece of royalty is a big driver behind the increase in guidance today, but you also called out again continued inflationary pressures. Any way to parse out the 2 there? I'm just trying to figure out how much of the increase could be maybe sticky related to labor and inflationary pressures versus the cost sensitive piece, assuming at some point, net prices begin to retract?

Nate, this is Jason, and I'll try to field that one. But I think you can basically break the bridge up into thirds, the bridge, if you will, between former guidance and current guidance. And the first 1/3 would be sales-related royalties, severance taxes. The second 1/3 would be purchase coals that we're buying into our met segment and then selling into the market. And then the last 1/3 would be divided between labor and consumables pricing on the supplies and repair side.

That's very helpful, Jason. I mean, I guess is it reasonable to assume guys, given the big step-up in that price as we've seen quarter-to-date that we would likely see that cost also up quarter-over-quarter?

That's -- that was a hard one to gauge. Again, it just events -- we're so volume-driven in a static environment, you might see a little bit more of a spike. But again, looking at the futures where they stand, we still feel pretty good that things will hold in the current range through the remind of the year.

Okay. That's fair, Andy. And I guess maybe on the cadence of shipments and Dan touched on this on the transportation side of things that have been getting a lot of attention in the rails and print STB recently. From a shipment perspective, as you look ahead the next 3 quarters, anything we should be thinking about from the cadence side trying to get towards your full year guidance range?

Well, let me hit this at a really high level, Nate. We, like a lot of our colleagues in the industry, in the first quarter, experienced some issues associated with our transportation partners. However, in our private and public comments from them, we realized that their issues were created primarily by a shortage of labor. And this isn't unique to them. It's unique across the entire industries in America. And as we listed their comments and what we've seen is we are hoping that as we move forward, services will improve as they bring on more employees to the system. But I'll let Dan who have to deal with this on a daily basis, provide his commentary.

Nike, yes, our team has done a really good job of managing through this. We've had some good weeks. We've had some bad weeks, but we definitely see some progress. The service levels from the grower is improving. Alpha has the advantage of shipping on both Eastern railcar areas, and our team has done a good job of using that flexibility to keep getting shipments out on time to our customers. So we're working through it, and we're optimistic it's going to continue to improve. Like I said, we're starting to get back to where we feel like we have reasonable shipping levels, as you see from our Q1 numbers.

Great. Very helpful, Dan. And then maybe finally, just looking at the CapEx side of things. Any -- I realize this is still pretty early in the year, but any early thoughts on what spending could look like next year? Obviously, we've got some project investments going on in '22. Do you guys expect or see any spending on growth next year at this point? And would you expect CapEx to kind of still remain around that $120 million level?

Yes. Nate, you're putting me in the quarter, man. It's only May, I'm barely making it through Q1 right now. So it's hard to look into 2023 just yet. I don't know that we can really have too much to comment on that. We do obviously, we talked about the 15-year production plan. We do have projects in there that we're not quite ready to discuss with everyone just yet. We're still doing some work behind the scenes. So there will be some capital phasing in over the next few years, but as far as specifics for when things are phasing in for 2023 or any guidance there. Probably a good bit too early to go too far with that.

No, I understand, Andy, it's hard to put you on the spot as I just said, considering that a lot of the work you guys have just done a figure I check in. So very helpful guys. I appreciate all the information.

The next question comes from Lucas Pipes with B. Riley Securities.

Congratulations to the entire team on just terrific work. I want to ask about the capital allocation plan as well. And with the term loan eliminated before quarter end, as you noted in your prepared remarks, is there any reason to think why not all capital after that event is used for share buybacks kind of quarter in, quarter out. I don't really see another need for capital outside of that. So I would appreciate your perspective on that. In short shouldn't the pace of share buybacks accelerate pretty dramatically here post the term loan elimination?

