Alpha Metallurgical Resources Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 6, 2024

There are 7 speakers on the call.

Operator

Greetings. Welcome to the Alpha Metallurgical Resources First Quarter 2024 Results Conference Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. Please note this conference is being recorded.

Operator

I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin.

Speaker 1

Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward looking statements and actual results may differ materially from those discussed. For more information regarding forward looking statements and some of the factors that can affect them, please refer to the company's Q1 2024 earnings release and the associated SEC filings. Please also see those documents for information about our use of non GAAP measures and their reconciliation to GAAP measures. Participating on the call today are Alpha's Chief Executive Officer, Andy Eidson and our President and Chief Operating Officer, Jason Whitehead.

Speaker 1

Also participating on the call are Todd Munsey, our Chief Financial Officer and Dan Horn, our Chief Commercial Officer. With that, I'll turn the call over to Andy.

Speaker 2

Thanks, Emily, and good morning, everyone. Today, we announced financial results for Q1 2024 with adjusted EBITDA of $190,000,000 This was another solid quarter of work from the Alpha team despite some challenging circumstances and a significant softening of met coal markets starting in March. Since the quarter closed, we witnessed further deterioration in market fundamentals, which sets up a challenging backdrop for the Q2. Although our Q2 performance will obviously reflect the market environment in which we're operating, I remain confident in Alpha's strength and ability to weather volatility. For more than a few years now, we've used the word nimble to describe how we prefer to operate, constantly evaluating lots of data to find areas that can be optimized or to plug cost leaks.

Speaker 2

We believe that this approach is valuable in all market conditions, but especially in down cycles when quickly adapting to economic reality becomes a true necessity. In response to the sharp market decline that has occurred so far in 2024, we've made small adjustments to safely reduce costs where possible by optimizing production and logistics. Given our size and scale, the magnitude of these changes doesn't impact our previously announced volume expectations for the year, but these adjustments are allowing us to respond appropriately to deterioration in the market. We will continue monitoring external market drivers while also maintaining a close eye on controllable costs within our business and we'll take further action as necessary. As I visit our operations and talk with employees, I'm consistently impressed by the alpha drive to overcome challenges and make the most of difficult circumstances.

Speaker 2

Our Q1 performance is yet another example of this determination. Subjectively, I see it in mine visits, but there's also objective measures that don't get a lot of attention. 1 in particular is a productivity metric called tons per man hour. As is always the case, safe production is our highest priority at Alpha and we continually promote a safety mindset 1st and foremost. And somewhat counter intuitively, we usually see that safety, efficiency and productivity go hand in hand.

Speaker 2

MSHA, the Mine Safety and Health Administration aggregates droves of data each quarter, including production by operator in tons per man hour, which is exactly as it sounds. As a company, Alpha consistently performs well and has led the pack in its measurement among room and pillar or continuous miner operators for the last 8 quarters. Despite the well known differences between continuous miners and longwall operations, Alpha's operations often performed well against certain longwall operations too. I'm proud to say that in Q1, Alpha led all of our notable peers, longwall operators included, with roughly 14% more productive than the next operator in line. That kind of safe consistent performance is a testament to the skill and effectiveness of our teams.

Speaker 2

We encourage this behavior among our operations and are consistently looking for ways to maintain this industry leading position. During our Q4 earnings call, we discussed our intention to slow or pause the buyback program in an effort to build cash bounces back up to our targeted levels. Especially given the market dynamics currently at play, we continue to believe this is the right strategy. Our capital return philosophy remains the same and will continue to be driven by our cash flow. As minimum cash levels and market conditions allow, we will utilize available free cash flow for the buyback program.

Speaker 2

Lastly, we hosted our annual meeting of stockholders on May 2. This meeting included a vote to elect members of our Board of Directors. All 7 of our Board members were elected by the shareholders to serve a term of 1 year. The full results of the annual meeting have been provided through our SEC filings. I'll now turn it over to Todd for additional details regarding our Q1 financial results.

Speaker 3

Thanks, Andy. 1st quarter adjusted EBITDA was $190,000,000 down from $266,000,000 in Q4 2023. We sold 4,400,000 tons in the quarter. Quarter over quarter realizations decreased for the Met segment with an average first quarter realization of $166.68 compared to $183.76

Speaker 2

for the 4th quarter.

