SunCoke Energy Q3 2024 Earnings Report

SunCoke Energy EPS Results

• Actual EPS: $0.36
• Consensus EPS: $0.22
• Beat/Miss: Beat by +$0.14
• One Year Ago EPS: $0.08

SunCoke Energy Revenue Results

• Actual Revenue: $490.10 million
• Expected Revenue: $412.70 million
• Beat/Miss: Beat by +$77.40 million
• YoY Revenue Growth: -5.80%

SunCoke Energy Announcement Details

• Quarter: Q3 2024
• Date: 10/31/2024
• Time: Before Market Opens
• Conference Call Date: Thursday, October 31, 2024
• Conference Call Time: 11:00AM ET

SunCoke Energy (NYSE:SXC) is a leading independent producer of metallurgical coke and related products for the steel and foundry industries. The company specializes in manufacturing both blast furnace coke and foundry coke, offering high‐quality, low‐sulfur coal products that serve as essential inputs in steelmaking and metal casting processes. In addition to coke production, SunCoke provides comprehensive engineering, maintenance and environmental solutions tailored to the needs of integrated steel mills and foundries.

The company operates a network of coke production facilities across the United States, including plants in Indiana, Ohio, West Virginia and Louisiana. These strategically located sites enable SunCoke to supply major domestic steel producers as well as export customers in Asia and Europe. In support of its core operations, SunCoke maintains logistics capabilities for railcar loading, vessel dock services and inland barge transport, ensuring timely delivery of its products to end users.

SunCoke traces its origins to established Appalachian coke operations and completed its initial public offering in late 2007, emerging as a standalone company focused on safe, efficient coke manufacture. Over time, SunCoke has expanded its footprint through strategic partnerships and capital investments in emissions control technology, oven rebuilds and process improvements. These projects have reinforced the company’s commitment to operational reliability and environmental stewardship, helping customers meet increasingly stringent air quality standards.

Headquartered in Lisle, Illinois, SunCoke is led by an experienced management team with deep expertise in the coal, steel and energy sectors. The company emphasizes continuous improvement, workforce safety and community engagement as part of its corporate governance framework. By combining technical know-how with a focus on sustainable practices, SunCoke Energy aims to support its customers’ production needs while advancing environmental performance throughout its operations.

SunCoke Energy Q3 2024 Earnings Call Transcript

Key Takeaways

• Delivered Q3 consolidated adjusted EBITDA of $75.3 M, including a one-time $9.5 M pre-tax gain from the Department of Labor regulatory exemption, and net income per share of $0.36, up $0.28 year-over-year.
• Reached a one-time $36 M settlement that eliminates approximately $45.5 M of legacy federal black lung liabilities, lowering future expenses and reducing volatility.
• Raised full year consolidated adjusted EBITDA guidance to $260 M–$270 M, driven by strong logistics performance and the DOL regulatory gain.
• Domestic coke plants ran at full capacity but experienced lower coal-to-coke yields and weather headwinds, prompting a revised full year domestic coke EBITDA guidance of $230 M–$235 M.
• Logistics segment generated $13.7 M of EBITDA in Q3 and increased full year logistics EBITDA guidance to $47 M–$52 M with ~22 M tons throughput, supported by a $12 M barge-to-rail expansion at Kanawha River Terminal and a Granite City supply agreement extension through June 2025 as part of the GPI project.

Presentation

[Operator]

Good day and welcome to the third quarter 2024 SunCoke Energy Inc. earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Shantanu Agrawal, Vice President, Finance and Treasurer. Please go ahead.

[Shantanu Agrawal, VP Finance and Treasurer at SunCoke Energy]

Thanks, Megan. Good morning and thank you for joining us this morning to discuss SunCoke Energy's third quarter 2024 results. With me today are Katherine Gates, President and Chief Executive Officer, and Mark Marinko, 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 do not 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 Katherine, 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 applies to the remarks we make today.

[Shantanu Agrawal, VP Finance and Treasurer at SunCoke Energy]

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 Katherine.

[Katherine Gates, President and CEO at SunCoke Energy]

Thanks, Shantanu. Good morning and thank you for joining us on today's call. This morning, we announced SunCoke Energy's third quarter results. I want to share a few highlights from the quarter as well as some updates on our 2024 key initiatives. First, I would like to thank all of our employees for their contributions to our results. Our domestic coke plants continued to run at full capacity, and our logistics terminals again had strong results. Through our collective efforts, we delivered consolidated adjusted EBITDA of $75.3 million during the quarter. This includes a one-time gain of $9.5 million due to a regulatory exemption received from the Department of Labor that eliminates the majority of our legacy federal Black Lung liabilities. From a leverage perspective, we ended the quarter at 1.86 times on a trailing 12 months adjusted EBITDA basis.

