Thank you for standing by and welcome to the SunCoke Third Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today Shantanu Agrawal, Director of Investor Relations. Please go ahead.

Good morning, and thank you for joining us today to discuss SunCoke Energy's third quarter 2019 earnings. With me today are Mike Rippey, President and Chief Executive Officer; and Fay West, Senior Vice President and Chief Financial Officer. Following management's prepared remarks, we'll open the call for Q&A. This conference call is being webcast live on the Investor Relations section of our website and a replay will be available later today. If we don't get to your questions on the call today, please feel free to reach out to our Investor Relations team. Before I turn things over to Mike, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements. The cautionary language regarding forward-looking statements in our SEC filings, apply to the remarks we make today. These documents are available on our website as our reconciliations to non-GAAP financial measures discussed on today's call. With that I will now turn things over to Mike.

Thanks, Shantanu. Good morning and thank you all for joining us on today's call. We have quite a few things to cover, so let's just get right into it. I'd like to start with our logistics business and walk through some meaningful challenges we are experiencing. In previous quarters, I have talked about the thermal coal export market and how it continues to face headwinds with weak power demand, increased Russian exports, and an oversupply of LNG. During the quarter, that trend continued and was exasperated by significant deterioration in the business of our two largest customers for CMT. As you know, CMT is underpinned by two long-term take-or-pay contracts, each contract for 5 million tons of throughput. Our customers Murray Energy and Foresight Energy account for the majority of CMT's adjusted EBITDA and have been challenged by both market conditions and their respective capital structures. The sharp decrease in coal export prices coupled with declining domestic coal demand have negatively impacted Murray and Foresight's free cash flows and liquidity positions. Last week, Murray filed for Chapter 11 bankruptcy protection and Foresight extended the grace period repayment on interest by another 60 days. These developments have decreased the number of coal export tons that CMT handled during the quarter and is expected to handle for the balance of 2019. We now anticipate the throughput volumes for the full year at CMT will be approximately 6.5 million tons, 5 million of which will come from our coal export customer Foresight Energy, Murray has not shipped any meaningful volumes through CMT during the first nine months of 2019 nor made any payments under its take-or-pay agreement and we do not anticipate that it will ship any volumes or make any payments in the fourth quarter. Due to the financial impact of Murray…

Thanks Mike, and good morning everyone. Turning to Slide 4. Our third quarter net loss attributable to SXC was $1.81 per share, reflecting a $1.94 per share impairment related to charges we took on our logistics goodwill and long-lived assets at CMT. Excluding these non-cash charges, adjusted net income attributable to SXC was $0.13 per share, which was down $0.05 versus third quarter 2018, mainly due to the absence of tax benefit recorded in the prior period. From an adjusted EBITDA perspective, we finished the third quarter at $66.7 million, up $0.7 million versus the third quarter 2018. The increase was due to higher volumes at Indiana Harbor and a decrease in the scope of outage work at Granite City, but these favorable increases were mostly offset by lower throughput volumes at CMT. Moving to the detailed adjusted EBITDA bridge on slide 5, as you could see consolidated adjusted EBITDA was up approximately $0.7 million versus the prior year period. As Mike mentioned, our Coke segment performed at a high level and delivered excellent results. The oven rebuilds at Indiana Harbor are yielding higher production and an increase in operating efficiency. The Coke segment also benefited this quarter from lower outage related costs. There was a major outage in the third quarter of last year to perform maintenance on Herzig and FGD unit at Granite City. As a reminder, the financial impact of planned outages are included in our full year guidance. Planned outages generally result in incremental operating and maintenance cost, lower energy revenue, and lower coke volumes. Timing and scope of outages vary year-to-year, which in turn affects year-over-year comparability. In terms of our logistics business, CMT throughput volumes continue to be impacted by lower API2 and new capital pricing, as well as demand for thermal coal and…

Thank you, Fay. Slide 9 lays out our capital allocation framework and priorities. Despite the challenges within our logistics segment, we have aggressively pursued a balanced, yet opportunistic approach to capital allocation. Since the announcement of our simplification transaction, we have reiterated multiple times that management is committed to utilizing SunCoke's strong cash flow in the most advantageous and value enhancing manner for our shareholders. Our capital allocation progress this quarter, displays the financial flexibility we have built within the company. Creating value for shareholders is the goal of our management team and Board. And our solid cash flows allowed us to return meaningful capital to shareholders through a share repurchase plan initiated in early August. Through November 1st, we have repurchased approximately 3.8 million shares at an average price of $6.02. In addition, to the share repurchases made during the quarter, our Board authorized a new $100 million for future share repurchases, which we expect to execute opportunistically as the market dictates balanced against the capital needs of our business. As indicated during the last earnings call, our Board of Directors declared a dividend of $0.06 per share, will be paid on December 2nd. Towards our goal of improving our leverage position, we have extinguished a total of $58 million of debt year-to-date, which includes repurchasing $50 million face value of SXCP 2025 Senior notes at a discount. We have now reached our intended long term gross leverage target of three times this quarter. Going forward, our goal is to maintain or improve this leverage ratio while balancing our other capital allocation priorities. And finally, we continue to pursue organic growth opportunities such as the Indiana Harbor oven rebuilds, which have a very high return on capital. We are keeping a keen eye on the M&A space. But as…