Speaker 3

Export met tons priced against Atlantic indices and other pricing mechanisms in the Q1 realized $172.24 per ton while export coal priced on Australian indices realized $193.70 These are compared to realizations of $175.32 per ton $213.41 respectively in the 4th quarter. Realization for our metallurgical sales in the 1st quarter was total weighted average of $176.20 per ton, down from $193.54 per ton in the prior quarter. Realizations in the incidental thermal portion of the Met segment decreased to $76.53 per ton in Q1 as compared to $89.76 per ton in Q4. Cost of coal sales for our met segment decreased to 115.6 $5 per ton in the Q1, down from $119 per ton in Q4. SG and A excluding non cash stock compensation and non recurring items increased to $19,900,000 in the Q1 as compared to $16,900,000 in the 4th quarter.

Speaker 3

Q1 CapEx was $63,600,000 up from $61,500,000 in the Q4. Moving to the balance sheet and cash flows. As of March 31, 2024, we had 269,400,000 dollars in unrestricted cash, roughly flat against the $268,200,000 at the end of the 4th quarter. We had $93,700,000 in unused availability under our ABL at the end of the quarter. Alpha had total liquidity of $288,100,000 as of the end of March, which is net of a $75,000,000 minimum liquidity ABL covenant.

Speaker 3

Cash provided by operating activities decreased slightly quarter over quarter to $196,100,000 in Q1 as compared to $199,400,000 in Q4. As of March 31, our ABL facility had no borrowings and $61,300,000 of letters of credit outstanding, up from $60,900,000 in the prior quarter. Turning now to our committed position for 2024, 49% of our metallurgical tonnage in the Met segment is committed and priced at the midpoint of guidance at an average price of $168.26 Another 49% of our met tonnage for the year is committed but not yet priced. The thermal byproduct portion of the met segment is fully committed and priced at the midpoint of guidance at an average price of 76 $0.10 With 1st quarter actuals and increased visibility into the balance of the year, we announced 2 adjustments to our 2024 guidance. We now expect idle operations expense for the year to be between $25,000,000 $33,000,000 up from the previous range of $18,000,000 to $28,000,000 For the 2024 tax rate, we decreased guidance to a range of 10% to 15% down from the previous expectation of 12% to 17%.

Speaker 3

During the Q1, we repurchased approximately 305,000 shares at a cost of approximately $116,000,000 including shares repurchased from employees in connection with tax withholdings on annual stock vestings. As of April 30, 2024, the number of common stock shares outstanding was approximately 13,000,000. Dollars The remaining stock buyback program authorization permits approximately $400,000,000 in additional repurchases contingent upon cash flow levels and market conditions. We continuously monitor market conditions and due to the current weakness in the pricing environment relative to Q1, our focus in Q2 will shift toward maintaining our liquidity position. While we do not guide towards share activity, we do expect market softness to limit our repurchase activity in Q2.

Speaker 3

I will now turn the call over to Jason.

Speaker 2

Thanks, Todd, and good morning, everyone. I mentioned on our last call that our teams continue to achieve new company records in safety and environmental stewardship. Since then, Alpha operations and team members have received public recognition with a number of awards for their work. Our Paramount and Southern West Virginia Mine Rescue teams placed 1st and second respectively in the Southeast Regional Mine Rescue contest in March. In addition to earning these top spots overall, both teams collected a host of other first aid, technician team and bench awards at this event, including Alpha Southern West Virginia team claiming 1st place in the mine rescue and first aid competition and our Paramount team coming in second.

Speaker 2

Each year, the West Virginia Office of Minors Health, Safety and Training presents Mountaineer Guardian Awards to operations that exhibit high safety standards. For 2023, 6 Alpha operations were named Mountaineer Guardian Recipients. Cedar Grove 3 minutee, Band Mill Prep Plant, Kingston Prep Plant, Kingston South Surface Mine, Rolling Thunder Mine and Wortman Creek Surface Mine. Additionally, last week, a number of alpha operations were recognized at the Holmes Mine Safety Awards Banquet in the surface mines category, Black Castle Surface Mine, Kingston North Surface Mine, Kingston South Surface Mine and Wortman Creek Surface Mine were award winners. In the underground mines category, the Marfork Belt Transfer System, Cedar Grove 2 minutee, Slab Camp Mine, Glen Island Mine, Kingston 2 minutee, Horse Creek Eagle Mine and the Road Fork 52 minutee were recognized.

