Greetings. Welcome to the Alpha Metallurgical Resources Fourth Quarter 2022 Results Conference Call. [Operator Instructions]. Please note, this conference is being recorded. I would now like to turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin

[Technical Difficulty] 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 fourth 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 Chief Executive Officer, Andy Eidson; and our President and Chief Operating Officer, Jason Whitehead. Also participating on the call are Todd Munsey, our Chief Financial Officer; and Dan Horn, our Chief Commercial Officer. With that, I'll turn the call over to Andy.

Thanks, Emily. Good morning, everyone. As always, we will provide some additional detail on Alpha's fourth quarter results and our outlook for 2023 on the call today. But before we do that, I want to take a very quick look back at 2022, what a tremendous year it was? Our Alpha team shipped 16.4 million tons of coal to customers in 26 countries around the world. We generated a record adjusted EBITDA of $1.7 billion and $1.3 billion of free cash flow, which allowed us to completely pay off our term low balance, making the company free of long-term debt. We invested significantly in our workforce through compensation, enhanced benefits and incentive bonus opportunities for exceptional performance. We bought back over $0.5 billion worth of Alpha stock and returned another roughly $100 million to shareholders in the form of dividends declared in 2022. All of this was achieved at the same time. The company posted record safety rates for NFDL or non-fatal days lost and, performed better than the industry average in NFDL and total reportable incident rate or TRIR. We were able to maintain 99.9% water quality compliance, alongside our expanded focus on beyond compliance initiatives. Our Mind Rescue teams won a national championship last year with several other first place awards in both overall competition honors and technical category titles. On the environmental stewardship front, Alphas Toms Creek Impoundment and Toms Creek, south Deep Mine received the Metallurgical Coal Producers Association 2022 Best Active Refuse Impoundment Award and Best Completed Underground Mine Award, respectively. The consistent focus on safety and environmental compliance is further bolstered by friendly competition through our best-in-class awards that allow our operating groups to compete against each other for top honors within their operational category. The winners were just announced and we're proud to…

Thanks, Andy. We pre-announced our financial results due to the previously discussed geological and transportation challenges that dampened our fourth quarter 2022 results, and what was otherwise an exceptional year as Andy mentioned. Fourth quarter adjusted EBITDA was $248 million, which was down from our third quarter level of $296 million. We sold 3.9 million tons in the quarter, 3.8 million of which came from our met segment and 100,000 tons from the all other category. Our quarter-over-quarter realizations improved slightly for the met segment as a whole with an average realization of $186.29 for the fourth quarter as compared to $184.31 in Q3. Export met tons priced against Atlantic indices and other pricing mechanisms in the fourth quarter, realized $196.88 per ton, while export coal priced on Australian indices realized $183.59. Our fourth quarter realization for our Metallurgical sales was a total weighted average of $190.94 per ton, essentially flat against the prior quarters, $191.17 per ton. Realizations in the incidental thermal portion of the Met segment, increased quarter-over-quarter, coming in at $146.24 and Q4 as compared to an average of $119.69 per ton for Q3. This higher realization reflects the increase in thermal pricing for the period when the tons were sold. Fourth quarter realizations in the all other category were $126.10 per ton, up from $109.27 per ton for the third quarter. Again, a reflection of the temporarily improved pricing environment for thermal coal, which has since fallen off. Cost of cold sales within our met segment increased to $112.97 per ton, up from $104.86 per ton in the third quarter. This increase includes higher than budgeted labor costs due to incentive bonuses paid to employees across the organization to reward our team for a year of excellent performance. Cost of coal sales in the all other…

