Greetings, and welcome to the Alpha Metallurgical Resources Second Quarter 2023 Results Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. Emily, you may begin.

Thank you, Paul, 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 second quarter 2023 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. And with that, I'll turn the call over to Andy.

Thanks, Emily, and good morning, everyone. I'm pleased with our team's performance in the second quarter, especially in light of some challenging circumstances that we worked hard to safely and quickly overcome. Our June operational update press release detailed the circumstances around the events at our Road Fork 52 Mine in West Virginia and the Dominion Terminal Associates terminal in Virginia, so I them here. But I will say, due to the diligence of our team, each of these challenges was resolved in a satisfactory and quick manner. As our press release this morning stated the delayed tons from DTA shipped out in July as expected, and the Road Fork 52 production levels are back to normal. And we expect to be able to make up the delayed tons impacted by this issue within the third quarter. Despite these hiccups, we produced quite well during the second quarter. In terms of realizations, the metallurgical indexes has experienced volatility in recent months, but have generally followed a downward trend coming off the highs of last year. I believe Alpha is well positioned to deal with this volatility in the coal markets and further softness in the indexes should that occur. On the volume side, we are fully committed at the midpoint of guidance across the portfolio for this year as we continue focusing on safely and efficiently producing this coal. For our customers, we are also looking toward next year in the best way to position ourselves for whatever may come in 2024. The current weakness in steel demand, coupled with monetary tightening in the United States and Europe and the residual inflationary pressure on supplies and materials, are all considerations in what we expect the back half of the year to look like. As these and several other geopolitical and…

Thanks, Andy. Second quarter adjusted EBITDA was $258 million, down from our first quarter level of $354 million. We sold 4.3 million tons in the quarter, 4.1 million of which came from our Met segment and 200,000 tons from the All Other category. Quarter-over-quarter realizations decreased for the Met segment as a whole with an average realization of $172.51 for the second quarter compared to $208.93 for the first quarter. Export Met tons priced against the Atlantic indices and other pricing mechanisms in the second quarter realized $175.69 per ton, while export coal priced on Australian indices realized $159.62. These are compared to last quarter's realizations of $211.31 per ton and $240.76 per ton, respectively, which benefited from a more robust coal pricing environment. Realization for our metallurgical sales in the second quarter was a total weighted average of $176.04 per ton, down roughly 17% against the prior quarter's $213.21 per ton. Realizations in the incidental thermal portion of the Met segment decreased quarter-over-quarter, coming in at $115.50 per ton in Q2 as compared to $137.65 in Q1, reflecting the lower thermal pricing for the period when the tons were sold. Similarly, second quarter realizations in the All Other category were $99.66, down from $109.36 in the first quarter. This quarter-over-quarter drop in realization was due to the declining pricing environment for thermal coal. Cost of coal sales within our Met segment decreased to $106.35 per ton, down from $110.56 per ton in the first quarter. Cost of coal sales in the All Other category increased quarter-over-quarter to $88.59 per ton as compared to $74.69 per ton in the first quarter. This increased cost level in the All Other category is due to expected inefficiencies associated with the Slabcamp mine's approaching end of life. SG&A, excluding noncash stock compensation and…

Thanks, Todd. Good morning, everyone. As you've seen in our financial results, our cost of coal sale numbers have come down, but not by proportionate margin to the decrease in coal pricing over the last several months. We realized the corresponding drop in sales-related costs of severance taxes and royalties. But the other piece is of the cost equation tend to take longer to respond to shifting dynamics. Labor, for example, is an area where we have not seen any reversal of the COVID error inflationary pressure. The extremely tight labor market conditions are causing us to compete for talent with other mining companies, as we normally do, but we now find ourselves competing with companies outside of the industry as well. We are aggressively working to both retain our talented workforce and attract to our team the up and coming stars of the next generation. In addition to higher labor costs, we've also seen stickier inflationary pressure within certain aspects of our supply chain. On a positive note, many parts and services have been -- their availability has improved, and we continue benefiting from our own processing -- processes of building parts and equipment in-house. Pricing for supplies and materials continues to climb as annual contracts come up for renewal and vendors are charging more for their products and services. We remain focused on mitigating these cost pressures to the degrees that we can. Looking at the ops portfolio, in addition to the issues at Road Fork 52, which feeds the Kepler processing plant, we experienced some geologic challenges within our Bandmill Group. The Bandmill issues have improved and the Kepler problems were resolved early in the third quarter. Despite these interruptions, we continue to demonstrate our resiliency by flexing production at other locations within the Alpha enterprise. Our…

