Good day, and welcome to the Peabody First Quarter 2024 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Karla Kimrey. Please go ahead.

Good morning, and thanks for joining Peabody Energy call for the First Quarter of 2024. With me today are President and CEO, Jim Grech, CFO; Mark Spurbeck, and our Chief Marketing Officer, Malcolm Roberts. Within the earnings release, you will 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. Now I'll turn the call over to Jim.

Thanks, Karla, and good morning, everyone. First quarter operational results were highlighted by a number of challenges and successes. There were unforeseen production challenges in Australia that are now behind us. While thermal coal shipments in the U.S. were impacted by unseasonably warm winter weather and low natural gas prices. Within our Seaborne Met segment, Shoal Creek continues to exceed production expectations, although shipments have been hampered by the failure of the Demopolis lock. We continue to strategically invest in our portfolio through the development of Centurion, and completed the acquisition of the adjacent Wards Well coal deposit, which extends the mine life to over 25 years. Before I expand on the markets, I want to thank our global employees for their continued focus and commitment to working safely and efficiently. Now turning to the global coal markets. Seaborne Thermal coal markets traded within a tighter range for the first quarter. The normal winter and low natural gas prices have continued to weigh on demand for thermal coal, coupled with a steady supply from the East Coast of Australia, resulting in Newcastle coal trading within a range of $120 to $135 per ton. Asian thermal coal imports are expected to remain robust, with China continuing to show increases in electricity demand with first quarter Seaborne Thermal coal imports estimated at a year-over-year increase of approximately 15%. Within the Seaborne Metallurgical coal market, coking coal prices declined during the quarter. Metallurgical coal demand was hampered by a thin steel margin globally, except for India, where robust economic output supported steelmaking profitability. PCI prices also were treated during the quarter. However, not to the extent of higher quality coking coals. During April, we have seen improving steel margins and seasonal restocking finding pricing support for metallurgical coal markets. In the United States,…

Thanks Jim. In the first quarter, we recorded net income attributable to common stockholders of $40 million or $0.29 per diluted share and adjusted EBITDA of $161 million. Included in these results was an estimated $18 million non-cash remeasurement charge from the weaker Australian dollar. The company generated $120 million of operating cash flow and had $61 million of capital expenditures with more than half of it dedicated to Centurion. During the quarter, we continued to execute on our shareholder return program and repurchased 3.2 million shares or 3% of shares outstanding. Under the existing $1 billion share repurchase program, we have $570 million of remaining share repurchase authorization. The company ended the quarter with $856 million of cash, fully funded reclamation accounts and the new $320 million revolving credit facility. Turning now to the first quarter segment results. Seaborne Thermal recorded $94 million of adjusted EBITDA. First quarter shipments were 100,000 tons more than anticipated and higher Wilpinjong production offset lower production at Wambo. For lower cost Wilpinjong production was offset by lower realized prices, resulting in EBITDA margins of 33%, in line with the previous quarter. The Seaborne Metallurgical segment generated $48 million of adjusted EBITDA. Average realized pricing was less than anticipated due to mining lower quality coking at the CMJV. And PCI coal prices remained weak, relative to premium hard coking coal. Costs of $139 per ton were at the higher end of guidance due to unplanned equipment and [wash plant] repair costs at the CMJV. The U.S. thermal mines produced $63 million of adjusted EBITDA in the quarter and lower than expected shipments that Jim previously mentioned. The PRB mines shipped 18.7 million tons and generated $16 million of adjusted EBITDA. Cost came in at $12.74 per ton higher than expected due to lower production…

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Lucas Pipes from B. Riley Securities. Please go ahead.

Mark I want to start with a few questions on the finance side. You noted the U.S. Reclamation bond release of $105 million. And I wondered if you could maybe walk us through the cash flow implications of that release, if any? And then just around cash flows in Q1, I'd anticipate something similar in Q2 with the Wards Well acquisition closing. Could you speak to any other kind of cash flow impact in Q2 be it working capital or otherwise? And then just with that lumpiness how do you think about staying in the market from a buyback perspective? Do you have the flexibility to be opportunistic? Or do you kind of pause it here and then resume it in the second half is when you noted cash flow would be stronger again? Thank you very much.