Thanks, Todd. Good morning, everyone. I want to start with a shout out to the 2022 best-in-class winners. You all showed great leadership and set the bar even higher for this year's competition. Congratulations again to Glen Alum Tunnel for winning the underground mine category, Marfork for winning the underground belt transfer system category, Kingston South Surface Mine, also known as Bishop for winning the Surface Mine in the Highwall Miner Division. And congratulations to Kepler for achieving top honors and the processing plant category, and Marmet River Dock for our best load out facility. We're all proud of our best of best-in-class winners. From an operations perspective, the end of ‘22 was exceptionally busy. As we've disclosed, there were some geologic and transportation challenges that hampered our fourth quarter results, but we've taken a number of steps to mitigate those challenges. Based on January numbers and what we're seeing so far in February, I believe these issues are mostly behind us. One way of looking at this is through our inventory levels at Dominion Terminal Associates Facility in Newport News, Virginia, as you know roughly two thirds of our met production is funneled through our DTA facility. Due to a number of factors including supply chain shortages, transportation availability, power outages and interruptions, the holiday schedules and other timing concerns. We hit an inventory trough at DTA of approximately 47,000 tons in December. Since then, we've grown that about tenfold to a more appropriate level of working inventory of shipped Alpha coal that we expect to ship to customers in the coming weeks and months. This timing pairs up nicely with the movement in the diocese that with the Aussie PLV moving up roughly 34% over the last two months, and plats U.S. East Coast low wall moving up…

Thanks, Jason, and good morning, everyone. The global economic landscape hasn't been especially favorable over the last several months with metallurgical coal markets being influenced by prolonged wartime impacts in Asia and Europe. As a result of Russia's invasion of Ukraine, slowing steel production across the world and persistent inflationary pressure have also contributed to current market dynamics. Heavy rain and flooding in Australia interrupted coal production and exports within the fourth quarter, and the recent earthquake in Turkey has also been an extreme unfortunate development. China's December 2022 reversal of its years long strict zero COVID policy and its decision to ease its ban on Australian coal are two additional factors that may shape met Orical market trade flows in the coming months. Given all the negative news across the world and the poor economic indicators, coal markets appear to be somewhat of an anomaly with indices moving upwards significantly in recent weeks. Specifically looking at fourth quarter price movements for metallurgical coal, the Australian Premium Low Ball Index increased from $270.50 per metric ton on October 1 to $294.50 per ton that year end. The US East Coast Low Ball Index increased from 270 per metric ton on October 1st to $278 per metric time at the end of the fourth quarter. The U.S. East Coast High-Vol A Index moved from $287 per metric ton at the start of October to $275 per metric time at quarter close. U.S. East Coast High-Vol B fell from $284 per metric ton to $274 on December 31st. In recent weeks, all of the four mentioned indices have increased from their year-end levels. As of February 21st, the Australian premium low index was $388 per ton, and the U.S. East Coast Low-Vol index was at $342. The U.S. East Coast High-Vol A…

[Operator Instructions] First question comes from Lucas Pipes with B. Riley Securities.

Thank you very much, operator, and good morning, everyone. First off, I do like the name rolling Thunder, and I think it would be a good name for your share repurchase program as well. So, my first question is in terms of cost inflation, could you comment a bit on what you would put into the cyclical bucket, what you would put into the more structural bucket? I assume labor, for example, could be a little bit more structural, but would really appreciate your perspective on this. Thank you very much.

Hey Lucas, it's Andy. And I do love your idea if we're going to stick a label on the repurchase program, that is pretty good. I think from a cost perspective, and I'll let Jason throw in any extra color, there -- both the labor and the supplies area seem to be a little bit sticky as far as how long they may stick around. Naturally, we always feel like we're at the tail end of cyclicality. The market comes down and then it takes a while for that to flush through to the cost side for us. Again, we have such labor constraints. It makes it rather challenging to do too much in that regard until things do come off a bit. So for the near term, it feels like the cost structure kind of is what it is. But we'll just have to wait and see where the markets go. Again, the volatility that we're seeing is not really being helpful as far as planning. But for right now, I think, we're just expecting kind of a static view on cost outside of the sales related, obviously. But Jason, anything you want to add?

No, I mean, well said Andy. I think that, we are finding opportunities to reduce costs with our new acquisitions that we spoke about. And let me be really clear, the primary driver of those acquisitions was for parts and transportation availability. And then secondly, we'll be looking to streamline things and do things more efficiently than they've been done in the past. So, look forward to reporting out on that in the future.

