Welcome to the Peabody Fourth Quarter Earnings Call. [Operator Instructions]. Please note today's event is being recorded. I would now like to turn the conference over to Karla Kimrey, Vice President of Investor Relations. Please go ahead.

Good morning, and thanks for joining Peabody's earnings call for the fourth quarter of 2022. With me today are President and CEO, Jim Grech; and CFO, Mark Spurbeck. Within the earnings release, you'll find our statement on forward-looking information as well as a reconciliation of non-GAAP financial measures. We encourage you to consider the risk factors referenced there, along with our public filings with the SEC. I'll now turn the call over to Jim.

Thanks, Karla, and good morning, everyone. Before we get started this morning, I'd like to take a moment and welcome Karla Kimrey to her new role as Vice President of Investor Relations and Communications for Peabody. Karla has over 25 years of experience in Investor Relations with 7 of those in the coal industry. In the fourth quarter and full year 2022, Peabody's diverse portfolio produced substantial and, in many cases, record-breaking results. We had record free cash flow in the quarter and record net income attributable to common stockholders. This performance enabled us to retire all our remaining senior secured debt which was a key milestone in the execution of our anticipated shareholder return program, which we expect to be implemented in the near future. We did have weather challenges in the quarter that we had to overcome in both the U.S. and Australia. In the U.S., the extreme cold weather in December resulted in a substantially disrupted rail service for the PRB. In Australia, the intense rainfall during the quarter impacted production, sales and in turn costs. Additionally, we did feel the impact of greater than anticipated inflation across all our operations, and we're working diligently to control those costs. Before I go into the discussion on markets and our platform, I speak for our entire management team as we would like to sincerely thank our global employees for their continued hard work and their focus on working safely. In 2022, we had our lowest annual global injury rate ever, and 3 of our mines reported 0 incidents. Dedication and commitment of our employees allowed us to deliver the strong results we're announcing today. As we look forward, the diversity of our platform from a product standpoint to a geographic one has allowed us to take advantage of…

Thanks, Jim, and good morning, everyone. In the fourth quarter, we recorded net income attributable to common stockholders of $632 million or $3.92 per diluted share and adjusted EBITDA of $501 million. We reported record free cash flow of $580 million and had $1.3 billion of cash at December 31 after repaying all of the remaining senior secured debt. For the full year, we had record net income attributable to common stockholders of $1.3 billion, a 260% increase over the prior year. Adjusted EBITDA more than doubled to $1.8 billion. Our strong financial performance allowed us to retire all $545 million of the remaining senior secured debt in the fourth quarter, completing the repayment of over $1.1 billion for the full year. Further, we are actively addressing the reclamation surety agreement to arrive at a sensible straightforward path to prefund all final reclamation costs and eliminate the remaining restriction on shareholder returns. We are optimistic this will be completed in the near future. Turning now to fourth quarter and full year results. In the quarter, seaborne thermal recorded adjusted EBITDA of $209 million a 22% increase over the third quarter as export volumes increased 700,000 tons to $2.3 million. Cost per ton were 12% lower due to higher volumes and lower sales price sensitive costs. The segment generated $648 million of adjusted EBITDA for the full year, an increase of more than 80% compared to 2021. Adjusted EBITDA margin per ton more than doubled resulting in margins of 48%. The Seaborne Metallurgical segment generated $188 million of adjusted EBITDA in the fourth quarter, up 66% from the prior quarter driven by 22% higher realized pricing and 200,000 additional tons. Costs increased $14 per ton due to higher sales price sensitive costs and a longwall move at Metropolitan. For the full…

[Operator Instructions]. Our first question from Lucas Pipes of B. Riley Securities.

Jim, it sounds like -- first, congratulations on the good work. And it sounds like you are really close to a capital return announcement. And I wondered if you've given some thought as to what the structure could look like across the industry we've seen frameworks where almost all of the free cash flow is paid out. You've seen others where 35%, 35% to 50% is paid out and kind of the payout ratio stepped up as balance sheet milestones are reached. How do you think about the magnitude of capital returns once you have to .

Lucas, and thank you for those kind words. We are in active negotiations right now with the sureties. So it's -- we don't want to get too far ahead of ourselves with details, but we did make some comments at Investor Day about some of the concepts we were looking at. And Mark, do you want to elaborate on some of those, please?

Yes. Sure. Lucas, good to be with you this morning. As we mentioned at Investor Day, any shareholder return program that we're looking at is certainly going to be proportional to free cash flow and it's going to be flexible to return cash to shareholders through both buybacks and dividends. When we look at a broad spectrum of companies with shareholder returns programs, those companies that return the most and utilize both dividends and buybacks have performed best over time. So that's not lost on us. Closer to home, we like what we've seen from some in our industry, and we have a few good templates to use and improve upon. As Jim mentioned, we're not ready to share any more details with you today, but expect more in the near future.

Very helpful, Jim and Mark. And for my second question, I wanted to turn a little bit to the domestic market. It's been roughly 6 weeks since natural gas prices corrected very meaningfully. And wondered first, how has this impacted your outlook, if at all? And as you look to the 2024 domestic book in the PRB and other domestic thermal, how are price negotiations going? How are contract negotiations going? And could you share what you have currently priced for enterprise if possible for 2024 in the domestic segment?