Yes, Lucas, thank you for those questions. And I'll try to hit on all of them. And really good results with some bond reductions in the first quarter. Credit to our team here for, one, getting the reclamation work done; but two, also following up and getting those bonds released. On average those bonds are probably collateralized at about 55%. So, there was some cash returned. We also moved around from some other bonds in Australia. So, there was a cash inflow. So, you see a reduction in that restricted cash and cash collateral on the balance sheet. Offsetting that from a cash flow perspective, though, there was some use of working capital. So net-net, there are $120 million of operating cash flow is how you should look at that. You mentioned a little lumpy here with Q1 with the performance we turned in as expected. Q2 will be similar. We have the $134 million cash purchase at Wards Well, and I know you remarked the tax payments from Australia about $120 million. That makes up both the remaining liability from 2023 as well as first half of 2024 for estimated payments. So, a couple of significant cash usages here in the second quarter. But again, going out we've at the second half well positioned based on guidance and the forward price strip, you can see some pretty significant cash flow depending on your price deck, plus that $300 million to $400 million is an opportunity we have out in front of us from a cash flow perspective. Maybe lastly, just touching on the program, I'll note a couple of things. One, everything we do, including our [repurchase] term program is designed for long-term value and durability. Since we restarted the program, we've announced a return of just under $0.5…

Mark, really appreciate that. I think you hit on all the points there. So, thank you for that. Jimmy, I want to get your perspective on a couple regulatory things. First, EPA last week unveiled a new power plan rule. Could you maybe comment on what you think the impact is to your domestic business? And how you think from a strategic perspective you can mitigate any impact? And then over in Australia, there's, I think, a new labor rule coming that in regards to contractor pay. If you could maybe comment on that and what the impact might be in Australia? Would appreciate your thoughts on those two developments. Thank you.

So on the first one, with the EPA and the new suite of rules and the Clean Power plan rules. I do have some comments on that. But I do want to start out and just recognize the fact that approximately three-quarters of the EBITDA generated from our company comes from our Seaborne Thermal and Met Segment. So that doesn't mean we're not concerned about these regulations. But again, majority of the EBITDA comes from our Seaborne platform. And one of the things you said, what it's going to mean for our domestic business? Well, a lot of these thing is going into effect, if they did go into effect in the later years. So, I don't see any near-term impacts. And the question is still out, is there any beating longer-term impacts. So, we've stated many times that as a company, we believe in a diverse energy mix, and that includes coal and renewables to having good reliability and energy security and affordability. With this suite of regulations, we do believe though that the EPA has overstepped its authority granted to it by Congress and its threatening grid reliability at a time of increased energy demand. So what's different, I think, this time around from the -- this has happened in past years, there's several things Lucas that has to be taken into account in trying to assess what potential impact that we're going to see from these regulations. One is what's going on now, which is it hasn't been happening for many, many years is surging power demand forecast for the next five years and you've had relatively flat load growth for quite a period in our country. And now with the manufacturing centers of electric vehicles, data centers, AI centers and so on there's tremendous load growth…

Thank you very much for that detailed answer on the EPA side. Very, very helpful. On the second part roughly what percentage of your Australian workforce consists of contractors, or labor costs? I guess a few ways to slice it. But I guess, if it starts November then we have 2 out of 12 months impact. So just trying to get a sense for what it could mean for next year on a full year basis?

I don't have that right in front me, but we'll get it right back to you. When we'll get, we'll follow up with you on that one to give you the correct number on that.

The next question comes from Nathan Martin from Benchmark Company. Please go ahead.

To start off with Centurion, you guys still targeting development coal there sometime here in the second quarter it looks like. What's your plan and timing, I guess as far as selling or marketing those tons is concerned?

Look, we've already started including contracts for the development coal coming out of Centurion. So, during the quarter a blue-chip North Asian customers agreed to a two-year contract and we look forward to making our first shipment later this year.

And Malcolm, are there any limitations there from a transportation standpoint at this point?

Absolutely no transport issues. We've been fully set up within the Goonyella system with contracts and the like to be able to have to ship that product.

And then maybe stick with transportation for a second. I think, Jim, you made some comments about the Demopolis lock outage. Just to be clear, what kind of impact are you still seeing there at Shoal Creek? Clearly, your second quarter net sales guidance is up quarter-over-quarter, but just a little more color there would be great.

I'll comment on the lock and then I'll turn it over to Malcolm to talk about you know the sales. The lock we've been saying we expect it to be back Nathan in service by the end of May and the [indiscernible] Engineers came out this morning and actually said I think it's going to be May 22nd. It'll be back in service so more than a week earlier than planned. So that's some good news that we have for us. Now in regards to your question about the impact on sales I'll let Malcolm comment on that.

