Good afternoon. My name is Raghu, and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal Third Quarter 2020 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] This call is being recorded and will be available for replay on the company's website. Before we begin, I have been asked to note that today's discussion may contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements, please refer to the company's press release and SEC filings. I have also been asked to note that the company has posted reconciliations of the non-GAAP financial measures discussed during this call in the tables accompanying the company's earnings press release located on the Investors section of the company's website at www.warriormetcoal.com. In addition to the earnings release, the company has posted a brief supplemental slide presentation to the Investors section of its website at www.warriormetcoal.com. Here to discuss the company's results are Mr. Walt Scheller, Chief Executive Officer; and Mr. Dale Boyles, Chief Financial Officer. Mr. Scheller, you may begin your remarks.

Thanks, operator. Hello, everyone, and thank you for taking the time to join us today to discuss our third quarter 2020 results. After my remarks, Dale will review our results in additional detail and then you will have the opportunity to ask questions. The third quarter presented a challenging market environment as the COVID-19 pandemic continued its disruptive impact on the U.S. and global economies. Although, the steel and met coal industries operated well below their normal yearly levels, we started to see higher sales volumes in the third quarter, compared to the second quarter as customers in our key markets began to increase their operating rates and restock their inventories. However, we cannot say the same on pricing as we experienced our lowest average realized met coal price since becoming a publicly-traded company. Despite these challenging headwinds in particular on met coal pricing, we were pleased once again to be free cash flow positive for the quarter. We've remained focused on preserving cash, liquidity and managing the aspects of the business that we can control, achieving our lowest cash cost per short ton since going public. At the same time, we carefully balanced our spending on longer term CapEx investments to keep us uniquely well positioned to benefit from the eventual recovery in steel production, met coal demand and pricing. We continue to take the necessary measures to adjust our workplace environment, to comply with social distancing and personal hygiene guidelines set forth by various health organizations to protect the health and safety of our employees while maintaining our operations. While we continue to operate our mines, as a critical infrastructure business in the state of Alabama, these are challenging times and I would like to thank all of our employees for their hard work and resilience. We've been…

Thanks, Walt. As Walt discussed, the overall financial results for the third quarter were primarily driven by a significant reduction in U.S. and global economic activity as a result of the spread of COVID-19 this year, compared to a fairly robust market environment last year. Our third quarter was about balancing competing priorities. We ran the mines without idling or laying-off employees while keeping our costs low in the extremely depressed and challenging price environment. We balanced those results with continued to make significant CapEx and mine development investments. Our ability to remain free cash flow positive for the third quarter was an important outcome of the success for our balancing act. Overall, our total liquidity increased by $12 million from the second quarter to $280 million at the end of the third quarter. For the third quarter 2020, the company recorded a net loss on a GAAP basis of approximately $14 million or a loss of $0.28 per diluted share compared to net income of $45 million or $0.87 per diluted share in the same quarter last year. Non-GAAP adjusted net loss for the third quarter was $14 million or a loss of $0.28 per diluted share, compared to $0.79 of income per diluted share in the third quarter of 2019. Adjusted EBITDA was $16 million in the third quarter of 2020 as compared to $83 million in the same quarter last year. The quarterly decrease was primarily driven by a 36% decrease in average net selling prices. Our adjusted EBITDA margin was 9% in the third quarter of 2020, compared to 29% in the same quarter last year. Total revenues were approximately $180 million in the third quarter of 2020, compared to $288 million in the same quarter last year. This decrease was primarily due to the 3%…

