Ladies and gentlemen, thank you for standing by and welcome to SunCoke's Fourth Quarter 2019 Earnings and 2020 Guidance 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] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today Shantanu Agrawal, Director of Investor Relations. Please go ahead sir.

Good morning and thank you for joining us this morning to discuss SunCoke Energy's fourth quarter and full year 2019 earnings as well as 2020 guidance. 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 are reconciliations to non-GAAP financial measures discussed on today's call. With that I'll now turn things over to Mike.

Thank you, Shantanu. Good morning and thank you for joining us on this morning's call. Today we announced SunCoke Energy's fourth quarter and full year results. And before I turn things over to Fay, who will review the results in detail, I want to discuss a few highlights. Let me start by first thanking all of our SunCoke employees for the contributions throughout the year. The commitment and dedication of our team drove the foundational improvements in our core operations that you see today. On slide 3, you can see the key initiatives that we set out for 2019 and how we performed against these objectives. We delivered $247.9 million of adjusted EBITDA in 2019, which was well within our revised guidance range of $240 million to $250 million. This reflects the strong performance of our coke operations and the significant contribution of our Indiana Harbor facility. The domestic coke operations contributed close to $227 million of adjusted EBITDA in 2019 which exceeded the financial targets established at the beginning of the year. I am pleased with the safe and efficient operations of our coke facilities as well as the successful execution of capital projects, specifically the Indiana Harbor rebuild project. We successfully completed the last phase of this project in 2019, a multiyear journey to return the plant to profitability and nameplate production capacity. Indiana Harbor produced over 1 million tons of high-quality coke and earned close to $25 million of adjusted EBITDA in 2019. Thanks to the investments we made in enhancing the Indiana Harbor, we're well-positioned to build on this strong foundation as we are now projecting that Indiana Harbor will double its adjusted EBITDA in 2020 and earn approximately $50 million. During the year, we also made strides in enhancing our corporate structure through the successful…

Thanks, Mike and good morning, everyone. Turning to slide 4. The fourth quarter net loss attributable to SXC was $0.02 per share down $0.05 versus the fourth quarter of 2018. On a GAAP basis, our full year 2019 net loss attributable to SXC was $1.98 per share reflecting a $2.27 per share impairment-related charge we recorded to Logistics goodwill and long-lived assets at CMT in the third quarter. Excluding these non-cash charges adjusted net income attributable to SXC was $0.29 per share which was down $0.11 versus full year 2018 mainly driven to lower operating performance at our Logistics segment due to a coal customer bankruptcy. Consolidated adjusted EBITDA for the fourth quarter 2019 was $50.8 million down $15.1 million versus the fourth quarter of 2018. The decrease was mainly driven by lower volumes in our Logistics segment. On a full year basis, we delivered adjusted EBITDA of $247.9 million down $15.3 million versus full year 2018. There was a meaningful improvement in our domestic coke business year-over-year mainly from higher volumes at Indiana Harbor and lower outage impact at Granite City. The 2019 results were significantly impacted by the bankruptcy of our coal customer in the Logistics segment as mentioned previously by Mike. Turning to slide 5, and looking further at our fourth quarter adjusted EBITDA performance fourth quarter 2019 adjusted EBITDA was $50.8 million compared to $65.9 million in Q4, 2018. We finished the final phase of Indiana Harbor oven rebuild project in November and the facility is back to its nameplate capacity of 1.2 million tons. The Coke segment performance was comparable quarter-over-quarter. In terms of our logistics segment, we saw lower throughput volumes at both CMT and KRT. As discussed the bankruptcy of one of our coal customers along with the challenging coal export markets continued…

