Good afternoon. My name is Joe, and I will be your conference operator today. At this time, I would like to welcome everyone to the Warrior Met Coal Fourth Quarter and Full Year 2022 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' 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 releases and SEC filings. I have also been asked to note that the company has posted reconciliations to 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 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 fourth quarter and full year 2022 results. After my remarks, Dale will review our results in additional detail, and then you'll have the opportunity to ask questions. We ended the fourth quarter with optimism, the strong customer demand to facilitate a drawdown of our inventories with the expectation of continuous improvement in rail transportation and improved performance at the McDufffie Terminal. Unfortunately, several uncontrollable shipment delays continue to drive higher-than-normal inventories and lower shipment volumes in the fourth quarter. As we mentioned on previous calls, the rail transportation and the McDufffie Terminal performance issues impacted our shipment volumes each quarter during 2022 and caused our demurrage costs to increase by 415% last year. This underperformance by our business partners resulted in sales volumes that were below our expectations and guidance for the full year 2022. We had the customer orders ready to ship, but the mechanical failures prevented us from realizing the strong customer demand during the fourth quarter. Looking further at our outbound logistics, the fourth quarter provided a mix of encouraging and disappointing news. On the positive side, we experienced our best coal movement quarter of the year, largely due to improvements in rail service and the consistent reliability of our barging system. The performance by our rail carrier was stable throughout the quarter and has remained so into the first few weeks of 2023. We expect to see this level of service going forward as incremental improvements are made over time in order to return the service to historical performance levels. On the disappointing side, our main export terminal, McDufffie, suffered a myriad of mechanical issues that greatly impeded its loading abilities. The mechanical failures have been mainly concentrated…

Thanks, Walt. For the fourth quarter of 2022, the company recorded net income on a GAAP basis of $100 million or $1.93 per diluted share compared to net income of $138 million or $2.68 per diluted share in the same quarter of 2021. Non-GAAP adjusted net income for the fourth quarter, excluding the non-recurring business interruption expenses, idle mine expenses and other non-cash adjustments was $1.90 per diluted share compared to an adjusted net income of $3.17 per diluted share in the same quarter of 2021. These decreases quarter-over-quarter were primarily driven by lower average net selling prices and higher operating cost. We reported adjusted EBITDA of $148 million in the fourth quarter of 2022 compared to $240 million in the same quarter of 2021. The quarterly decrease was primarily driven by a 17% decrease in average net selling prices, on flat sales volume, plus higher variable transportation and royalty cost and the impact of inflation on labor, materials and major equipment rebuilds. Our adjusted EBITDA margin was 43% in the fourth quarter of 2022, compared to 58% in the same quarter of 2021. Total revenues were $345 million in the fourth quarter compared to $416 million in the fourth quarter of 2021. This 17% decrease was primarily due to the 17% decrease in average net selling prices. Other revenues were slightly lower in the fourth quarter of 2022, primarily due to the prior year, including a mark-to-market gain of $7 million on our gas hedges offset partially by an increase in revenues due to higher natural gas prices. Platts Premium Low Vol FOB Australian Index price on average was $82 per short ton lower in the fourth quarter of 2022 compared to the same quarter of 2021. The index price averaged $253 per short ton for the fourth quarter.…

Thanks, Dale. Before we move on to Q&A, I would like to make some final comments on our outlook for 2023. Overall, we are cautiously optimistic entering this year as some of the factors that impacted global steel and met coal demand last year will begin to subside and revert back to past norms while other factors may continue to linger longer than expected. The daily news headlines continue to proclaim the expectations of a coming global economic slowdown in 2023. We believe the Atlantic Basin customers will operate at reduced capacity levels in the first quarter while expecting some improvements in local steel demand. Also, we expect the steel price increases initiated toward the end of 2022 to establish a floor and more importantly, provide positive improvements for our customers' margins. In early January, rumors of a change in Chinese policy toward the import of Australian coals became true. This change is unfolding now and additional details may change our view. But for now, we do not see the reopening as materially disruptive. We believe changes in trade flows will occur over time as markets become more efficient. The recent changes in Chinese policies are encouraging with the government unveiling a comprehensive plan to support the property markets and guidelines for a gradual reversal of the strict Zero COVID policies. These measures, combined with other stimulus measures should lead to some recovery in Chinese steel demand in 2023. Offsetting the challenging economics in the U.S. and Europe, India has continued to demonstrate ongoing strength in steel production recently and may provide another bright spot to global weaknesses elsewhere. We expect the year 2023 will be a significant turning point in the development of a world-class Blue Creek mine that will drive long-term stockholder value. As I said earlier, we…