Thanks, Dale. Before we move on to Q&A, I'd like to make a few more comments. Most of the major steel demand factors, such as automobile production and construction continue to show encouraging signs of recovery. While we entered the fourth quarter with improving expectations for steel and met coal demand and better visibility with our customers, we do not expect a repeat of third quarter sales volumes. We expect our fourth quarter sales volumes to be somewhere between the worst of the second quarter and third quarter, which contains some amount of restocking by our customers. Therefore, we're cautiously optimistic on fourth quarter volumes, and we continue to keep close contact with our customers during this period, in order to optimize our sales orders and capitalize on opportunities that meet our profitability threshold. As previously mentioned, we expect that our current inventory levels will remain elevated through the year end, as we intend to adjust production rates in accordance with demand, and as we manage for potential disruption risks due to COVID-19. Obviously, if the opportunity to sell additional volume while meeting our profitability threshold materializes, we would expect to see a more rapid decrease in our inventory levels. As for the outlook on met coal pricing, we believe in proving fundamental should provide a more positive pricing environment than what we just experienced in the third quarter. However, we recognize the pricing movements are often subject to market dynamics that are both difficult to predict and/or quantify. The recent indication of a ban on imported Australian coals into China is a good example and has left us without a clear indication of the direction of price for the short-term. As I stated before, despite the many unknowns, there are a few important reasons that our business is well positioned to weather any prolonged economic challenge. One our highly talented workforce is committed to safely and efficiently driving results. Two, we maintain one of the world's quality met coal portfolios and have strong long-term customer relationships. Three, we have a strong balance sheet and adequate liquidity. Four, our low and variable cost structure enables us to drive higher margins and free cash flow across most business environments. And five, we made significant investments in our operations over the past three years, allowing us to now reduce capital expenditures as needed without significantly impacting our operations. As a result of these factors, I'm confident we will emerge from this health crisis ready to achieve our long-term growth potential. With that, we'd like to open the call for questions. Operator?

Thank you. [Operator Instructions] And today's first question comes from David Gagliano with BMO Capital Markets. Please go ahead.

All right. Great. Thanks for taking my questions. Just a couple of clarifications, first of all. When you say between the worst of the second quarter and the third quarter, I mean, is it as simple as saying second quarter was 1.5 million, third quarter 1.9, what you're saying is 1.7 million tons or it's kind of worded a little vague to me. So can you just clarify what you mean by the worst of the second quarter?

Well yes, David, what we were saying is the second quarter was worse in the year, so we expect it to be in that range, you said 1.7 and that's halfway between the 2.

Okay. So – and then the cash cost commentary was basically a total dollar amount, the same volume is lower. So I mean that's pretty much it for that. And then the only other question I have is the pricing came in at 90% of the average or whatever, and I know there is timing differences. So the only other question is in terms of short-term, how should we think about the discount relative to the average for the fourth quarter, it's quite a bit wider than it has been in the past?

Well, I think you need to watch what's going on in the market and see are we in a rising market or falling market. My expectation is in a falling market, we hit 139 and now we're back down to 107. So for at least the first part of the fourth quarter my expectation would be because we sell based on 15 to 30 days before the vessel loads. To my expectation it would be a higher number for that period, I can't tell you what's going to happen the rest of the quarter if we end up having the prices go back up, then we'll end up back with a lower number at that point, just given the lag and timing.

Okay. I understood. And then – yes.

The other thing that happened in the third quarter was the face that we had higher spot sales than normal we were at 50-50. Our expectation is in the fourth quarter for that to start to get a little closer, a little better and learn hopefully more like a 60-40 number even North of that. But that's the other thing that kind of drove the price down a little bit.

Okay. And then in terms of the actual market itself, obviously quite a bit going on with China, et cetera and in terms of your positioning and your views towards what's going on in the spot market right now? What are you hearing on a day-to-day basis in terms of the impact? The change of policy in China is having in the similar market now. And do you have any thoughts on adjusting your volumes? Obviously you've done that in the past in a weak market, I'm just wondering if we're heading in that direction again.

We don't see a weak market, actually demand has been very strong for our products. The issue has been when China said they weren't going to take the Australian coal and you had a dozen or so vessels out there floating around that needed to be placed that immediately drove the pricing down. And until those – some of those vessels are still floating until that all gets taken out of the marketplace, I think we'll continue to see prices depressed, but the demand with our customers, we are not seeing any weakness out of our customers in Europe, South America, or even our customers in Asia.

Okay. That's helpful. Thanks.

Thank you.

And our next question today comes from Lucas Pipes with B. Riley Securities. Please go ahead.

Hey, good afternoon, everybody and good job on the cost side and managing this environment. I wanted to ask on Blue Creek. So further delay here on the project in the prepared remarks, you commented that this is really kind of due to the uncertainties to COVID if I understood you correctly, but if there may be a broader rethinking of the merits of the project, not because of the project itself, just because of the market environment has been pretty depressed from a pricing standpoint. And when we think about where the equities are trading, maybe there are other places to put capital, even as the market comes back a little bit. So would appreciate your thoughts on that. Thank you.

Yes. I think what we've said in the past is that this was based on what was going on in the marketplace currently, we still think it's a fantastic project. Frankly, I don't think there's another project in North America that has anywhere near the value of this project. It's just a matter of us looking at how do we finance the project, how do we build it out. And when do we get started on it, because it's a big commitment for the company. And we want to be sure that once we start moving in that direction, we're ready to do it. So we have not lost confidence even at $100 a ton, I think the payback on this project is very, very high. So we are not – that's not what's driving our decision-making our own project.

