Greetings, and welcome to the Alpha Metallurgical Resources Second Quarter 2022 Results Conference Call. Please note this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President of Corporate Communications. You may begin.

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 second quarter 2022 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, our Alpha's Chairman and Chief Executive Officer, David Stetson; and President and Chief Financial Officer, Andy Eidson. Also participating on the call are Jason Whitehead, our Chief Operating Officer; and Dan Horn, our Chief Commercial Officer. With that, I'll turn the call over to David.

Thanks, Emily. Good morning, everyone, and thank you for joining us. This over six years ago, I joined the Alpha team. During those years, we have certainly experienced our share of obstacles and hurdles. And on many occasions, we had our share of people questioning whether Alpha would survive those ordeals. I come before you today as proud as ever of the accomplishments of the Alpha team humbled by the opportunity given the six years ago as part of that team, and confident that this team will be stronger and achieve more in the coming years during my tenure as CEO We have always been transparent about our goals about them. We do that a heavy debt while navigating markets more difficult. We knew it was essential to invest in our people and our assets to grow out there. And lastly, our shareholder base has been very loyal, net loyalty had to be rewarded. Over the past quarters, we've clearly laid out the plans and actions we needed to take in order to accomplish those goals. To that end, let me share with the great news in the second quarter This is our first earnings call is fully paying off the remaining term loan balance in early June, completing our long-term debt elimination. As you know, deleveraging has been a top priority for us. Just over a year ago, Andy laid out a plan to reduce and possibly eliminate our debt by 2023. As user-focused approach to our financial management as well as actions taken to short all aspects of our balance sheet, enabled this time frame to be realized in the second quarter, well ahead of anyone's expectations. Couldn’t be proud of Andy and the entire executive team for their discipline in seeing this through to completion. It has…

Thanks, David, and good morning everyone. Before I get started, I want to take a moment to acknowledge the incredible work that David has done as Alpha’s CEO. I've had a front-row seat to the positive impact he created and I can attest to the critical role he’s played. And we achieved a win never failed to give the team credit, and we face serious challenges and never will to seize the opportunity to turn setbacks in even greater ways. As David forever be on this company, and we cannot thank him enough for what he has done. As he mentioned, today's announcements are a window into what Alpha's next act will look like. After paying off our debt and significantly reducing our legacy liabilities, the company is entering an exciting new phase. It will be different without the weight of our previous debt load, but I believe that the discipline, resilience, and leadership vision that brought us at this point are the same thing that will propel us into an even more successful future. What this team has accomplished over the past three years is nothing short of incredible, and that is due primarily to two things: the strategic vision and foundation that David created and the unparalleled efforts of the world-class Alpha team members. This new phase will continue to honor that foundation. In addition to the CEO transition, we have announced today, I'm pleased to report that the board has selected Todd Munsey to take over the duties of CFO as of tomorrow. Don served the company's SVT Controller since 2016 and prior to that in a number of high-level roles and our tax and accounting departments after getting a start at PricewaterhouseCoopers. The board has named Todd is the role of Executive Vice President and Chief…

Thanks, Andy, and good morning everyone. I'll start by congratulating our teams on another outstanding quarter. In addition to our everyday focus on Safe Production, the quarter was also positive in terms of advancing the ball on several of our special projects. What I want to highlight is the Glen Alum Mine that will feed into our Marfork preparation plant. Our teams have worked incredibly hard and against a number of supply chain obstacles to keep this mine's development on track, and I'm pleased to report that the Glen Alum Mine took its first cut of call in June. We're excited to bring this mine into our portfolio, and we continue making progress on the plant upgrades and other various CapEx projects we announced late last year. Additionally, we closed on the purchase of the Crown Hill dock at the end of June. This is a river barge loading facility in Canola County, West Virginia, and we believe this property will provide some future optionality for logistics and transportation of our coals. We continue to see volatility in the global coal markets with thermal coal having had an especially volatile span in recent months. This is due to several geopolitical factors, including the Russian invasion of the Ukraine and its effect on the European energy landscape. Thermal coal and dices have jumped higher than even the highest quality met coals, inverting what has historically been a predictable pricing hierarchy. As a result, high-volatile metallurgical coals are finding their way into thermal coal markets and Alpha has taken advantage of some opportunities in this regard. We have High-Vol B commitments for both Q3 and Q4 for servicing thermal markets, and we continue to mind the reclamation on our Black Castle surface mine, where we're producing incremental thermal production while cleaning up…

Thanks, Jason, and good morning everyone. As Jason mentioned, coal markets continue to shift in response to a variety of factors. We're roll weakening of the global economies, the ongoing war between Russia and Ukraine, inflation concerns, and recession peers have all influenced the pricing and movement all across the globe. Greater regularities resulting from the Russian invasion created inefficiencies and trade flows as well as a new balance in the typical pricing hierarchy pool. On the metallurgical side of things, concerning regarding global steel demand has caused markets to soften at these ones with indices retreating significantly from their record highs early. Alpha levels are still considered strong relative to historical averages, they represent a meaningful drop from where they started earlier in '22. Industrial premium logo index dropped $480 per metric ton on April 1st to $302 per metric ton at the end of the second quarter. After the quarter, the PLV indices continue to drop further down to roughly $203 per metric ton in recent days. As a comparison, the U.S. East Coast low-vol index declined from $485 per metric ton at the start of the quarter to $317.50 per metric ton at the end of June and is now down to around $232 per metric ton. East Coast high-vol A index start quarter at $480 per metric ton declined to $330 per metric ton a quarter closed came down now to roughly $245 per metric ton. Correspondingly, the East Coast high-vol B index all from $455 per metric ton down to $320 over the course of the second quarter and is down now to around $243 per metric ton. We order several economic indicators to understand the health of the steel industry with one of those being the world steel associations proved steel production. Before we…