[Operator Instructions] And our first question here will come from Lucas Pipes with B. Riley Securities. Please go ahead.

Thank you very much, operator, and good afternoon, everyone. My first question is on the cost guidance for 2023. And I wondered if you could add a little bit more color as to kind of the key drivers here to what extent is the first half of this year materially higher than the first half last year, right, with inflation really taking off over the course of last year. Is that a component? And then related to this, obviously, there's still some terminal issues down in Mobile, if those issues you get resolved here in the short-term, could there be greater fixed cost absorption on the sales side so interested in the interplay there with cost and volumes? Thank you for your perspective.

Yes, thanks, Lucas. This is Dale. Yes, the cost guidance includes some incremental inflation this year on top of what we experienced last year. And as I noted, for the full year, we experienced about an additional $4 a ton of inflation. So we built in somewhat of a similar amount into 2023 because we're not seeing any changes in that right now at this point. As we said in our prepared remarks, also the lead times on supplies and equipment continue to be quite long. And so, the security of some of those prices is costing a little more. So we've tried to protect ourselves with that, but that is one of the key drivers. And as I also said in my remarks, because we built up some of these inventories that were produced earlier in the year, those were at higher met coal prices. So our transportation rates reset, but they haven't reset to the lowest prices in the fourth quarter. So you have some lag effect still rolling over for a quarter until that inventories get down. So that's part of it. We can get some good leverage as we move forward, depending upon how the operations at the port improve.

Thank you.

At the port, our expectation is that they will - their performance will improve relatively quickly. It won't get back up to what we consider to be optimal levels for a while. I don't think. I think they have some big projects they have to work on, but I think they'll get back to a reasonable operating level. And that shouldn't - so we should see a decrease in inventory levels. That's our expectation. And that should not have any impact on our cost.

That's helpful, thank you. And to kind of stay on the board side, can you, one, elaborate a little bit more on what exactly happened? And then two, in terms of the sales cadence throughout the year, I appreciate it's early, but could you maybe walk us through maybe what's reasonable for Q1 volume -- sales volume wise Q2, obviously, back half of the year is pretty far out. And to the extent any long moves have an impact on this cadence as well I would appreciate that additional color? Thank you.

Okay, on the ports, it really is just a myriad of small maintenance issues that are plugging them, belt splicing the shot works at transfer points on their belt lines, they had the weather issues. And this all kind of -- in my opinion is this all kind of really started back when they had to completely rebuild the two car dump last summer, I think that just started kind of a little bit of a cascading of problems at the port as they completed that project, and we're very focused on that. I think some other things just kind of slipped past and now there's a bit of attention that needs paid to that. And that project replacement of the - of that 2-car dump was pretty capitally intensive, and they have a budget as well. And I think that now we're just going to have to work our way back to what we consider to be strong performance.

And as - as far the sales cadence, Lucas, I think we tried to build in to our guidance there for sales volume, taking down some of these inventories versus what we're going to produce this year. And if you kind of take the midpoint and evenly put that over the quarters, you're probably looking at an average of about 1.7, 1.75 per quarter. So we don't want to get too far ahead of ourselves to say, look, we're going to recover all this in the first quarter. As we said all last year, we thought we were going to get there every quarter, and we just didn't get there. So while we're seeing improvement and things down there, we don't want to commit to anything higher than that at this point.

Understood all right, well, I have more questions, I'll turn it over for now. But thank you and continued best of luck.

Thanks, Lucas.