Well, this is David. I know Andy is anxious to talk with you about that as well, Lucas. But I'll stand by what I said originally. We -- and I made in my comments, I used the Board that the pace and the cadence of our share repurchase will accelerate as we move forward with the new $600 million of -- or the incremental $450 million increase in what the Board has authorized. So we will increase that cadence as the year moves forward. But again, we're going to -- what we do is we check the boxes, Lucas, we're going to -- we checked the box or we hope to check the buck shortly on paying our debt off. As Andy said, we believe our shares are roughly undervalued. So therefore, we will pick the cadence up of buying our shares. And then as we proceed into the August and November Board meetings, we'll go back to the Board, give them an update on where we stand on the share repurchase program. We'll see where the world is and where our capital is at that point in time, and then we'll be able to provide the Board some guidance and get their insights. Andy, did you want to respond to any more than that?

No, that's perfect.

And a quick follow-up question on this. From a modeling perspective, is there a minimum cash and liquidity target that you have?

That's a great one for Andy. Andy, do you have that?

Yes. I kind of felt that was one get passed off. Lucas, yes, we do have internally, and we bounce around a good bit. I mean their thoughts again on -- we want to talk about $200 million. You want to talk about $300 million. We don't really have a number nailed down at this point. That's not really a pressing issue at the moment of the cash flow generation that we see coming in this particular market. But that is more of a long-term part of the 15-year plan that we've considered as we look at capital programs as we look at potential downside scenarios for any kind of market reversion. And so while I don't really want to tag a number right now simply because we want to remain dynamic and conservative as we always are. We've talked historically in the past around a $200 million cash or liquidity kind of number. So we'll be in some neighborhood of that likely going forward. But again, don't want to stick a pin in a specific number at the moment.

That's helpful. And then on the strategic plan. So really great to hear that you're not just looking to generate all this cash here in the short term, but you stopped through the long term. And I wanted to maybe just try to peel the onion on this a bit. Should we think about 14 million, 15 million tons of met coal sustainable over that outlook period or kind of in higher markets, it's that range of output and a lower market maybe drops down to 12 million, 13 million tons. Like what's kind of the volume projection that you've come up with over this extended outlook period?

Well, I'll throw this over to Jason. But as we look at our plan, what Jason has been able to do on an operational perspective is to be able to -- as we've talked before, the ability to flex in the company is tremendous. The ability to flex up, and we see market demand. We've been able to flex down and we see it, the market's moving away from us. So that's what we built into a system. We like what we've built. But Jason, I'll turn it over to you for your commentary on.

Well, I think when you think about the 15-year plan, you need to think about it as kind of a status quo, like you said, 14 million to 15 million ton run rate. But as David alluded to, we do have the ability and under certain market conditions, we would really evaluate hard some of the higher cost operations, see if we can scale those back and then try to flex on the lower cost operations to spread out fixed costs more efficiently, if that makes sense.

So we shouldn't think of the 14 million to 15 million at the upper end?

Well, it's a number internally as we look at it, again, as you know, it's really -- that's really complex question, so we can't give you a simple answer to it. It's dependent on demand. It's dependent on the ability to transport, its ability of supply and other matters that go into play there. When we did our 15-year plan, we -- just for purposes, we have visibility like for everybody else, we probably have visibility in the market for a short period of time. But this is a 15-year plan. And the reason the 15-year plan was devised. That's about as far out. And some people argue that plans beyond next year are probably meaningless. But we did it out 15 years and we left it basically static at the $15 million level only for that purpose. We have the ability to flex up or down as we proceed forward. We have the ability to bring on new mines if we see demand. If transportation allows the ability to move more coal the markets are, it's a complex question. But for the purpose of our planning, we just left it fairly static in that $15 million range, again, with the ability to flex up or down depending on multiple conditions.

Very helpful. And now I'm going to ask a half serious question, I can't help myself. But did you use the $189 domestic pricing for 15 years, so the $297 export pricing for the next 15 years?