Lucas, so for 2023, we have a solid sales book, as we stated. We are completely sold out both in the PRB and our other U.S. thermal mines. So we have a really strong hand there. And so far, the shipments have been going. The nominations have been there and the demand has been there. Our customers, particularly our PRB customers are still short of their target inventories even though they're burning less coal are still short of their inventory. So the demand is there. The challenge we're having is with rail service in the PRB, which was a challenge we had last year and has continued into the start of this year, still with crew shortages, but also there's been some tough weather in the PRB. We are expecting to see that turn around here in the coming months, both railroads have additional crews coming on in February this month. So we're expecting to see some improvements in the rail performance. And at the moment, that really, Lucas, is nothing that I would say that we're seeing from the customer side. It's more of a transportation issue, which is a carryover from last year. The question you had about 2024, we again have a very strong sales book for 2024. In the PRB were sold to around 80% of that midpoint of our 2023 guidance. And in our other U.S. operations were sold around to about 60% that midpoint of our 2023 guidance. And those were all locked in last year. And I would say we -- in terms of pricing, we don't discuss specific pricing going forward at that time. But since they were locked in last year, I would just say that the pricing is what we would consider to be favorable.

[Operator Instructions]. Our next question comes from Nathan Martin at the Benchmark Company.

Congrats on getting the senior secured debt paydown. Maybe looking at a bigger quick picture question to start. Jim, you made a couple of brief comments on this in your opening remarks. But how does China's reopening to Australian coal specifically affect Peabody? How much of an opportunity does that possibly present to you guys?

Nate, if I could, I'd like to answer that in the scope of maybe a bigger view of the market in total, which would encapsulate Peabody in China. The market in total in the international markets, we've said and still are saying that there is a significant barriers to entry on the supply side. So when market demands increase, the supply side does not respond because of these high barriers to entry. So taking that into account that there is no quick supply side response, if we just start looking at the seaborne met markets and where they are now and what the potential impact of China could be on that. The prices right now are currently 88% above 2022 lows. So sitting in at $380 range versus $203 million, and that's because demand right now is solid and is showing some signs of increasing demand in India, Japan, Korea and even some in Europe has increased. And at this point in time, in January, we had more metallurgical coal floating in the seaborne markets at any time since July of last year. So the metallurgical demand has been good and is increasing in some of these markets. Now you throw China into that mix and then you add in the weather disruptions that have occurred in Australia and that's why you're seeing these current prices with the strength they have with potential for those prices to be sustained or maybe even improve depending on how quickly China gets back into the market and starts pulling coal out of the market. Seaborne Thermal maybe we're at the opposite end at the moment in the market right now. The prices are lowest that they've been since January of last year, mainly due to the mild winters in Europe and in the Eastern U.S. But the same -- Nate, the same fundamentals exist in the Seaborne market, maybe even more severe when it comes to the barriers of entry than metallurgical coal, there's no quick supply response, if at all. So we think with the growing return to normal weather, we think there's going to be growing energy demand. You see if the increased demand for metallurgical coal would be some signs of increased energy demand. You had China into that mix and we see the thermal prices rebounding -- international thermal prices rebounding later this year.

Very helpful, Jim. I appreciate those comments. And maybe sticking with the Aussie operations for a second. I think you guys touched on this a little bit, but seaborne thermal cost guidance for '23, higher than expected, up about like $7 to $12 year-over-year to a range of $52 to $57, if my math is correct. I mean -- can you be a little bit more specific around what's driving that increase? Is it something in particular at Wambo or Wilpinjong? Just any additional color would be great.

Yes, Nate. It's really driven by the mix, and it's really the shift of production to Wambo, both the open cut joint venture with Glencore as well as the underground mine in Wambo. Again, that produces a Newcastle quality thermal coal and away from Wilpinjong. Wilpinjong is going to produce less. That's our lowest cost mine in the portfolio and one of the lowest cost seaborne thermal producers in all of Australia, less production at Wilpinjong. More importantly, though, is the increase in the export tons. Those export tons, increasing 1.5 million tons, we're going to see some substantial margin expansion given those additional export tons. And they come along with a little bit higher cost, Wambo, particularly the underground, higher cost structure, as you can imagine, also need to wash some additional coals at Wilpinjong as well as the port and rail cost for those export tons. So that's really driving it. There's some higher sales price sensitive costs as we look at realizations as well. But I'll gladly take $10 higher cost for another 1.5 million export tons in that margin expansion.

Appreciate that, Mark. And then maybe while I have you, you gave us some good guidance last quarter on the other operating cost line item. Again, I know that's kind of lumpy with trading and brokerage. You also called out, I think, another $200 million of hedges looking to roll off in the first half. Any thoughts on how that line item or the hedges could look like over the next few quarters?

Yes, 2 things. One, remember, in the first quarter of '22, we had realized about $35 million of hedge losses that's really just weather-related production delays and delivering some of those hedge tons later in the year. And in the third quarter, if you remember, we delivered a portion of those tons when the average price was $420 per metric ton versus the $264 in the first quarter. We recorded about a $27 million gain in coal trade in the third quarter. Again, in a similar fashion in the fourth quarter, we delivered the remainder of those tons when the average price was $380. So realized another $24 million in coal trading profits in the fourth quarter. As we go into next year, we're seeing opportunities for -- in our blending program and our coal trading program. So as we've typically done, we see some of that as well as delivering some of the fixed price tons that we had. So I'd expect a decent quarter here in the first quarter for coal trade again.

Ladies and gentlemen, this concludes our question-and-answer session. I'd like to turn the conference back over to Mr. Jim Grech for any closing -- additional or closing remarks.

Thank you all for joining us today. I'd especially like to thank our employees for remaining focused on safety and for continuing to execute on our various initiatives. I'd also like to thank our customers, investors, insurance providers and vendors for your continued support. Operator, that concludes our call.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.