Thank you. [Operator Instructions] Your first question comes from Matt Vittorioso with Jefferies. Your line is open.

Yes, good morning. Thanks for taking my questions. So just on the updated guidance. The roughly $25 million reduction to your full year EBITDA guidance seems to be a 100% Murray related. So is there any Foresight impact from - baked into that guidance change? And also, are they - has Foresight continued to pay its take-or-pay?

We have and you're correct the updated guidance reflects substantially the Murray situation.

Okay. And then - so I guess, big picture question. As we try to think about 2020, you've got, obviously, the impact of Murray, potentially some additional impact if Foresight goes down a similar path. And then I think on the coke side, hopefully, you'll have some acceleration or some improvement at Indiana Harbor. Any way for us to think about the net of those three sort of large moving parts around EBITDA for 2020?

Matt, it's premature really for us to be providing any kind of guidance for 2020. We will do that when we announce our fourth quarter results. The comments you make are appropriate. We've continued to experience excellent results from the rebuild ovens at the Harbor works. We expect to complete that rebuild project here in late November of this year and have the full capability of 1.2 million tons available to our customer next year. So that's a good positive for us and one that we've talked about at some length in the past. The new situation is the, the change in circumstance at CMT, with regard to both Murray and potentially felt. So as that situation, which is quite fluid evolves, we'll - we'll reflect that in our guidance for 2020 at the appropriate time.

Okay. And then on capital allocation, thanks for the detail on that. I guess just as I think about priorities, from a debt perspective, you've said that you'll maintain - you've achieved and you'll look to maintain or even improve that three times gross leverage. Based on the $240 million to $250 million of EBITDA guidance, assuming you were able to maintain that in 2020, that would imply that you'd still want to take out some additional debt to get down to sort of three times growth. So would that be a priority over share buybacks? Would you look to achieve and maintain that gross leverage target before you were aggressive with buying back shares?

Matt, it's good question. It has been a priority of our company to get to this three times and perhaps below and it remains so. So having appropriate level of debt for our company is a priority, has been a priority and will remain a priority. Your point about if our EBITDA were to be 250 next year, that's your number not mine, we would expect to maintain our debt ratio of three times. And as you suggest that would require us to pay down additional debt.

Yes. Okay, one last one for me just on the coke side. Obviously, there's questions out there around some of the more near-term contract maturities. I think you've got some coming up with Arcelor sooner than later. Any - I mean, are those conversations that you're having currently? Any high-level insight as to when we might expect some news on those near-term maturities?

The maturities you refer to are at the end of 2020. And as you might well expect we've begun discussions with our customer and beyond that we can't comment.

Okay. Thanks for the time, appreciate it.

Sure.

Your next question comes from Matthew Fields with Bank of America. Your line is open.

Hey guys, was - just for housekeeping purposes, can you give us the effect of currency on the Brazil Coke segment?

It's very nominal. And so I think it - I think on an annual basis, it's less than a couple of hundred thousand dollar.

Completely immaterial.

Yes.

Okay, great. Thank you. And then on the debt reduction front following on Matt's question it kind of - we're looking at a 2020 where Murray and Foresight are meaningfully less to your results based on potentially new contract struck as a result of restructuring. Do you think of 3.0 times, as still the bogey with meaningful - meaningfully less coal exposure? And does that still require you to buyback or reduce debt like, you know, you said you would still go into that three times target.

Three times is the target has been and will be.

Okay, great. And then obviously good - you did a good amount of bond repurchase in the quarter [indiscernible] with bonds and the low to mid-80s at this point, is that something you'd expect to accelerate or continue?

We'll look to maintain the leverage ratio of three times in the most cost effective manner available to us.

Okay, great. And then just trying to triangulate cash flow for 2020 although it's still early. Based on your '19 CapEx guidance and we kind of exclude Indiana Harbor and some gas sharing is 65 to 70 the way you see kind of a base sort of maintenance CapEx level for SunCoke.