Thanks, Fay. Before we review our 2020 guidance, I wanted to provide a few brief thoughts on the overall market and where we see things as we enter the New Year. Steel demand and capacity utilization remained stable in 2019. However, downward pressure on price impacted profitability of steel producers. A hot-rolled benchmark price at a low of $470 per short ton earlier in the year before rebounding to $600 per short ton at the end of the year. Looking forward to 2020, we expect to see stable steel demand from the industrial, construction and energy sectors with automotive slightly lower. We believe the coke market will remain oversupplied and do not foresee a meaningful change in coke demand or coke supply in 2020. These market dynamics certainly factor into our current contract negotiations. However, steel markets are cyclical and our business is based on long-term supply and demand fundamentals, and accordingly, on long-term contractual commitments. Looking beyond 2020, we believe that SunCoke is well positioned for long-term success. We have the youngest domestic coke facilities in the NAFTA region and continue to invest in our facilities to ensure that they operate safely and efficiently. We have leading technology with outstanding environmental performance and are recognized as the EPA, MACT Standard. We reliably produce a very high-quality product. Although we continue to see market share shift from integrated steel producers to EAS, we believe that the coke supply exiting the market in the longer term will be greater than the reduction in coke demand due to the shift in market share from integrated steel producers. Also recent developments in the steel market have created the potential to economically produce pig iron or consumption by EAS. The production of pig iron via domestic blast furnaces will require coke, which could create…

Thanks, Mike. Turning to slide 10. We expect 2020 adjusted EBITDA to be between $235 million and $245 million. Domestic Coke will contribute an incremental $16 million to $20 million in 2020 based on the strong foundation of improved performance efficiency we have built at Indiana Harbor. The improvement in the Domestic Coke operations will be more than offset by a decrease in the logistics business. As Mike just mentioned, we anticipate that the coal market conditions will remain challenged and expect that both coal export volumes through CMT as well as the rate per ton will be lower in 2020. Our coal export customer foresight energy is in the process of negotiating with its creditors and exploring restructuring alternatives. As a result, we anticipate entering into negotiations with foresight to establish a new Logistics contract going forward. This is something we have factored into our 2020 guidance, as it includes our best estimate of export volumes and rates. Lastly, we expect our corporate and other segment to be down slightly due to higher employee-related costs and incremental legacy costs as compared to 2019. Moving on to slide 11. In 2020, we expect our Domestic Coke adjusted EBITDA will be between $243 million and $247 million or $56 to $57 on a per ton basis. The Domestic Coke business has delivered adjusted EBITDA growth over the last few years, which is the result of the successful oven rebuild program at Indiana Harbor. With the completion of the rebuild project in 2019, we expect that Indiana Harbor will operate at nameplate capacity of 1.2 million tons. The anticipated increase in production coupled with improved operating performance will position Indiana Harbor to achieve record annual adjusted EBITDA of approximately $50 million in 2020. Our 2020 projections also include lower yield gains across…

Thank you, Fay. I'd like to direct your attention to slide 14, which lays out our capital allocation framework and priorities. This slide should look familiar to you, as is consistent with our discussion in the third quarter. Creating value for shareholders is the goal of our management team and the Board. And our solid cash flow allowed us to return meaningful capital to shareholders, through a share repurchase plan initiated in early August and the declaration of a dividend of $0.06, in the fourth quarter. We have repurchased approximately 6.8 million shares so far, including 4.2 million shares in the fourth quarter. As a reminder, our Board authorized a new $100 million for future share repurchases, which we expect to execute opportunistically, balanced against the capital needs of the business. And our goal of improving our balance sheet position. Towards that goal of improving our leverage position, we extinguished approximately $58 million of debt, which included repurchasing $50 million base value of 2025 senior notes at a discount. We ended the year with a gross leverage ratio of 3.23 times. And while we expect this level to naturally fluctuate over the course of the year, we will work to maintain leverage consistent with our stated goal of gross leverage ratio of 3.0 times. We continue to make high-impact investments in our operations as demonstrated by our investment in the Indiana Harbor rebuild project, which is a very high return on capital. We will continue to monitor M&A opportunities. But we have been and will continue to be disciplined in our evaluation and consideration of opportunities. We are focused on providing long-term value creation for our shareholders and are mindful, that it is not in the shareholders' interest for our company to sacrifice long-term value creation for short-term marginal gains.…

Thank you. [Operator Instructions] Your first question comes from Matthew Fields from Bank of America Merrill Lynch. Your line is open.

Hey, Mike, hey, Fay. Two questions for me. One on the logistics side. Appreciate all the detail on the guidance. It looks like you're taking a very conservative view on the CMT contribution in 2020. Just to reiterate, because I don't know if I heard it all you're assuming in your 2020 guidance no tons from Murray and 3.6 million tons from foresight at what you are projecting to be some kind of reduced rate given a renegotiated contract that we don't know about yet.