Speaker 2

In the plants and loadouts category, PAX loadout, Marmed Dock, FEETs Loadout, Mammoth Plant and River Loadout, Power Mountain Processing Plant, Bandmill Prep Plant and Marfork Processing Plant all received awards. Finally, I'm proud to announce a couple of individual achievements. Steve Arke Giles received the Sharon Cook Award for his outstanding safety service and positive impact on the training and retraining of miners. Arke is a safety representative at our Midwest Virginia surface region and exemplifies an unwavering commitment to safe production. Brian Keaton, our Senior Vice President of Safety and the author of Safe Production, brought home the Safety Leader of the Year Award, and I'll point out that's 2 years in a row that an Alpha Leader has received this award.

Speaker 2

I want to congratulate Arky, Brian and all the individuals at the award winning locations I just mentioned. It's a long list, which is an accurate reflection of how important safety is within this company. Turning to environmental. In West Virginia, Alpha Operations received 3 environmental awards for 2023. The West Virginia DEP recognized Wortman Creek for exemplary reclamation of surface mine operations on their Middle Ridge permit and Kingston for exemplary construction techniques of Valley Fill on their Kingston North surface mine permit.

Speaker 2

The West Virginia DEP also awarded Elk Run for exemplary reclamation of the Queen and Black Queen Mines. In Virginia, Alpha Operations received 5 awards for environmental performance. Paramount's Deep Mine 26 received awards for the Met Coal Producers Association, 4 Best AML Dangerous High Wall Elimination and from the Interstate Mining Compact Commission, they received the National Reclamation Award. The MCPA also awarded Paramount for best completed deep mine at Deep Mine 25 and best active deep mine at Deep Mine 41. Lastly, the MCPA awarded Dickerson Russell for best active fill at our McClure preparation plant.

Speaker 2

I want to congratulate both our environmental and operations teams their commitment to environmental excellence and all that they do to go beyond compliance. 1st quarter performance for operations was solid, especially in light of some challenges we face, and I'll expand on that shortly. As Andy mentioned before, I could not be prouder that our teams excel in both safety and in productivity measures like tons per man hour. We can be safe and productive at the same time, which is exactly what we aim to do every day. As we all know, much has changed since spring of 2020 when the COVID-nineteen pandemic took

Speaker 3

the world by

Speaker 2

storm. Already such a competitive labor market became even more challenging. Recruiting new talent to work in a costs like supplies and labors to grow to unprecedented highs, while critical supply component availability cratered. Frankly, in some cases, you just couldn't get supplies. As we've discussed on previous calls, ALPA mitigated many of these hurdles by increasing the scale of our rebuild facilities, stocking our warehouses with parts and supplies to weather the storm and with acquisitions like Maxim Manufacturing and Maxim Transportation.

Speaker 2

Todd spoke to the quarter over quarter decrease in Australian index export realizations of approximately $20 a ton, which is representative of the recent downward trend in coking coal price. This trend is also shedding light on the softening of the supply competition in our industry, which has eased in recent quarters. Now we're facing a very different set of circumstances than the ones we navigated successfully after COVID and in many ways more challenging. The decisions are harder to make than necessary with the uncertainty of how long the markets will stay in this current trough. Year to date 2024, there's been a lot of behind the scenes work going on to steer Alpha through these headwinds.

Speaker 2

With over 1200 active suppliers, it takes some time to communicate what is happening in the market as well as Alpha's needs and expectations going forward, but we are well underway with this process. While we value the partnerships formed with suppliers over the years, we have not hesitated to change to viable, lower cost options as they present themselves. Alpha is also shifting focus on our rebuild and manufacturing facilities. As I mentioned, the availability of certain supplies has improved. We're not always in a situation where we have to make it to have it, and our initiatives are centered around maximizing margin.

Speaker 2

Any component we build is at a discount versus sourcing it from a 3rd party, but we're evaluating every planned project with the goal of utilizing our facilities in a way that brings the highest return to Alpha. It is a blessing to have the expertise in house to seamlessly move from machining things like tracks and chains for continuous miners to fabricating shoot work for preparation plants. Lastly, while citing and communicating the current market trend to our employees, Alpha has made the difficult decision to make certain incentives cuts across the organization. These reductions equate to about $35,000,000 per year. But with the seasoned workforce we have, I believe they understand how cyclical the markets are.

