Good afternoon. My name is Matt, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Warrior Met Coal Second Quarter 2022 Financial Results Conference Call. [Operator Instructions]. 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 at its website at www.warriormetcoal.com. Here today 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 second quarter 2022 results. After my remarks, Dale will review our results in additional detail, and then you'll have the opportunity to ask questions. I'm excited to share the results from yet another very strong quarter. It represented our third consecutive quarter of record net income and earnings per share since the start of the COVID-19 pandemic. We again demonstrated our ability to leverage our efficient business model to meet strong customer demand for our premium met coal and taking advantage of strong met coal pricing to deliver these results. In addition to net income and earnings per share, this resulted in record high amounts of revenue, adjusted EBITDA, cash flow from operations, free cash flow and liquidity. We were clearly the beneficiary of macroeconomic conditions driving higher pricing and strong customer demand, and we are pleased with how well positioned the company is to be able to take advantage of these tailwinds. But is the strength, efficiency and nimbleness of our business model that are the key differentiators for us in good times and bad. We were able to see those strengths in action this past quarter in response to both industry and non-industry-related issues. For example, we felt the impact of the significant inflationary environment on our cost of sales, which Dale will speak to later. Despite these increased costs, we were able to deliver strong profitability. In addition, many industries, including ours, were impacted by shipment delays related to port maintenance, the lack of available rail transportation and port congestion. We were able to overcome these issues to deliver our premium products to our customers around the world. That's why our thinking always remains ultimately defensive. It is important…

Thanks, Walt. In the press release we issued on May 3, we laid out our current policy in regard to capital allocation, which focuses on our ability to fund the operations regardless of volatility in the met coal market, investing in highly accretive growth opportunities such as Blue Creek and leveraging our free cash flow to return cash to stockholders through special cash dividends or stock repurchases. Using the strong cash flow generated during the second quarter, we deployed the highest quarterly amount of capital spending and mine development ever in the business of $79 million, as Walt noted earlier. We expect full year capital spending of approximately $200 million to be a record high for the company. While deploying that capital into the business during the second quarter, we also paid a special dividend to stockholders of $0.50 per share. In addition, earlier this week, we announced our second special dividend of the year that will be paid to stockholders in late August on top of the regular quarterly dividend. As previously disclosed, there are certain key metrics that we're continuing to focus on achieving as we make those capital allocation decisions during the 5-year development at Blue Creek. They include: first, maintaining a higher amount of minimum total liquidity of $250 million, including a minimum cash balance of $150 million at all times during the development of Blue Creek. Second, staying no more than 1.5x to 2x levered over that same period. And third, balancing the value of our NOLs with stock repurchases, which could jeopardize those NOLs until they're fully utilized. While our current cash balance and total liquidity well exceeds those minimums, we continue to stockpile cash for the anticipated capital spending for the new longwall shields and the development of Blue Creek while returning excess…

[Operator Instructions]. Our first question will come from David Gagliano with BMO.

Congratulations on a very strong quarter, by the way. I wanted to just ask about the cost guidance for the second half of the year. And for the full year, the full year guide obviously didn't change the range. And it implies kind of a flat second half versus the first half. And you talked up the third quarter number because of the lag in transport costs and then we'll get some relief. So it's kind of a 2-part question here. First is, can you frame the order of magnitude the increase quarter-over-quarter in cash costs and also talk about what price assumptions you're using for the second half of the year embedded in that full year range that hasn't changed?

Sure, David. This is Dale. So if you look into our range, I mean, for the first half, we're right in the middle of that range. So -- and if you look at cash costs based on what we're looking at right now, they're going to be very similar to the third quarter. While prices have decreased and you'll have a decrease in royalties, transportation will be virtually the same because of the 1 quarter lag effect there. And we are expensing roughly $4 in increased costs related to inflation. So I think that keeps us right in that range for the year, and that was pretty much what we were focused on last time. And so our pricing is somewhere -- I think for the full year is in the mid-300s to a little bit above the mid-300s. Now, obviously it can change. And as prices continue to drop, we'll just have to see where we are, but that's kind of where we are right now.

Okay. So maybe I misunderstood. So overall cash cost per ton second -- sorry, third quarter, flattish versus the second quarter. Is that what you're saying? Or I thought I heard up versus second quarter because of higher light transportation costs?

Well, they'll be flattish because you have opposing forces here going on. You'll have royalties decreasing, but transportation will be virtually the same but you got inflation we're having as well. So you're going to be net-net very close, very similar to where we were in the second quarter.

Understood. Okay. I appreciate that clarification. Then on a different note, recently, obviously, met has come down very sharply. And I think there's a bit of a bounce, but nevertheless, quite a decline in met. If the world stays where it is, I haven't had a chance to actually go through the math. But with CapEx accelerating in the second half and into 2023 from Blue Creek, we're sitting around 180, 200-ish Pacific Basin benchmark pricing, will Warrior continue to pay out special dividends during second half of '22 and into 2023?