Hi, Matthew. Thanks. Your recital is correct although you used the word conservative to begin your question and we believe we are taking a realistic view as not to be overly conservative or aggressive. So – but your recital of tons and the fact that Murray has no volumes is correct.

Okay, great. Thank you. And then just on the capital allocation policy sort of getting to 3.0 times gross debt based on your guidance would assume that you have to repay about $65 million to $95 million of debt by the end of 2020. Is that kind of the a direction you're thinking about?

Yeah, that's the right range, Matthew.

Okay. Okay. And that eats up, if you have to $100 million to -- $104 million to $114 million of free cash flow that kind of assumes that two-thirds or higher of free cash flow sort of slated for debt holders over shareholders in 2020?

Yeah that's correct.

Okay. Thanks very much. And good luck in 2020.

Thank you.

Your next question comes from Daniel Scott from Clarksons. Your line is open.

Hey, good morning, guys. Just back on the foresight's topic. Has -- have those renegotiation discussions already begun? I mean that 3.6 seems like a fairly specific number?

We are in discussions with foresight, yes.

Okay. And there's no other counterparties right now? That's the only contract at the moment?

Correct.

Okay, great. And then as far as looking at -- and I brought the effort at diversifying your customer base for the logistics business. Is there potential significant capital expenditure that would need to be made at the ports to change it fundamentally from a coal handling facility to something else? Or is that not currently contemplated?

In a range of scenarios, that's a possibility and I stress a possibility. If there were to be a requirement for significant capital expenditures, we would only undertake that type of capital expenditure if in fact we had a long-term commitment from a very high credit quality customer. So like the counterparty would have to display a very, very good credit profile and the term of the contract would have to be such to allow us to not only fully recover the capital cost, but also earn a good return for our shareholders on that deployment.

Perfect. That was going to be my third question. Thanks very much guys.

Sure.

Thank you.

Your next question comes from Matt Vittorioso from Jefferies. Your line is open.

Thanks for taking my questions. Just a couple of quick ones. I guess maybe just your high-level thoughts on the long-term leverage target of three times. If you look at sort of where the -- what the equity has done. It seems like that now implies a higher loan-to-value than maybe it did a year ago. Is there any consideration for reducing that long-term leverage target just given that the equity market seems to be putting less value on the overall enterprise?

Yes. Thanks, Matt. Good question. We've said in the past and I'll reiterate now it's three times or lower that we would look to achieve. I think three times is something that we see as kind of a minimum that we'd like to get to and given the cash flows we expect to generate this year. It seems a reasonable target for us to be pursuing at this point.

Yes, makes sense. And then one more high-level question I guess. Just convent obviously you guys spent I think $400 million to buy that asset a while back. Coal markets have changed that stuff happens. Just given the expectation for something like $10 million of EBITDA this year. I'm just wondering is there a scenario where that asset is worth more to someone else? Or is that a salable asset? Is -- I'm just trying to understand. Is there a scenario where like selling convent actually is better value to shareholders than trying to turn it around if that makes sense?

No. It's an excellent question. And when we ask ourselves, as we always look to provide maximum value to shareholders. So while on the one hand we're looking and working diligently to reposition the asset utilizing all of our capabilities knowledge of markets, it could be that in certain circumstances there's strategic that finds more value in their portfolio than what we might find in ours. And if that were to be the case we would certainly entertain the sale. I would say however this asset is a very, very high-quality asset. As Fay discussed earlier, it's well designed, it's very, very efficient, very low cost, very well managed. The team down there is exceptional. So this isn't the kind of asset where you think about turning it around because it's underinvested. It's not capitalized properly. It's not positioned well. The management team is not strong. It's all quite the contrary. But if somebody were to find that in their overall logistics platform there's a whole and convent would fill it well. We'd certainly entertain that sale.

Yeah. Okay. Thanks, guys.

[Operator Instructions] Your next question comes from Lucas Pipes from B. Riley FBR.

Hey. Good morning, everyone. This is Lucas.