[Katherine Gates, President and CEO at SunCoke Energy]

Finally, we are increasing our guidance and now expect full-year consolidated adjusted EBITDA between $260-$270 million, primarily driven by favorable logistics performance and the gain from the Department of Labor regulatory exemption. Turning to slide four to discuss progress on our 2024 key initiatives, we announced several other important accomplishments this morning that demonstrate progress on our 2024 key initiatives and position us well for the future. First, we're pleased to have reached an agreement with the United States Department of Labor regarding our legacy federal Black Lung liabilities. In exchange for a one-time payment of $36 million to the Department of Labor, SunCoke received a regulatory exemption eliminating the majority of SunCoke's accrued Black Lung liabilities totaling $45.5 million. As a result, we recognized a $9.5 million pre-tax gain during the quarter.

[Katherine Gates, President and CEO at SunCoke Energy]

Going forward, our annual legacy expenses will be lower and the year-to-year volatility will be greatly reduced. In addition, SunCoke will not be subject to potential higher collateral requirements in the future. Second, we've extended our Granite City Coke supply agreement with U.S. Steel through June 30, 2025, with the option for U.S. Steel to extend for an additional six months. The agreement is for reduced tonnage coupled with lower economics compared to the current contract. This extension is part of the ongoing GPI project work, and we expect it to bridge the period before a final agreement may be reached. Finally, we signed a three-year barge-to-rail coal handling agreement at our KRT logistics facility. To handle the incremental volume, we will be undertaking a $12 million expansion project that will increase our barge unloading capacity from 2 million tons per year to 5 million tons per year.

[Katherine Gates, President and CEO at SunCoke Energy]

This project is expected to be completed in Q2 2025, after which the contract will begin. The contract builds upon this year's spot barge business at KRT. With that, I'll turn it over to Mark to review our third quarter earnings in detail. Mark.

[Mark Marinko, Senior VP and CFO at SunCoke Energy]

Thanks, Katherine. Turning to slide five, net income attributable to SunCoke was $0.36 per share in the third quarter of 2024, up $0.28 versus the prior year period. The increase was primarily driven by the one-time $9.5 million pre-tax gain on the elimination of legacy Black Lung liabilities. Lower depreciation expense, lower income tax expense, and favorable logistics performance also contributed to the increase in net income attributable to SunCoke, but were partially offset by unfavorable performance in the domestic coke segment. Consolidated adjusted EBITDA for the third quarter of 2024 was $75.3 million compared to $65.4 million in the prior year period. The increase in adjusted EBITDA was primarily driven by the gain on the extinguishment of Black Lung liabilities, higher volumes at domestic logistics terminals, and higher API-2 price adjustment benefit at CMT, partially offset by lower coal-to-coke yields on our long-term take-or-pay contracts.

[Mark Marinko, Senior VP and CFO at SunCoke Energy]

Moving to slide six to discuss our domestic coke business performance in detail. Third quarter domestic coke Adjusted EBITDA was $58.1 million, and coke sales volumes were 1,027,000 tons. While domestic coke fleet continued to run at full capacity, the decrease in Adjusted EBITDA as compared to the prior year period was primarily driven by lower coal-to-coke yields on our long-term take-or-pay contracts. Due to the lower coal-to-coke yields we've been experiencing throughout the year, coupled with adverse weather impacts from Hurricane Helene in Q4, we are revising our full-year domestic Coke Adjusted EBITDA guidance range to $230-$235 million from previous guidance range of $238-$245 million. Now moving on to slide seven to discuss our logistics business. Our logistics business generated $13.7 million of Adjusted EBITDA in the third quarter of 2024 as compared to $8.4 million in the third quarter of 2023.

[Mark Marinko, Senior VP and CFO at SunCoke Energy]

The increase in Adjusted EBITDA was primarily driven by higher transloading volumes from our domestic terminals and higher API-2 price adjustment benefit at CMT. We recognize the full API-2 price adjustment benefit in Q3 and expect this to remain consistent in the fourth quarter. Our terminals handled combined throughput volumes of 5.8 million tons during the third quarter of 2024 as compared to 5 million tons during the same prior year period. Our domestic terminals handled 3.8 million tons in the third quarter of 2024 as compared to 2.9 million tons during the same prior year period, driven by new business. Given the strong year-to-date results from our logistics segment, we are increasing our logistics Adjusted EBITDA guidance to $47 million-$52 million for the full year.

[Mark Marinko, Senior VP and CFO at SunCoke Energy]

Additionally, we are increasing our full-year 2024 total logistics volume guidance to approximately 22 million tons, with CMT handling approximately 8 million tons and domestic terminals handling approximately 14 million tons. Now turning to slide eight to discuss our liquidity position for Q3. SunCoke ended the third quarter with a cash balance of $164.7 million and a fully undrawn revolver of $350 million. Net cash provided by operating activities was $107.2 million. Operating cash flow includes the impacts of the one-time payment of $36 million to the DOL and cash receipts from accounts receivable of approximately $68 million received in early July. We paid $10.1 million in dividends at the rate of $0.12 per share this quarter and spent $15.1 million on CapEx. In total, we ended the quarter with a strong liquidity position of $514.7 million. With that, I will turn it back over to Katherine.