And then, this leads a little bit into a higher level question. And when I hear your comments about bonding requirements for black lung, for example, or the acquisition on the equipment side I also hear benefits of scale and obviously you have tremendous scale already, but does this make the case for more M&A in the space, curious to get your perspective on that?

Yeah, I think we've been talking about this for a few years now where consolidation does make sense. The problem is just the way the sector's currently structured, it's really hard to value each other particularly as related to how we are currently valued by the market. So, if you look at current spot pricing and you apply that to Alpha for four years, you're looking at something probably sub two times on EBITDA and that just seems extremely cheap. And so you have to compare that to potential synergies and scale economics for doing transactions, which will obviously be offset by integration risk. It's just, I think it's really difficult to justify any M&A at these current levels. Any sizable M&A, I mean, naturally, we're always -- I think we said before we have a door is always open approach to smaller bolt on things, but I think right now generally speaking, we're the main acquisition we're focused on is acquiring more off of stock.

And then final question, I'll turn it over with the 61% of MET coal that is still left to be sold could you provide a quality breakdown? Maybe I missed that and maybe just put a bow on it. What would you expect those tons to garner back at the mine gate at today's market prices?

Sorry, Lucas, were you asking about the UNC uncommitted or

Correct, yeah. So I think you have 39% committed. So, the the 61% that are uncommitted.

Yeah, I'll let Dan throw with some color here, but unfortunately, we've locked up the crystal ball today, so we making guesses on that as virtually impossible. I think, generally speaking, we probably don't have too much of a quality differential among the spread of what we've booked versus what we've not booked. But I'll let Dan speak more to that.

Good morning, Lucas. I'd say the across the quality spectrum, high ball, mid balls, we still have some of that, those tons to place. We'll find our opportunities. Some of the market, I'll make a comment on that. I will say that a lot of our larger customers have locked up more term business than they have in the past, especially in Western Europe. That's due to the unavailability of Russian coals flowing into Europe for steel making. So, we see good demand for our coals, including highballs into Europe the rest of the year. And then the rest of it, well, we have many customers who just roll out and buy a quarter at a time on a regular cadence there. So, we'll sell and ship those tons, pretty regularly through the year. And you can do the math as well as I can. You take the indices today and you back that you asked about the price at the mine. Today's pricing, if you go back to the mine, you're in the 235 to 250 range today. I'm not saying that's what we'll achieve on every ton of coal, but that's where they sit today.

Our next question is from Lance Vitanza with Cowen & Company.

[Indiscernible] on for Lance. My first question is given the 38% of your expected met output for the year is already priced, do you share if this is largely set for delivery in the first and second quarter of the year, or is that spread throughout all four quarters?

Well, the domestic portion is rateable through the year. Some of our contracts are rateable through the year, and some are a little more front end loaded. It's literally all the above.

Okay. Alright. Can you get a bit -- the $2 incentives per ton for the discussion incentive to employees? Was this a 1x occurrence just given the challenges that were presented in the mind during the fourth quarter? Or is this something that we can expect going forward?

Yes. This was something where again, we had to step back as a management team and look at the year that we had and combine that with the staffing environment that we're living in. And it felt appropriate to grant some of these bonuses. Now some of these are just part of the standard program. There was some discretion that we also utilized, but this is one of those things where if you have a record year giving a portion of that to the employees, to the reward them for just a tremendous amount of effort and high quality of work seems like the right thing to do. And I think it also just shows to the marketplace that we're very much excited to pay employees for good performance and that seems to be helpful when it's time to find more employees, to be honest.

Yes. Agreed. That's a good strategy. Great. In terms of the carry over CapEx, that's going into ‘23, is this primarily going to be spent like in the first quarter and therefore we should expect CapEx in the first quarter to be the highest of the year?

No, I think this generally, it probably, I think it'll probably end up being pretty radical throughout the year because again, supply chains have not completely unclogged. And so, some of our original plans for 2023 may also start sliding into ‘24. So generally speaking, and it's kind of a broad mix of different items of equipment or rebuilds or whatever the case may be. So, I don't know. There's -- it's highly, highly unlikely it hits in Q1 or really in the first half. I think it'll be kind of a peanut butter spread.