I think that's the right number over a period of time. So $65 million to $75 million ongoing maintenance CapEx. You may have depending on specific projects and a year where you higher in a year where you're lower, we will be giving kind of full some guidance on both EBITDA as well as CapEx in January, February timeframe for 2020. But if you know if you wanted to use that as a rough estimate over a number of years. That's a good number.

Okay, great, that's it for me. Thanks very much.

Thank you.

Your next question comes from Mark Levin with Seaport. Your line is open.

Great, thanks. My questions were asked and answered. Thanks very much.

Thanks, Mark.

Your next question comes from Lucas Pipes with B Riley, your line is open.

Hey, good morning everyone. So the implied EBITDA guidance for Q4 in the logistics business I believe is around $10 million with that be kind of a combination of felt. And then the river terminals, or am I missing something there.

Yes, that's all in. And so our CMT guidance on a full-year basis is what we're estimating between $31 million and $33 million and a full year so guidance for CMT is in the fourth quarter's between $5 million and $7 million. And the balance then to get to that full year number, Lucas, it's going to be from the river terminal.

It's very helpful. Thank you. And in terms of felt, do you have receivables balance.

So felt has been shipping tons through the facility all year. As we stand today, they're continuing to move product here in the fourth quarter and they are current on their receivables.

Very helpful, thank you for that. And then just kind of longer term thinking about CMT, Murray made some comments about the economics of exports in their filing. How do you think about CMT kind of beyond the current volatility whereas its place in the Gulf? Where do you see market rates, any sort of color, comments on the long-term off for this asset would be very much appreciated? Thank you.

CMT is, you know is a very low cost facility, very highly automated its unique in many ways with its ability to receive rail very far down the river as well its large capabilities. Yes that itself we believe is a low cost provider down in the region, you what you allude to Lucas I think is the challenging conditions with traditional customers find themselves with API2 prices being down and the mid-50s and we have said in the past numbers above 70 really provide better opportunities for our producer. So it's a challenging environment right now and its most an evidence with the bankruptcy we're seeing most notably for us. Murray this year, so notwithstanding the fact that we are low cost provider, it's a very challenging market for exporters of coal and to the international marketplace right now.

How easily could this capacity be allocated towards other commodities?

That's the challenge obviously that we face today. Over the past few years we've been incrementally building our business down there. That's in the presence of 10 million tons of contracts take-or-pay business for the coal customers. Now with the filing of Murray we have a substantial ability to go out into the marketplace and fill that capacity that's going to be our focus now that obligation is present to us. As we said in the past the supply chains are quite sticky and that will remain. So we got our work to do and we will do our work, but it's not like flipping a light switch that we simply replace these volumes on short notice. It's going to take a significant effort on our parts replace these volumes and as you can well imagine were already about that process but it's going to take time.

That's very helpful. Thank you, Mike for that commentary and then just following up on some of the earlier comments regarding debt repurchases, leverage ratios, share buyback, obviously are connected. Could you maybe describe opportunistic in a little bit more detail the other certain, we have an expectation around how much capital you will be for example returning by year end or monthly kind of run rate in terms of the share buyback and we think about the share repurchase authorization the size of it, how quickly you anticipate to execute against that. Thank you.

We can't comment on that point Lucas. Clearly, the board authorized a new program with the expectation that we would complete the existing program. So through November, we given the exact numbers of repurchased that we've done. I believe the number and somebody can help me by screwed up $23 million of repurchase through November 1. We have approximately 14 to go, 16 to go relative to the existing programs. We have a program that continues and we didn't authorize a $100 million of new program if we didn't think we would exhaust the existing program.

I was just going to say and so, we're can't be terribly prescriptive on how we're going to execute that but we need to remember that we've establish the dividend, we put something in place that was sustainable and we believe, the board will go through this kind of process it normally does to establish a different and that is something that is sustainable for our company and even in light of kind of the situation that we find ourselves with CMT. We also really kind of clear on our desire to maintain that three times leverage target. And so and we will have more information as we develop our 2020 plan, as we develop our 2020 free cash flow and our CapEx. But clearly the maintenance of the dividend, maintaining our leverage ratio at three time and then executing against the share repurchases opportunistically. Those are our priorities and there will be some fluidity to that.

That's very helpful. I appreciate all of this, and best of luck.

Your next question comes from the Matthew Castellini with Bank of America. Your line is now open.

Sorry for further follow-up. Appreciate the color on the share repurchases through November 1. Have you repurchased any bonds through November 1 as well?

What we disclose is what we purchased.

So nothing subsequent to quarter end.

Correct.

That's all the time that we have for questions. With that I will turn the call back to presenters for any closing remarks.

With that I would like to thank all of you for joining us on our call this morning. And as always, we appreciate your continued interest in SunCoke and talking to you soon. Thanks again.

This concludes today's conference call. You may now disconnect.