Speaker 2

And although no one likes it, most understand actions like these are necessary to ensure sustainability. I'll now turn the call over to Dan for an update on the markets.

Speaker 4

Thanks, Jason, and good morning, everyone. In recent months, metallurgical coal markets have softened due to weakened global demand for steel. Economic pressures, geopolitical uncertainty and global recessionary fears have contributed to the demand dynamics and volatility in metallurgical coal markets. Economic conditions remain uneven across the world with generally stronger circumstances in the United States than in Europe and in certain parts of Asia, which continue to experience significant geopolitical strife. Metallurgical coal prices fell significantly during the Q1 of 2024.

Speaker 4

All four indices that Alpha closely monitors saw a drop of 16% or more within the quarter, with the Australian PLV Index representing the largest reduction of 25%. The Australian premium low vol index dropped from $324.75 per metric ton on January 2, 2024 to $244.50 per metric ton at the end of the Q1. The U. S. East Coast Low Vol Index decreased from $2.68 per metric ton at the beginning of January to $2.25 per metric ton at the end of March.

Speaker 4

The U. S. East Coast High Vol A Index moved from $2.81 per metric ton at the start of the year to $2.25 per metric ton at quarter close. And U. S.

Speaker 4

East Coast High Vol B decreased from $2.52 per metric ton to $200 per metric ton at the end

Speaker 2

of the quarter.

Speaker 4

Since then the PLV has dropped from its quarter close level to $2.38 per metric ton on May 3. The other three indices have also softened from their end of quarter levels with U. S. East Coast indices of low vol, high vol A and high vol B measuring $219.20 $195 per ton respectively as of May 3. In the thermal coal market, the API2 index moved from $101.55 per metric ton on January 2 to $118.25 per metric ton at the end of March.

Speaker 4

And on May 3, the API 2 was at $109 per metric ton. These met coal index numbers certainly suggest softness, but from Alpha's perspective, we believe they may not reflect the full extent of the market deterioration that has occurred in recent weeks or the significant drop off in sales activity. Before I close my remarks, I want to briefly discuss the March 26 Francis Scott Key Bridge collapse in Baltimore, which has blocked shipping access to and from Baltimore Harbor. In terms of coal markets and Alpha specifically, we have not used the Baltimore terminals to export our coal in nearly a decade and thus did not have any coal stored there at the time of the bridge collapse. Instead, the vast majority of our export business travels through Dominion Terminal Associates in which we hold a 65 interest and comparable throughput capacity rights.

Speaker 4

We also have the ability to use other East Coast terminals for export shipments as necessary or in cases where it is opportunistic for us to do so. Therefore, we do not believe that the bridges collapse will have direct effects on our business. We like other producers may experience some indirect effects such as greater competition for rail capacity as companies who have historically exported their products through Baltimore's port seek alternate options. This increased demand for rail transport may also result in rail congestion, longer shipment times or higher costs. However, our majority ownership in DTA continues to serve us well and we do not expect any material adverse effects from the Baltimore bridge collapse to Alpha's business.

Speaker 4

Lastly, speaking of DTA, the team recently completed a planned week long outage for ship loader maintenance. The maintenance was successful and the terminal is back to operating at full capacity. Another scheduled equipment maintenance outage is scheduled to occur in the middle of May. The downtime is expected to be roughly 1 week and will only impact 1 of the stacker reclaimer machines at the terminal. This means DTA will be able to continue operating with the other equipment, but overall throughput will be less during the time when this machine is down for maintenance.

Speaker 4

And with that operator, we are now ready to open the call for questions.

Operator

Thank you. At this time, we'll be conducting a question and answer session. Our first question comes from Lucas Pipes with B. Riley Securities.

Speaker 5

Andy, first, I want to tip my hat because you're probably the only executive who mentions lots of data in the prepared remarks without also mentioning AI. So well done there. But in all seriousness, great job on the cost and productivity side in Q1. And I wondered if you could maybe speak to kind of from here on out, what are some of the key initiatives? They were partially discussed on the prepared remarks, but maybe you could expand on where you're really looking to drive cost savings from here on out and manage what you described as a weaker market environment?

Speaker 5

Thank you.