And the last one for me, I know that Rolling Thunder, mine is still in process, but how many additional tons can we expect to, on an annual basis to come out from the -- for that mine to you?

Hey, this is Jason and I'll take that. Well, for this year, we plan on, as we said, taking development cuts starting in the summer and we expect south of 200,000 tons this year and it's real really more about a sustaining mine for some other operations with the ability to bolt on. And you know, I can say that this mine's capacity would be in the million ton a year range.

And then that 200, expected -- 200,000?

Yes.

Is that already baked into the -- guidance or is that something that can be on top off?

Yeah, it's in the guidance for this year and it's like I said, it really hits its stride in 2024.

[Operator Instructions] Our next question is from Nathan Martin with The Benchmark Company.

Jason, just real quick on Rolling Thunder again, I think you said -- mine, appreciate the other caller you just gave. Is that going to be an A quality product or B quality product or somewhere in between?

Yeah, Nate, it's a good B Cole. I mean, it's a good coke and cold. It's got good properties.

And then wanted to come back to the cost side, that segment cost time for guidance maintained at 106, 112, you guys put that target out there obviously before the run up and met prices we've seen the last couple months. So just curious if you give us an idea of what MET prices you assumed in that range? And then if you have any kind of sensitivity to the MET price that would be great.

Yeah, we typically don't throw that out there, but you can kind of figure about the time that we put that guidance out. We were using the current strip or the future strip to kind of inform where we thought ‘23 was going. I don't recall off the top of my head where it was at that point in time, but that was where the math was going probably, I don't know, 250 ish, maybe 270 range, something in that ballpark for Aussie POV. And to the degree that this market continues naturally, the impact from sales related and as Jason mentioned, we are seeing some improvements from other portions of direct costs at the mines along with some productivity improvements that we're seeing that will offset some of that. But as if the market holds, we may see some adjustments to that number throughout the year, but at this point we're still comfortable with the range as it was published.

It would also be great to get you guys thoughts on the cadence of shipments as we move through the quarters this year. I mean, should we expect things to kind of improve quarter of a quarter here in the first quarter to a more normal run rate as logistics hopefully improve? Or will there still be some time to kind of ramp up from those fourth quarter challenges? And then could you also remind me maybe how to think about the timing of the other thermal shipments as well given slab can't due to mine out, I believe.

I'll answer the last one first. The cadence on the thermal should be fairly roundtable through the year. Shouldn't be any -- well, let me say this, it will go up in the summer months due to the burn and come down a little bit in the shoulder months as usual. Nothing unusual there, but generally ratable and with regard to the Met shipment cadence, again, mentioned earlier, domestic will be flat through the year. We have some domestic business that doesn't begin until the lake season opens here in April, so probably a little higher there. And as far as Seaborn, it'll the coals that we have under contract are generally going to be rateable. We'll see -- hopefully we'll see continued uptick in the blast furnaces relighting here over the next several months. We kind of feel at least today that we've -- the worst is behind us there, that steel making growth should continue through the year. Certainly, we believe it will in India and some other markets.

Great. Appreciate those comments there, Dan. And then maybe just one final one, couple mentions of labor constraints within the industry. You guys are expecting to kind of grow your production this year. Do you feel confident getting to those levels with your current labor force? I mean, you going to necessitate any additional GMs or crews or overtime just would be great to get your thoughts?

This is Jason. I think, that generally things have moderately improved, I would say. We talked about our trainee program that we initiated, I guess about 18 months ago. And we continue to bring fresh new faces into the industry. And we also have some mines that are retiring that are larger and kind of long in the tooth, and as we transition, those march into brand new operations that are smaller and frankly take less employees to maintain, I feel like we're in relative pretty good shape to where we've been.

We have reached the end of the question-and-answer session. I will now turn the call over to Andy Eidson for closing remarks.

Thank you, operator, and thanks to everyone who dialed in or logged in online for the call. We appreciate your interest and we hope everyone has a great day.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.