[Operator Instructions] Our next question will come from Nathan Martin from The Benchmark Company. Please go ahead.

Yes, thank you. Good afternoon guys, congrats on the record year even despite some of those logistical challenges maybe just sticking with full year shipment guidance for a second up around 1 million tons at the low end. Obviously, hope we're going to sell some of those inventory - some of that inventory based on the delta between production and sales guidance as well. But maybe can you walk us through kind of how you see the increase, which I think on the sales side, again, over 1 million tons on the production side looks over 300,000 tons or so at the midpoint, how you're getting to those numbers? Thanks.

Well, I think, first of all, if you look at our production, the production is going to be pretty good for this year, 6.3 to 6.9 in that range. And we just leased this year with a strong production year of 6.3 I'm sorry. Yes, it was 6.3 million tons. So that's the low end of our guidance. So if we do nothing different in '23, we should be at that low end. And the fact that we're trying to hire more people, get more boots on the ground to increase production that can get us to that upper end of that range.

Yes that actually lead me, so that's what…

Taking down the inventory, like you were saying, should get us to those sales guidance numbers.

Yes, when we look at the inventory levels, as we exited last year at 880,000 tons our expectation is the right level of inventory is sub 500,000 tons, somewhere between 350,000 and 500,000 tons is probably an optimal inventory level. So you can see we had at least 380,000 tons of excess inventory that we expect to work off.

That's very helpful guys. And then I wanted to touch too on the labor situation. I think you said in your prepared remarks, you added about 140 line workers in '22 build, it sounds like you're still looking to grow that number just to kind of confirm that. And then just any updates on the efforts there given the tight market?

Yes, we continue to hire people on a monthly basis and train them and get them to work. Now naturally, a lot of these people that we're hiring right now are in experience. So it takes time for them to get up to speed and be able to do some of the jobs like running equipment, but we'll continue to hire. There's a lot of opportunity if we can continue to get folks in at the rate we were able to hire last year and we'll continue to hire at that rate. As far as the labor situation with the UMWA, we continue to negotiate in good faith, but there hasn't been an awful lot of headway made.

Got it appreciate that Walt. I mean kind of going back maybe real quickly to the full year cost guidance. I appreciate the earlier comments. Additionally, just curious what met prices are you guys assuming in that range?

We're just a little over $200 million for the year.

Okay. And does that kind of get you to that midpoint of that cost per ton range still? I think that's a little bit wider than you guys usually get to that $109 million to $125 million range.

That's correct. Yes, the midpoint.

Okay, perfect. And then just want to make sure I heard this correctly, too. Looking at the breakdown of growth CapEx for the year, the $325 million to $345 million, I think you guys said in the prepared remarks, $250 million of that was Blue Creek, but maybe just to make sure, can you break out Blue Creek versus spending on the longwall shields in the 4 North portal?

That's correct about $250 million of Blue Creek for the year.

Okay and then just the balance mainly on those two other items?

Yes, the shields are roughly 55 - 52 to 55 and then the rest of it is finishing in 4 North portal.

Perfect, all right. I'll leave it there very helpful guys. Appreciate the time and best of luck in '23.

Thank you.

Thank you.

Our next question will come from David Gagliano with BMO Capital Markets. Please go ahead.

Hi thanks for taking my questions. A lot of them have already been asked. I just wanted a quick follow-up on the last question. On the other discretionary spending, obviously, longwall shields and potentially 4 North Portal. As you go into '24, is there any meaningful incremental other discretionary spending aside from obviously Blue Creek, which has already been laid out?

This should be a very small amount. We're putting a bunker in at the 4 North portal and that bunker is set to come online in the first quarter of '24. So there will be a little maybe $5 million or so on that project. And so I can't say we won't find other projects we want to do. But right now that would be the only one that I'm aware of that would be - we would categorize as discretionary.

Okay, okay that's helpful. And then just switching gears a little bit, we've seen some restarts, obviously, in Europe in terms of the blast furnaces. And I was just wondering if you could comment a little bit on the - I know there were some commentary in the prepared remarks. I was wondering if you could comment a little bit further on any recent change. Obviously, your volumes are committed, but just curious about the customer activity in recent weeks?