Speaker 2

Sure, Lucas. And I hate that you're beating me to the punch on the AI. We'll get to that maybe next earnings call. We'll have a lot of work to do on that. But as far as I think Jason covered a good portion of that.

Speaker 2

A lot of this is organic productivity improvements. And I got to say it's amazing watching Jason and the team work. The level of detail that they review their operations at, it really is I mean it would be something that could be a test case for AI. It requires a much bigger brain than I currently contain to monitor all the things that they've got going on. But the sheer volume of metrics down to whether it's equipment uptime or any number of things that are being evaluated real time is pretty incredible.

Speaker 2

And it's again across the number of operations we have and the fact that we're pushing out 17 ish 1000000 tons, small changes have pretty significant snowball effects when they're applied across the entire portfolio. So I don't really want to get into any specifics unless there's some things that Jason would like to throw at you. But again, it goes back to capturing all the appropriate data that covers every aspect of operations and then being able to cut it in a way that you can really derive some wisdom from. I mean, information without wisdom is kind of pointless. And we've got the right team to take this data and make some significant impact out of it.

Speaker 2

This is Jason. I'll follow-up a little bit. I mean, Andy covered the first half of it really well. And I guess the second part that we're really keying in on now is just with the softening, I guess, of the supply market and things are easier to get now relative to maybe even a few quarters ago, things have really turned around there. So we want to make sure that we're utilizing our rebuild facilities, our manufacturing facilities to get the absolute best return for Alpha.

Speaker 2

So as we're able to pick things up off the shelf, we may see in some cases it makes sense to shift the things that we're fabricating and we're making for internal use.

Speaker 5

Thank you very much, Andy and Jason. I want to touch on the market a little bit. From my vantage point, there are kind of a lot of mixed signals. Pricing is seemingly holding in there, but you described demand as softer and maybe softer than the eye be holds. So I wondered if you could maybe expand on that and where you see the market today if there are green shoots or if there may be more signs of caution ahead.

Speaker 5

And you repeat it, the outlook on the buyback is maybe more muted here in this environment. How should we think about that? And is it would it be reasonable to expect that if you get to $300,000,000 cash balance, for example, that you would resume cash sort of resume share purchases with any cash in excess of that. Just wondering how you think about that? Thank you.

Speaker 2

Yes, Lucas, I'll hit the second part of the question first and then I'll let Dan deal with the market. But on the buyback, we've talked about it before. We're kind of slaves to our 13 week cash flow forecast. Obviously, we're not ambivalent to the method of the capital return. We're all in on the buyback, but we are somewhat agnostic as far as following what the forecast gives.

Speaker 2

It's kind of a there's a cold logic to it. And naturally, job 1 is to protect the franchise. And when we're in a market with choppy waters like this, we do want to make sure that we have enough dry powder to withstand any maintained down legs, even if we get below some previously tested marks of whether we call 225 at the bottom or 200 at the bottom or even less, who knows. I don't think we're going to see things like that, but the world changes quicker than we can keep up with. But we've got approximately a month before our trading window closes and that means that we'll have the opportunity to play with the 10b5 programming up until probably the 1st week of June before we have to lock it down and leave it.

Speaker 2

And so we've got some time to analyze the market, get more information, see if we're seeing some reversal in trend that would support firing up the buyback in earnest again. But until then, I'm not I don't want to commit one way or the other. We're just we're going to play it as required to keep our cash balances at a comfortable place to where we don't have to stay up and not worrying about where everything is going to come from. But Dan, I'll let you comment on the market piece of that.

Speaker 4

Yes. Good morning, Lucas. Good morning. I guess this market, I would describe is still kind of a balanced market. We no doubt steel production around the world is down.

Speaker 4

It's been a long time, I guess, since I've seen all of our markets have kind of depressed steel markets. There's not a lot of good demand in any markets. India, as you know, is a little weaker than they've been in a few years. And I guess a lot of that is obviously due to economic circumstances. Another piece that people don't talk about as much as it affects us.

Speaker 4

There's a lot of metallurgical coke out there that's been kind of an overhang situation and I think that's affecting our coking coal shipments and that's starting to work off. So I suppose if you're looking for a green chute, one of the green chutes might be that we see some the coke market pricing start to go up and maybe not quite the availability of metallurgical coke. Coke. And the number of blast furnaces, hot metal production actually is probably starting to increase too. So but it won't happen immediately, we don't think.