Good morning, Lucas.

Good morning. I wanted to ask about capital spending. If I recall correctly I think you said something like $60 million run rate in the past. This year is a little bit higher than that. Can you break out kind of where you're spending capital and what potentially that delta is to the run rate CapEx of $60 million? Thank you.

Lucas, this is Fay. I think what we've had said in the past is on average you're going to be between $65 million and $75 million over the long-term period. In given years you may have an increase in that spending depending on the timing of certain projects. And so this is really within kind of that range, right? That we're thinking here. In 2020 there is a significant decrease versus 2019 given the completion of Indiana Harbor as well as the completion of the gas sharing project at Granite City. What we see is just normal ongoing maintenance capital that is anticipated to be spent. There is a significant portion that's going to be expended on the Herzig and that's just to maintain the back end of our plans to ensure that we are in compliance. That's part of a multiyear program. You've seen that same type of CapEx in 2019 and 2018 related to those projects. There's also some equipment purchases here in 2019 -- in 2020 that we're contemplating. But there isn't anything very a large project that stands out. It's just normal recurring maintenance CapEx. And it really is just the timing of that on the long-term horizon.

That's very helpful. And then looking at slide 14 at your capital allocation priorities coming. M&A made the list again. Should we be thinking of as kind of it being last in order here? Or are there maybe more concrete projects on the M&A side that you might be looking at? Thank you very much.

No. I think it's fair to prioritize the way you've outlined as we'd indicated earlier. Now the 3 times leverage is a priority for the company. And as we've also discussed earlier in the call this year's cash flows really are significantly tied up in that undertaking to maintain proper leverage in our company. So M&A is taking a backseat at this point in time relative to our desire to reach that 3 times.

That’s very helpful. I appreciate that and best of luck. Thank you.

Thank you.

Thank you.

Your next question comes from Peter Voell from Mangrove Partners. Your line is open.

This is Nathaniel August on for Peter. Thank you for taking my question. Obviously, stock price performance for shareholders has been extremely disappointing over a multiyear period. And when we look at it, we trace it back to at least three major errors that were made by the company. The acquisition of CMT for more than $400 million, the acquisition of the visa Coke facility which appears to have been a complete write-off and a very disadvantageous contract that was signed at Indiana Harbor that caused significant earnings shortfalls at the company and quite a bit of CapEx there. And when we trace those decisions back, we see that both of the independent board members who are up for election this year were likely to have voted in favor for each of these three transactions. And so my question to you is, can you make a case for why shareholders should vote in favor of those two board members as opposed to withholding their votes and forcing the upgrade on the board and better outcomes for shareholders?

Sure, Nathaniel. We believe quite strongly that we have a board that's quite complementary in nature. There's a good set of skills. Of course, since these decisions were made, the board refreshed itself. There's probably at least three new board members which is nearly half of our board since that point in time. So, we continue to refresh and build upon the skills that are current in our board and we'll continue to do that. It's good governance.

Each independent board members. Each one of them approved each one of these decisions which were extraordinarily detriment to shareholders. And in my opinion, I can't see a compelling reason to vote for any of them.

Not sure how you…

My second question is that your stock trades at four times' free cash flow and you seem intent to repurchase debt or repay debt instead, why not direct more cash towards buyback?

Because we take a very long view and we believe, given the cyclical nature of our business, given the customer concentration that if you're going to be having manufacturing, it's exposed to business cycles. A long view where you over-lever yourself can cause nothing, but harm for shareholders. We're disappointed in the share price. The sectors certainly traded well off. But we're not going to undertake something in the short-term that could cause real harm in the long term. We over-lever ourselves doing a share buyback. We don't have the opportunity to invest and maintain our facilities properly. And you're in the long-term downward spiral and we're just not going to do that. I've been in this business for a long, long time. I've seen what happens to companies that find themselves in over-levered positions and it's never good for shareholders, for stakeholders, for communities, for employees. So, it's not something we're going to do.

We have no further questions. I turn the call back over to the presenters for closing remarks.

Again, thank you everyone for joining us in our call this morning and as always your continued interest in SunCoke. Look forward to talking to you all soon. Thanks again.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.