[Katherine Gates, President and CEO at SunCoke Energy]

Thanks, Mark. Wrapping up on slide nine, we're pleased with the progress we've made on our key initiatives. As we close out 2024, we are dedicated to maintaining our strong safety and environmental performance. Robust safety and environmental standards set SunCoke apart and are central to our reliable delivery of high-quality Coke and logistics services. We also have a proven track record of selling out our non-contracted Coke for the full year, and 2024 is no exception. We remain focused on safely executing against our operating and capital plan for full utilization of our Coke-making assets, and we're pleased to have reached an agreement for an extension of our Coke supply agreement with U.S. Steel at Granite City. For our logistics segment, the new contract builds upon our existing foundation of reliable, high-quality services at KRT.

[Katherine Gates, President and CEO at SunCoke Energy]

We are continually pursuing future opportunities to broaden our customer base in both our domestic Coke and logistics segments. The GPI project continues to be a top priority for SunCoke. The strong fundamentals of the project remain unchanged, and we continue to work on reaching a final agreement. As always, we take a balanced yet opportunistic approach to capital allocation. We've further strengthened our balance sheet with the extinguishment of the majority of our legacy Black Lung liabilities while also eliminating higher future collateral requirements. As we've demonstrated in the past, we continuously evaluate the capital needs of the business, our capital structure, and the need to reward our shareholders, and we'll make capital allocation decisions accordingly.

[Katherine Gates, President and CEO at SunCoke Energy]

Finally, factoring in our favorable logistics performance and the gain from the Black lung liability extinguishment, we are increasing our guidance and now expect to achieve full-year consolidated Adjusted EBITDA between $260-$270 million. With that, let's go ahead and open up the call for Q&A.

[Operator]

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. At this time, we will pause momentarily to assemble our roster. The first question comes from Lucas Pipes with B. Riley. Please go ahead.

[Lucas Pipes, Managing Director at B. Riley]

Yes, thank you very much, Operator. This is Nick Giles on for Lucas. Guys, congrats on the strong results and on the increased guidance as well. My first question was on the extension of the Granite City supply agreement. Where's this material going?

[Katherine Gates, President and CEO at SunCoke Energy]

That would really be a question for U.S. Steel. The Coke is being sold to U.S. Steel.

[Lucas Pipes, Managing Director at B. Riley]

Got it. Got it. And then should we think about this extension having any relation to the progress of the GPI project, or should we think about those as two completely separate items?

[Katherine Gates, President and CEO at SunCoke Energy]

No, this is really part of the GPI project, as we've said. So this extension is built into the project. We continue to work on the GPI project, and this extension is really part of that. We see this as really a bridge while we have to, unfortunately, wait due to the government's inaction here. Frankly, it's just really unfortunate that we're stuck in the limbo of the government's delay in not approving the sale of U.S. Steel to Nippon. And as a result of that, there's consequences for all parties here. And we continue to work on the GPI project with U.S. Steel, but at t he same time, we're facing this delay, and the Granite City contract extension really bridges that period as we're in a holding pattern along with everyone else. And it's unfortunate because it has an impact to us at Granite City and our EBITDA there.

[Katherine Gates, President and CEO at SunCoke Energy]

But as we've said, we continue to believe strongly in the project. The fundamentals of this project are so strong, and so it's something that we're willing to accept as we wait for the process to play out.

[Lucas Pipes, Managing Director at B. Riley]

Katherine, that's crystal clear. I really appreciate all the color and clarification. Maybe just one more before I turn it over. The capital investment of $12 million at Kanawha, you mentioned some future opportunities. Could you just maybe expand on that? Certain geographies you're looking to target, or have there been any capacity expansions from a customer perspective?

[Katherine Gates, President and CEO at SunCoke Energy]

I can't speak to the customers in terms of expansion, but we are constantly looking for new business at our logistics terminals and at our Coke plants, and the $12 million capital project will expand our barge-to-rail unloading capacity from two million tons to five million tons, so it certainly allows us to bring in a greater volume of business that we had before, and we're just trying to build upon what we have put in place with this contract and the business that we saw this year.

[Lucas Pipes, Managing Director at B. Riley]

Got it. All right, well, guys, really nice work, and continue best of luck.

[Katherine Gates, President and CEO at SunCoke Energy]

Thanks.

[Katherine Gates, President and CEO at SunCoke Energy]

Thank you.

[Operator]

Again, if you have a question, please press star, then one. This concludes our question and answer session. I would like to turn the conference back over to Katherine Gates, CEO and President, for any closing remarks.

[Katherine Gates, President and CEO at SunCoke Energy]

Thank you all again for joining us this morning and for your continued interest in SunCoke. We look forward to speaking with you again in early 2025 when we will discuss our 2024 full-year results and give 2025 guidance. Until then, let's continue to work safely and build value for all our stakeholders.

[Operator]

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Katherine Gates, President and CEO
• Mark Marinko, Senior VP and CFO
• Shantanu Agrawal, VP Finance and Treasurer

Analysts

• Lucas Pipes, Managing Director at B. Riley