Thanks, Jason, and good morning, everyone. Due to several economic and geopolitical factors, metallurgical coal markets have continued to soften as economies across the globe attempt to find stable footing. As the Russian war in Ukraine persists, inflationary impacts remain and monetary tightening continues in the United States and Europe. Economic indicators like manufacturing production data indicate that many of the regions of the world are still contracting instead of expanding. The recovery growth expected following China's reopening from its Zero COVID Policy has instead been muted. And China's June producer price index continued its multi-month decline, fueling concerns of economic weakness and possible deflation in the world's second largest economy and a significant consumer of steel. All these factors are influencing steel demand in the metallurgical indices. During the second quarter, coal market indices experienced volatility as they continue the overall downward trajectory of recent quarters. Each of the four indices off or closely monitors decreased by 20% or more over the course of the second quarter. The Australian premium low-vol index decreased from $300 per metric ton at the start of the quarter to $233 on June 30. The U.S. East Coast low-vol index decreased from $284 per metric ton at the beginning of April to $227 at the end of the quarter. The U.S. East Coast high-vol A index dropped from $284 per metric ton at the start of the second quarter to $216 at the end of June. And finally, the U.S. East Coast high-vol B index decreased from $265 per metric ton on April 1 to $206 per metric ton on June 30. Following the quarter close, the three U.S. East Coast indices further softened slightly from their June 30 levels with the low-vol, high-vol A and high-vol B indices measuring $215, $208 and $193…

[Operator Instructions] Our first question is from Lucas Pipes with B. Riley Securities. Please proceed with your question.

Congrats on a very good quarter and also that Rolling Thunder just got a little bit louder. So a great job across multiple fronts. Then I first want to turn to the markets for a little bit. You just gave a good summary. But to hone in on the seaborne market first, what's your assessment? Is the market still a little soft here? Or is it -- are you seeing signs of strengthening dynamics maybe in Asia? I would appreciate if you could kind of walk us through the different regions across the globe and where are you seeing opportunities and where it may be a little stiffer headwind?

Lucas, this is Dan. I guess, broadly speaking, I'll say we've probably seen a bit of a summer lull in the markets, which is not unusual. A lot of buyers disappear from their desks and then go on holiday. And we've certainly seen some of that this year in the Atlantic Basin. I think opportunities into Asia have been there all year. We're pretty selective on which ones we take. There's pretty low pricing opportunities there, but I think in Alpha's case, I'll just say that I think we're pleased that our contract position this year into the -- particularly in the Atlantic Basin and also in Asia has kind of kept us from having to participate in a lot of those lower-priced spot opportunities. So, we're -- I think we think that will continue through 2023 that we won't have to play in some of those lower markets.

That is helpful. You commented on the domestic negotiations. And I wondered if you could remind us how much you typically sell into the domestic market on the met coal side? And what is the flexibility to shift more into the seaborne market? I assume there might be transportation considerations. But if you could kind of walk us through some of the flexibility you may have there, depending on how negotiations shape up, would appreciate how you might think about it?

Yes, Lucas, well, I guess I've been doing this a long time. There's really no typical number. I mean you can look at our historical numbers. It could be somewhere between 3 million and 5 million tons a year we could place into the domestic market. And we'll wait into that and see what our customers want and look at the opportunities in those markets. So I don't have a typical number for you. And in some years, it depends on the strength of the steel industry and the coke and blast furnace production in the U.S. dictates that as well. So -- and as far as flexing the tons, we certainly can do that. We have the ability to move a lot of ton seaborne, as you know, and we could increase that if the opportunity made sense.

Very helpful, Dan. So kind of historically, what has typically taken you to the 3 million level versus the 5 million level?

Well, I guess, as I said, those would be in years where historically the U.S. -- the North American -- let's say, the North American steel industry would be in a weaker position, less coke production, less hot metal. But I don't necessarily see that this year. The North American industry is running pretty well. Steel pricing is holding up pretty well.

I appreciate it. And to turn over to the cost side really quickly, wanted to ask kind of where you're still seeing, if any, inflationary pressures and also where things might be easing from the cost side? Thank you all for your perspectives on that.

This is Jason. Really, it's -- on the cost front with supplies and repairs, it's other than those that are linked to steel indexes or fuel or something like that, really, the cost pressure continues across the board. It's very competitive on the labor side. It's very hard to find skilled labor. A lot of annual contracts are coming up for renewal as we work throughout the rest of the year. And a lot of these people are coming and saying, look, we've been underwater this contract, and it's time to -- we've got to fix this. So, it's -- there's really not one area that you can pinpoint. It's more or less across the board. But I would speculate that we're more than halfway through it as far as contract renewals for 2023. And was there a second part of your question?

It was -- I think you touched on most of it. It was kind of where you're seeing pressures easing. Is there any relief on any cost side?

Well, so the supply chain constraints, I guess, the availability of parts and components that has improved. So you would expect there'd be some lag where you'd see improvement on the other side, but we just haven't seen that yet.

Yes. And Lucas, this is Andy, if I could throw in one more broader comment on that. I've spoken with some of our suppliers and their issues are the same as ours. I mean this is all -- these are all the cascading impacts of an extremely tight labor market. So as they staff up to try to get back to their regular run rates, they're paying higher wages, we're paying higher wages. In some instances, we may be competing over similar employee pools. And so it seems to all boil down to just a very constricted labor market.

That is very helpful. I guess with the increased investor interest, maybe you should offer internships for finance professionals or something like that. But I'll look aside that. Keep up the great work, really, really great job.

Thank you, Lucas. Appreciate you.

Our next question is from Nathan Martin with The Benchmark Company. Please proceed with your question.