Yes. Let me go back to the previous question, second to. It's also as we looked out that 15 years, there's 2 components to that $15 million. We also look at increasing the quality of our coals throughout that period of time. We did a very, very sensitive proprietary view of where we were from the quality of coals too. So as we proceed through that 15 years, our coal qualities will would be modified as well. And obviously, our pricing models are what they are. We do not share those. We obviously are very confident in our ability to perform the $15 million almost in any market. Well, go ahead, Andy.

Yes, and no, no. And I think the high-level takeaway here is that, as Jason mentioned, we did look at this with a static picture of the world, including all the constraints that we're dealing with today from any perspective, we looked at it in varying price ranges upside cases, downside cases. We are stress testing it. We're testing not only the ability to produce some outsized returns, but also the ability to be resilient through some challenging markets if and when those come back into play. But the big picture is that 15 years from now, we still have reserves. We don't need to acquire anything to access those reserves. We're still the Alpha 15 years from now that you see today producing the same high-quality coal servicing to high-growth markets and providing as much valuable as we possibly can to our investors and all of our stakeholders. And so as David said, we don't want to get into any details, the goal was really just to look and say, some companies like to look at a 10-year plan, we were kind of asking the question, what happened in the year 11 because reserves deplete and then you get to what happened in year 12. So we take out the $15 million just to give some degree of comfort that we have a very, very long-term proposition for this company.

And I think Jason...

No, just to add a little bit of color to what Andy said building a 15-year plan, I guess probably the first step is, is it or can it be permitted. So you have to have a plan for that and there's a time line and as everyone knows, sometimes it takes several years to actually come to fruition. And after it's permitted, well, what's the geology look like? Is this going to be a challenging mine? Can we -- is it going to be a productive mine? Is it going to be a safe mine with respect to mining conditions? So all those things are under evaluation, what's the recovery look like? Can we process it? Can we get it through a plant? After we get it through the plant, can we get it to market, either via railcar or barge. So the plan has, I guess, a lot of details that we're not really speaking about, but what makes us feel good is that we know that we're able to be sustainable, able to be flexible as we are today throughout the next 15 years. And as I think David and Andy both mentioned, produce a higher-quality product generally than what we are today.

Yes. And Lucas, just to follow up one more time on at that point. This is part of the planning process. I'm so proud of the team on. And we do this on a regular basis, but usually a little shorter time frame in the 15 years that we went out. And again, it started off to be 7 years and then they said, well, why don't we do 10? And then I heard, well, let's do 11, and then we finally cut it off at 15. But the work that Jason is doing right now for, let's say -- let's take an example, Jason, 1.5 years ago, came to us on various projects in the Glen Alum mine that we've mentioned in previous calls. Jason give you an update on it. It's a mid-vol property. It's a solid mid-vol property that I believe, Jason, you are -- should be bringing it into production this summer, but you're getting very close to that, correct, Jason?

That's correct. As we mentioned in the remarks, it will start in the coming weeks, and it will be up to full production with its first unit this summer. And there will be more to come on new mines timely.

Very helpful. Really appreciate the thorough discussion. One final question for now. If I understand it right, there's a Russell rebalancing approaching next month. And do you have a view on whether you might be a candidate to be added to the index?

Yes. Lucas, it's Andy. We won't know until we know, but it looks like on the various metrics that are considered for inclusion. It seems like we check all of those boxes as far as I can tell. So I don't know how that will turn out, but it feels like we should, if we're not.

Okay. That's -- I need to bite my tongue because I'm tempted to make another half serious comment, just don't buy back too many shares before that. But again, I'm just amazed how you've done a terrific job, and I want to congratulate the entire team. Thank you very much for your time.

There are no questions waiting at this time. So I will now pass the conference back to David Stetson.

Thank you. Let me close my remarks by thanking our shareholders for their faith and confidence they've had in Alpha and our entire team. We are united at Alpha in vision, in purpose and focus. We are a safety-first company with one of the best operating teams in the industry. I want to thank everyone again for your interest in Alpha for joining the call this morning. Have a great rest of your day. Thank you so much.

This concludes the Alpha Metallurgical Resources First Quarter 2022 Results Conference Call. Thank you for your participation. You may now disconnect your lines.