We've been railing some product to the to the port at McDuffie. However, what this really means is that for the second half of the year we're going to be weighted probably two thirds of our annual volume from Shoal Creek to the second half of the year and one third for the first half as a result. But we really do forward that lot coming back and we're advised today 22nd of May.

And maybe shifting over and I know I asked about this last quarter and I think you know Jim you clearly made some comments in your prepare remarks too. But the PRB shipment is below your first quarter target, second quarter guidance down 3 million tons plus or minus. Again, we know seasonally that's typical during the shoulder season. But would be great kind of get your thoughts on what gives you confidence to maintain your full year guidance range at this point? I mean it looks to me like you will need to increase second half shipments by at least 12 million tons just to kind of hit the low end of that range. So, it would be great to just get a little bit more thought around that piece. Thank you.

First off, the tonnage levels that we're looking at for the second and then particularly the third and fourth quarter are well within tonnage ranges that we shipped in the past. So as far as the quantity of coal and our ability to produce it, and I do believe the railroads are going to be able to move it as well, which is a key item in the third and fourth quarter. So logistically, operationally, we feel very good about that. Our sales book is strong and the indications we have from our customers is that right now we are expecting to have some normal pull in that third and fourth quarter on those tons. We've already seen an uptick in some nominations for May. It was a little stronger than we thought it was going to be and we're getting some early indications we could see that again in June. So, it looks like there's recovery starting to occur in the PRB and the indications we're getting from our customers at this time. Operational logistically, we feel -- again, we feel that [the way we're reaffirming that] guidance for the full year.

And then maybe just one more. Mark to you. I don't want to leave you out. I know Lucas touched on this earlier. Some of the moving pieces on the cash side here in the second quarter that are expected. Your available free cash flow I think was actually negative at the end of the first quarter. How could this impact your ability to repurchase shares again here in the second quarter?

You're right. The table shows the minus four there off of Q1 and with the cash purchase awards well and the cash tax payments, not expecting a robust number for Q2. But again, our program is designed to be flexible. It is on an annual basis. We're very happy with our liquidity position and we see some strong cash flows coming forward here in the second half of the year.

The next question comes from Katja Jancic from BMO Capital Markets. Please go ahead.

Maybe just staying a bit on the share buybacks. Is there any possibility that you could use some of the cash on the balance sheet since it's so strong for buybacks?

As I mentioned the program is based on an annual look and we have flexibility. As I mentioned with Nate, we feel comfortable with our liquidity and you know strong cash flows coming in the second half of the year. So, we are designed to be flexible and we haven't announced anything but we have that built in to do we deem appropriate and to be opportunistic as the market presents.

And maybe then on the Centurion. I think for this year for second half you expect to ship 150000 tons or that was prior expectation? Is that still -- does that still hold? And then maybe looking to next year what could potential contribution from Centurion be?

So this year we look to we look to ship about 100,000 tons for the current year. And I think production next year on a development basis is probably in the 400,000 ton range. And as Malcolm mentioned we already have blue-chip Asian customers kind of knocking down our doors trying to contract some of that coal. So really set up strong.

Our next question is a follow-up from Lucas Pipes from B. Riley Securities. Please go ahead.

Thank you very much for taking my follow-up question. I'll start with a quick one. The high ash product could you remind us what pricing has been quarter-to-date for that API 5? And then where does Wilpinjong typically price as a percentage against that index? Thank you.

We got to put 5% to 20% discount against the 5 API 5 index, which is the China Index which is a 5500 [indiscernible] 22% ash product. We supply a higher product slightly higher than that. So that represents the discount we're going to.

And Shoal Creek in Q1 MSHA data was very helpful. Was very, very strong on. And so, I wondered if you could maybe comment it on kind of the operational outlook from here. I assume there's maybe a little bit of a normalization, but would be helpful to hear how you think about operations at Shoal Creek for the remainder of the year? Thank you.

I think MSHA data had about 600,000 tons in Q1 which again is a very, very strong quarter for the mine. Very, very happy with what the team has done down there and show that new fit for purpose longwall that we had down there. It's really making a difference. But we do have a longwall move later in the year, we have miners' vacation and so on for to content [indiscernible] and we didn't have all of those things occurring in the first quarter. So, to keep that pace up is would be very challenging later in the year with all the things that we have. I just don't see it staying at that pace in the following quarter with the longwall moves and the miners' vacation that we have ahead of us.

There are no more questions in the queue. This concludes our question-and-answer session.

[indiscernible] 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 investors, customers and vendors for your continued support. Operator that concludes our call. Thank you.

Conference has now concluded. And thank you for attending today's presentation.