I'm going to start on the marketing side as well, keep Dan busy here. We've kind of touched on also price moving up here a little bit to start the third quarter CFR China price is up about $30 or so as well, likely driven by increased domestic price there in China. But we have seen, again, the U.S. East Coast net price indices creeping lower. So Dan, it would be great to get your thoughts on maybe the dynamics at play there, especially that widening spread of Aussie versus U.S. indices?

And I guess I'll attribute some of that to supply and demand. I think there's -- the demand in Asia is stronger than it is in the Atlantic at the moment. So you're seeing some of the benefits of that demand on the Aussie pricing. And as you know, we saw quite a bit of coal in Asia using that index. So that's -- we're pleased to see that. On the U.S. East Coast indices, probably some of that supply, there's some increased high-vol supply coming into the market here in 2023 some new mines in Northern West Virginia. So there's some additional supply out there that might be contributing to that spread a little bit. But that's kind of how I view it.

Got it. That's helpful, Dan. And then I would say related to that somewhat, you guys mentioned you're now 100% committed for '23 at the midpoint within the Met segment. So it'd be really helpful maybe to get some insight into how you're thinking about Alpha's export mix in between this Alpha index ton and maybe some of the other pricing mechanisms for the back half of the year?

I think the breakdown that you see in our tables is probably similar to what we expect the rest of the year, Nate. I mean, shipments will come and go. There will be some vessels, some changes. But broadly speaking, the breakdown that we gave you this quarter is probably a good barometer for that going forward.

The breakdown between the exports on…

Yes, we have a pretty detailed table there that breaks out on.

Got it. Yes. It's roughly 30 -- 30% or so there, 1/3 to about 40% or so, I think, to other mechanisms with the balance of domestic. Okay. Good. That's helpful. I appreciate those thoughts. And then maybe shifting to the domestic market, you just mentioned some high-vol production likely coming online here towards the end of the year, but we've also had some supply kind of coming offline in the U.S. Some of it operational, I think there's been some idling as well. So assuming tightness is helpful to you guys, but it would be great to get your thoughts specifically on supply demand here in the U.S.? And then do you think there needs to be any more idlings? Or would you expect any more? Just would be great to get some color.

There's a lot to unpack there. I guess what I'll say is, the domestic market, I really don't want to touch on that other than to say that the types of coals that the domestic market typically buys are on the higher quality end of the spectrum. And so, some of the supply/demand issues that might apply to the seaboard market don't necessarily apply to the domestic market. But I think the demand -- I think I would say that across the globe, supply/demand is still fairly tight, and it doesn't take a lot of -- it just takes one event to make it move up or down a little bit. And I think all the coals that are coming on to the market will find a home. If they don't find a home in the domestic market, they'll find a home in the seaborne market.

Got it. I appreciate that. I think that's all I have left guys. So, I really appreciate the time and best of luck in the second half.

Thanks, Nate.

Our next question is from Jonnathan Navarre with Cowen & Company. Please proceed with your question.

I think markets have been pretty much well covered right now. So only one for me, and that is relating to the dividend. So what would need to occur for -- to reinstate the dividend? And let's say -- let's give you a scenario, let's say, medical pricing skyrocket, would share repurchases remain the preferred method of capital return? Or would the dividend be considered again in the future?

Jonnathan, it strictly has to do with how the market values our company. If we believe the valuation is appropriate, then we might consider going that direction. But it seems like we're pretty long ways away from that. So -- and as we saw back in the last two years, we've seen market -- coal market prices spike to $600 a ton and $400 in everywhere in between, and company valuations didn't catch up. So I think we're very content to get to this pure share buyback program and stay there until the market determines it's going to appropriately value us, and then we'll consider some adaptation to the program.

Thank you. Our next question is from Lucas Pipes with B. Riley Securities. Please proceed with your question.

Thank you very much operator. Thank you all for enduring one more question. So, there's extensive media coverage of tax efforts up in the Elk Valley in separating the coal assets. And there's a lot of talk of steelmakers from around the world, India, Japan, being potentially interested. And so, one very interesting just in terms of how strategically met coal is important. And so my question to you is, as you engage with steelmakers around the world, are you sensing -- are you also having a sense that there's interest in -- on the vertical integration side, would appreciate your color on that? I know it's a kind of higher level question, but any color you could provide would be interesting.

Yes, Lucas, I don't want to declare myself a mind reader here, so these are strictly guesstimates. But -- and my data set is limited, not a huge sample size here. But over the past 13 years or so that I've been closely monitoring back in the M&A world, there's been waves of discussions around vertical integration. A lot of heat, a lot of activity and nothing really has ever happened, nothing material. So, I think things get stirred up when the market gets weak and perhaps people smell a little bit of blood in the water that these discussions begin. But until a big one happens, it's kind of hard to imagine it in this current world. So, I don't know there are some instances where it makes a lot of sense, but I just don't know when anyone will actually get to the point of executing on something like that.

Thank you. There are no further questions at this time. I would like to turn the floor back over to Andy Eidson for any closing remarks.

Well, thanks again, everyone, for dialing in. We appreciate your time and your interest in Alpha, and we hope you have a great rest of the day and a great weekend.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.