Speaker 4

So, we're still seeing lower demand than usual and a certain amount of deferrals or delays too. That's something else that's a piece of our businesses. Customer will still buy the same tons, but they'll spread out the shipments just a little bit on us. And that has a cumulative effect as well.

Speaker 5

Thank you, Dan. Are you seeing any movement on the supply side, either good or bad?

Speaker 4

Circumstance, we hear anecdotally of some mines that are idling, you probably read a couple of them in some of the media. So there seems to be some production coming off offline here in the U. S. And I guess another point that I need to weigh certainly on the high vol coals in the U. S.

Speaker 4

Is the thermal market as you know has been really terrible for the last year or so. There was really no summer demand last year, no winter demand. So there's been a real overhang of thermal coal and a little bit of that thermal coal tends to creep into our high vol markets here too. That's another area that hasn't really been talked about a lot. But some of that coal actually ends up competing with that coal and holding the prices down too.

Speaker 4

And I think some of those thermal operations we've heard anecdotally have been slowing down as well.

Speaker 5

Very helpful. Gentlemen, I really appreciate all the color. Thanks so much and continued best of luck.

Speaker 3

Thanks Lucas.

Operator

Our next question is from Nathan Martin with The Benchmark Company. Please proceed with your question.

Speaker 6

Thanks, operator. Good morning, everyone.

Speaker 2

Hey, Nate. Maybe I'll start with kind

Speaker 6

of a mixed question. I know domestic shipments seem to be light in the Q1, but it looked like Aussie index export tons also kind of dipped below your typical onethree or so, let's call it, met sales level and then the exports tied to the other pricing mechanisms were about 51% of sales it looks like. So Dan, maybe great to get your thoughts behind kind of the mix drivers there and then maybe how should we kind of think about that mix evolving with those 3 buckets here in the Q2?

Speaker 4

Hi Nate. I guess I'd take exceptions of light. I wouldn't say was light shipping schedule. I think we're it was 4,000,000 tons, 4,000,000 tons. But some of there were certainly some deferrals we saw coming out of Asia, so lighter spot demand and a little bit of deferral.

Speaker 4

So that did skew the Aussie index based volumes a bit downward. Probably see that in Q2 as well before it picks up. India still looks real solid for us, but for the reasons that have been addressed, the elections coming up and things there is definitely both on term and spot business little bit less coming out of India. And then just generally Southeast Asia and China a little slower than we had hoped as well for just overall economic reasons.

Speaker 6

Okay, got it. And just to clarify then, I was just saying light from an Aussie index percentage of sales, not 4,000,000, 4,100,000 tons were light. So that makes sense. I guess sticking with the demand thing, Pacific Basin had been kind of out pacing the Atlantic Basin for a few quarters. Now it sounds like maybe things are a little bit weaker near term in India as you just mentioned.

Speaker 6

Maybe could I get your thoughts on Europe? I mean, how are things looking there? Maybe when do you think that market could start to improve?

Speaker 4

I think it's safe to say Europe should have produced more hot metal in 'twenty four than they did in 'twenty two. That seems to be in the cards. Several of our customers have more blast furnaces operating. As I mentioned, there's an overhang on coke. And with the low coke prices, there's fair amount of purchase coke are going into Europe that probably won't last.

Speaker 4

In my experience, that lasts for a while. And then when the cheap coke gets worked off, the cokeries begin producing more of their own. So I tend to think Europe will start to pick up and that probably applies to South America as well.

Speaker 6

Okay, got it. Thanks for that color. And then maybe shifting over to DTA, I know you had some prepared remarks there, specifically some comments I guess on the Baltimore port outage related to transportation. But did you guys see any benefits maybe from the Baltimore port outage as far as tonnage necessarily needing to shift away and likely Hampton Roads taking the majority of that?

Speaker 4

I guess short answer would be no, Nate. We're moving clicking along with our business as we had before. We got a few phone calls right after the bridge collapsed, but it didn't really translate into any spot business. We know that there's a fair amount of Norfolk Southern based business that's moved to Lambert's Point that would have shipped out of Baltimore and that probably got back in the queue a little bit there. So that's a minor effect, I think, on Alpha would be there's just there's a little more volume going out at Lamberts Point than there was prior.