That's helpful. Thank you for that. And then one of the things I often hear from investors is your track record of returning capital to shareholders in a very efficient form. I think investors really think of you as a leader in that regard. Historic commitment within the company that as prices recover, you would kind of follow that example of the last cycle or what you say with this disclosed project still being so attractive, the priorities could shift going forward.

I think what we've always said in the past is that we will return excess cash to shareholders in one form or another and we're still sticking by that. And what is excess cash will be determined at the time as we're looking at it.

Okay. That's helpful.

Lucas, this is Dale. I would just point out to, look – mostly everybody cut their dividends period altogether. But while it is a small stipend, we continue to pay our quarterly dividend as we said, we would do.

That's good to see. And you certainly done a very good job in navigating this environment. I'll try to sneak one last question in, and that's – it's a bigger picture on the demand side, but from some of the steel companies, some of the iron ore companies, we're hearing more about the desire to substitute met coal, albeit for ESG or concerns or just being in a carbon constraint world. Are you – what do you think about that threat of met coal substitution and steel production? Would really appreciate your thoughts, is this a 10-year trend or maybe something closer than that? Thank you.

I think if you look over a 10-year period, I think the – especially the very high quality coals will continue to do very well. I think the replacement you'll see is the replacement of potentially PCI coals. If anything over that short to medium term, longer term, who knows, everybody's working hard to develop ways to reduce their carbon footprint. But I think over the short to medium term, I think the demand for at least the quality of coals that we have here at Warrior will continue to be very strong.

I appreciate that very much. Walt and Dale, best of luck. And yes, I hope you can return to optimal output levels and stronger pricing very soon.

Thank you.

Thanks for the questions.

[Operator Instructions] Our next question comes from Chris Terry with Deutsche Bank. Please go ahead.

Hi, Walt and Dale, a couple of questions for me, on the company specifics and also the market. Just in terms of the coal market. I think you said you sold 22% into Asia, was the bans in place right now? Is there any opportunity to increase your percent into Asia right now for Warrior?

Well, I think again, right now you have that ban into Asia. You've got a bunch of vessels floating around in Asia that would probably be easier to place into other places in Asia than taking products from North America over there. We have not – there may have been one vessel in the last few years of Warrior coal that we didn't sell, but it was actually sold into China, but very little Warrior coal is gone into China. Our product primarily moves into Japan and South Korea.

Okay. And is your expectation that we follow something similar last year and that ban probably rolls off in January or is it hard to tell?

You know what, it is so hard to tell with what they're doing, our expectation is that it gets relieved in whether it's December or January, but it's just so hard to tell with what the Chinese are going to do.

Okay. And a couple of questions for Dale, just on CapEx, you're roughly $110 million levels, if you analyze that quarter. Can you keep it at that level for another 12 months, if coal prices don't rebound?

Well, I think what we've done and we said, look, we've tried to balance, keeping those long-term investments with the low met coal pricing, as well as challenging our costs and trying to keep them as low as possible. So to the extent, we can continue to invest as we have, we will. Just point out that, of the call it $85 million spent this year, $48 million of that's really sustaining, the rest of that is all discretionary that we could have probably trimmed back quite significantly, but we've chosen to continue to invest and managed to be free cash flow positive. So again, we're trying to balance those priorities of meeting the short-term needs and the market conditions and investing for the future as well. So that's kind of where we are.

Okay. That makes sense. And then can you just remind us maybe over the next couple of quarters, if you have any longwall moves?

I believe we'll have a longwall move that crosses between the end of Q4 and Q1. We're just not sure whether it hit at the end of December or early January.

Okay. And the last one from me, when you've obviously – $290 million of the liquidity, you'll reassess Blue Creek timing early next year, you said what's the latest thinking on the financing of that, just the cash flow from operations versus I guess using debt?

Yes, nothing's really changed there, Chris. We don’t still continue to look at all of our options. It's just, right now focused on preserving cash and liquidity in the existing market.

Okay. All the best, guys. Thank you.

Thank you.

At this time, there are no further questions. I'd like to turn the conference back over to Mr. Scheller for any final remarks.

Thank you. That concludes our call this afternoon. Thank you again for joining us today. We appreciate your interest in Warrior Met Coal.

Thank you. And that concludes today's conference. Thank you all for participating. You may now disconnect.