I think that's a possibility. We continue to execute our capital allocation strategy, obviously, investing in growth in the existing business with the new shields. But you also have the growth with Blue Creek. And when you think about next year, our capital spending should be in that $100 million range outside of Blue Creek. So right now, with nearly $700 million, which is pretty much pre-funding Blue Creek entirely to the extent we generate cash above that then -- and the Board determines that we can return that, we will. And so there's opportunity. It just depends on where the markets go. You're looking at the second half and potential slowdown in the different markets, we'll just have to see where the markets are at the end of the next quarter and just kind of take it quarter by quarter.

[Operator Instructions]. Our next question will come from Lucas Pipes with B. Riley Securities.

First, I wanted to ask a bit on the labor situation. Are you adding headcount at Mine #7, Mine #4?

We continue to add headcount incrementally. We continue to hire folks. So we can -- yes, we continue to hire.

Is there possible to put some numbers around it in terms of kind of pace of additions now versus fourth quarter or first quarter?

The pace slowed down in the -- late in the third quarter, early fourth quarter last year, and it's been slower since then, and it continues to kind of trickle in. We still have some folks continue to cross the ticket line, and we continue to get some new hires. So it's just been a kind of a steady trickle. And as you can see, we've built a little inventory in the second quarter. So we're really pretty happy with where things are right now. We continue to hire and move forward with that.

That's very helpful. And then across the industry, a lot of executives are noting skilled labor is difficult to come by. What's your experience in this market? Is it challenging to find skilled labor? Or would you say you're well positioned from that perspective?

In terms of finding skilled labor, it is -- continues to be very difficult with the -- basically everything -- all mines are operational if they can be, so finding skilled experienced labor has been difficult. So we're just having to train some new folks up and they're doing great.

Good. Good. Then the last point I wanted to touch on is thermal coal pricing versus met coal pricing. Of course, there is a big spread between the 2. Are you able to sell into the thermal coal market? And if so, is there a way to quantify it here at this point?

We will continue. We are looking into selling into the thermal market. As you know, these quality coals on met coal like this one from a BTU standpoint is a much stronger coal than normal thermal coals. So we'll continue to explore that. And as we have opportunities present themselves and we can achieve higher realizations and still meet our customer commitments, we'll do so.

All right. I appreciate it very much. Best of luck.

Our next question will come from Nathan Martin with The Benchmark Company.

Congrats on the quarter. I'm just -- maybe just trying to think about production and sales shipments kind of as we move from the second quarter to the third quarter. Just going back to the comments you guys made, I guess, you commented that there were some -- maybe some downtime on Mine #7, I think in Q3, so production should likely be down quarter-over-quarter. But on the sales side, obviously, you guys called out inventory levels, but more importantly, maybe the transportation issues that seem to be persisting, especially on the rail side. So I was hoping maybe we get a little more color on the transportation side of things? And would you expect, hopefully, an increase in shipments quarter-over-quarter, maybe as that improves a little bit in your unlisting the inventory?

Well, that's our intent is to reduce our inventory from now through the end of the year and definitely in the third quarter. As Dale mentioned, CSX is implementing some plans to hopefully improve their performance, and we'll see how long those take to come to fruition. But we're hopeful that, that will begin to take shape. We also had some major maintenance work done at the port in the third -- in the second quarter, which included rebuilding one of the car dumps from railcars. So those 2 things slowed the port down a bit. And again, the additional congestion from other coals coming in, including thermal, to go out of that port facility. So we expect there's going to continue to be congestion. The port facility should be completed and get up and running pretty quickly. And hopefully, we'll see improved performance out of the railroad.

Got it. Very helpful. I guess you guys still have the ability to barge some coal as well.

We do. We barge some of our coal. We have our own barge load out. We barged some Mine 4 and Mine 7 coal, and we continue to do that to the extent we can. We're pushing the barge facilities as much as we can.

Got it. Perfect. That's all I really had left. I appreciate it guys. Best of luck in the second half.

Our next question will come from Ken Kamon with Pacific Rim Investments LLC.

Walt and Dale, Lucas, basically already asked my question about the thermal coal, but I might ask you if you could elaborate a bit the quality, the specific qualities of our coals, the low volatile and mid-volatile products, are they amenable to use in thermal plants? I understand that sometimes the good coking quality coke -- the coking qualities can kind of backfire on you if you have to use it in a thermal plant. Would we have to perhaps -- would the coal perhaps have to be mixed with a different product to create something that could be burned? Or I'm just kind of wondering about the probability that we may be able to take advantage of these higher thermal prices before the opportunity is gone.

That's really a power plant by power plant issue. Power plants in different parts of the world are able to operate with different coal. You're right, some of the valves can create issues for -- when being utilized as a thermal coal. But the -- again, the BTU quality kind of makes them want to figure out a way to blend it in and utilize it because it's about a 15% or 20% premium in terms of quality.

So it's, I guess, something that we'll know with time.

Yes. No one is going to be able to just completely -- I agree with you, no one's going to be able to completely switch over to met coals because it would cause some problems. But I think you'll see it find its way in and it will cause things to balance out a bit.

At this time, there are no further questions. I will now turn the call back to Mr. Scheller for any comments.

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

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