Speaker 4

But as far as DTA, I'd have to say we didn't see any effects.

Speaker 6

Okay, perfect. Got it. And then maybe just one more. Maybe Jason to you, I think you mentioned in your prepared remarks, you guys looking at the current market conditions did make a decision to make some cuts to some labor incentives. Have you seen much churn or labor attrition due to those?

Speaker 6

And then I think you mentioned that's roughly $35,000,000 or so in cost savings. How does that translate on a dollar per ton basis maybe to your full year kind of met segment coal costs?

Speaker 2

Well, on an annual basis, it's normally $2 To answer your question about attrition, it's kind of early yet. We made those announcements, I think, around the 1st April actually mid March, excuse me. But from what I've seen since mid March, attrition rates are generally in line with recent history. So we haven't seen definitely not an exodus or anything, but we really haven't seen even much of an uptick yet. And I suspect that's just due to the general state of the market.

Speaker 2

I mean, we're not the only ones that's we all have the same problems. These things go together.

Operator

Our next question is from Lucas Pipes with B. Riley Securities. Please proceed with your question.

Speaker 5

Thank you very much for taking my follow-up. It's not on AI. It's on the idle mine expenses, Andy. Can you comment on what drove the increase? And is this something we should kind of hold steady over the coming years or may it kind of revert back lower?

Speaker 5

Thank you very much.

Speaker 2

I'll let Todd give the detailed answer, but it's as you have properties that are we'll call it in between, they could be in full reclamation status where the cost of the property is going through your ARO balance sheet accounts. Sometimes when you're in between, you've got some timing issues and you're going to pick up a little bit of extra idle expense while that property is waiting to go into full actual reclamation status. So Todd, that's pretty much in the ballpark of where?

Speaker 3

Yes. I think that's the primary driver, Lucas. We did have a little bit of nonrecruvable royalties relative to when we did the budget that we layered in, but Andy hit the major point there. So and in terms of looking forward, I think you can look back and see where that range has been. I mean, we certainly don't anticipate that to increase in the future.

Speaker 3

So I think the range that we're in for the near future at least is probably where we'll be.

Speaker 5

Thank you very much. And Andy, some of your peers have publicly commented on the desire to kind of grow their met coal exposure, especially to the seaborne markets. What's your take right now on M and A? Are there properties for sale out there? If so, do you have any interest?

Speaker 5

Not that I mean, your pure play as is, but curious to get your take on M and A and some of those comments. Thank you.

Speaker 2

Well, I think we've kind of hit it a little bit on previous calls. We're always look all coal companies are for the most part acquisitive. We are what we are today because of transactions we've done in the past. And so we're always looking. There are probably some smaller opportunities.

Speaker 2

As Dan mentioned, we're seeing some small supply coming offline. Some of these folks just are undercapitalized and with no ability to get access to capital markets. There are probably a handful of pretty high quality or at least good quality mines out there that could be attractive that may be available over the next few months. But as far as larger transactions, again, it's just really tough to envision a world where with everyone's current shareholder bases and capital structures, any significant deals getting done anytime soon. Everyone really loves the buybacks.

Speaker 2

There's been a lot of value created. We agree with that. And so it's kind of challenging to look at a world where you're doing the big transformational deals at least from my vantage point.

Operator

We have reached the end of the question and answer session. I would now like to turn the call over to Andy Eidson for closing remarks.

Speaker 2

Thanks again everyone for your interest in Alpha and for being on the call with us today and we hope you have a great rest of the week.

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Key Takeaways

  • Alpha delivered $190 million adjusted EBITDA in Q1 2024 despite a significant softening of metallurgical coal markets starting in March.
  • Since quarter end, further deterioration in market fundamentals has created a challenging backdrop for Q2, though the company remains confident in its volatility-resilient strategy.
  • Through a nimble operating model, Alpha safely reduced costs by optimizing production and logistics without impacting full-year volume guidance.
  • Alpha led all notable peers in MSHA tons per man hour for the eighth consecutive quarter, outperforming the next operator by roughly 14 percent.
  • The share buyback program was intentionally paused to maintain liquidity, with $305 million repurchased in Q1 and $400 million of remaining authorization to be deployed when cash levels allow.
A.I. generated. May contain errors.
Earnings Conference Call
Alpha Metallurgical Resources Q1 2024
00:00 / 00:00