What we've seen is very strong customer demand. We've seen customers ask for additional tons, additional vessels here and there, a few additional vessels. So we're seeing very robust demand out of our traditional customer base.

Okay. That's it, it's helpful. Thanks.

Thank you.

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

Thank you very for taking my follow-up question. The first one is also a market-related question. Aussie pricing pulled well ahead of Atlantic price. First, I believe that is ultimately benefiting you because you - well, you're selling under the Aussie price, so you're benefiting from that strength. If you could just comment on that and then related, what do you think is driving those spreads? And any views on how sustainable they are at these levels? Thank you.

I just don't think there's been a lot of additional supply, come online. I think that's driving it more than anything else. And I think when you look at - and I think I mentioned it in my comments that if you look at last year, it was - one of the best is the best market for met coal ever. And from a supply standpoint, there was very little, if any, incremental supply, come online. There's, reports of some additional problems a few of the Australian operations going into this year. I think when you look at the growth model for what's expected in India, India is going to have a very high demand level. You're going to have China coming back into the market, that's going to cause -- that's just going to redistribute where the coal goes. But I just think it's going to continue to be a very strong market. And I think the Chinese coming back in is helping to influence that market. And again, I think the other thing that's allowing the market to stay firm right now are some of the price increases our customers were able to get for steel toward the end of the year last year.

And is the strength in the Australian price pulling more of your cargoes into the Asian market already?

No, it's a pretty traditional number in the low 20% range, somewhere there. We may have a quarter here or there where we find a few spot vessels and ship some spot vessels out. So we may have a quarter or two where that will be impacted. But I think overall, it will be pretty traditional for us in terms of a 20%, 22% into Asia, 50% or so into Europe and the remainder into South America?

That's helpful. And then turning to Blue Creek for a moment, can you comment on the nature of the contract with the general contractor a key contractor? Are there pass-through provisions for some of these inflationary pressures that we're seeing, for example, raw materials, price protected for you? Any views on that? And then in terms of the project development with labor generally still being tight across the economy, any view on potential impacts there? I know it's early, but curious to hear your thoughts. Thank you.

So on the contract side, a lot of the key large contracts, as we noted in our prepared remarks, will be entered into this year and started, Lucas. So it's still speculation on what those prices are. Some may have provisions for pass-throughs, others won't because we're basically digging holes in the ground this past year. And now this year, we're in the negotiations for the prep plant, the overland conveyor belt, the barge load out, all the big chunks of capital. So we'll have a better update on total CapEx expense later this year, hopefully, once we get into those -- get those project contracts signed those particular ones because there are various contractors doing different parts so that we can accelerate and get this project done as soon as possible.

The labor situation for our contractor seems to be pretty manageable. We haven't had any delays based on labor shortages. As we look at the mine from our standpoint, and we begin running continuous miner units there, probably in the third quarter of next year, we'll be growing that workforce kind of in fits and starts, but there will probably be each quarter, there will probably be 30 or 40 people at least that are added to that workforce. I think we'll be able to manage that pretty well.

That's very helpful. I appreciate the additional color and again, best of luck.

Thank you.

Thanks.

And our next question will be a follow-up from David Gagliano with BMO Capital Markets. Please go ahead.

Hi, I just -- may have already been asked, but I apologize if it has. I just had a quick question on the cash cost guide for 2023. The price assumption embedded in the cash cost and the -- a $10 change in the price is about how much of a change in the cash costs?

Yes. We said earlier that our midpoint of our cost guidance is roughly $200 index price for the year. And then we've also built in some additional inflation into '23 as well.

Okay. And then just the second part of that, like every $10 change in that price is about how much has changed in the cash cost?

I don't really have that handy, David. We don't kind of track it that closely. We're looking more at the factors individually. And hopefully, some of this inflation will turn around. That's been a big driver this year, but maybe we can get that to slow down.

Okay. Thanks.

Thank you.

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

That concludes our call this afternoon. Thank you again for joining us today, and 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 your lines.