To follow on Dan's comment I want to thank both CSX and Norfolk Southern for their work to improve rail service over the past quarters. We appreciate those partnerships. And with that operator, we are now ready to open the call for questions.

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. Please proceed with your question.

Thank you very much, operator. Good morning everyone and congratulations on a strong quarter, being debt free. David, I want to congratulate you on your well-deserved retirement, and Andy, Todd, and Jason also congratulations on your promotion. So a lot's really going really well here, and this is terrific to see. I want to turn my first question to the market and the inversion we've seen on thermal versus meta. You're taking advantage of it this year. What are the limits to maybe switching more tons into the thermal coal market? So next year, when you have maybe a 3-year head, where could this go and how would you frame that up? I appreciate your thoughts. Thank you.

Hi Lucas. Thanks for the question. Yes, that's -- where could it go is a question I'm resyncing answer, but what we're doing in Alpha’s we're looking at these opportunities as they come along. And by the way, we've been selling to some thermal coal into the market for several months here, not just lately. But some of the constraints that do affect are some of the things you've probably read already, all matter FS, sizing of the coal. There's a lot of the utilities, particularly in Europe that haven't used a lot of capitals in several years. So there are some technical issues to overcome as well as some of the logistic issues that -- but again, for us, that's what DTA comes in handy for us, and we can use DTA as a platform to move some additional thermal over. I'll start -- I should have started by saying that we still expect the met market to be strong. We have a great group of customers and they are still in the market. We continue to talk to them globally. We still remain interest. We still get interest from Asia, including China, we have discussions. So there's still plenty of opportunities out there, but the thermal market does have some limitations. Not every ton of coal can shift to the thermal market. But I suppose if you're looking for a number, we can add easily several hundred thousand tons more into the thermal market going forward in the coming months if we see something we like. Hopefully, that answers your question.

And that was on an annual basis that number?

I don't know about it. I mean, we're already doing roughly 1 million tons a year of thermal. So we would add to that with some adjacent production increases, we'd be adding something to that. But I honestly don't have that number from.

Okay. that's helpful. And for -- Dan, I think you mentioned the contract season for 2023. Can you elaborate a bit on how you're approaching domestic versus export met coal sales here in this environment? Obviously, Metco market has softened a bit internationally. You have a debt-free balance sheet that may allow you to take more risk in the international markets. So a few cross currency would appreciate your thoughts as how you think placement could make sense and if there might be any deviation from…

Lucas, this is David. I'll make a comment that Dan can clean it up in four meets. But we're right the middle of our budget process for 2023, and we'll look across the board of where our portfolio is. As Dan mentioned, we have a lot of our existing customers that are already speaking with us, both domestically and internationally. And then we've also -- with the relationships we've developed, we're also exploring new markets in Asia. This will be -- if you look at historically at Alpha, we've historically been right around that 35% domestic, 65% international. We like that for a lot of fundamental reasons, but I'm not going to go into detail on a public call on. But that's still our sweet spot. But again, we're going to approach the season like we do always. We've got some great products, great quality, great diversity, and we have strong interest across the board, both domestically, internationally. So that decision will be made as we enter the domestic markets. We see what we like. We see the pricing that we believe will fit within our profile. We will take advantage of it. And then we obviously have our international side as well. It's growing every quarter. So that was a decision that will probably be a in the coming months. And certainly, in our November call, we'll have some updated information on how we come out of the net side. Dan, do you want to try to clean up my comments.

I think you said it well, David. I will take a quick issue as -- the export that market slowing down. I guess to some other companies, yes, what I mentioned on our previous calls that last year, about a year ago when the market started moving up, we and other companies signed more long-term contracts than we had in the past. So a bigger part just because there's no new deals in the market doesn't necessarily always mean the business is low if you're shipping on a lot of previous contracts. So you'll see our numbers there. We shipped 4 million tons in the previous quarter. So we're -- I take a little exception to the volume part of that. Certainly, the industry has come down, but the volumes for Alpha at least remain strong. But we're absolutely looking to don't want any opportunities on the thermal side, as I mentioned earlier. And then with regard to the domestic met, we're still working on the RFPs for goodness sakes. They're not even due until the next few weeks. So it's really too early to comment in any detail on what we expect to see there.

I appreciate the color. And I'll ask one final one for today for now. David, you mentioned the improvement on the rail side and that's great to hear. Could you frame up how the service is today versus an funnel? Is it at 90% better than that or is there still room for improvement, if at all? Thank you very much for your perspective.

You may have more on the logistics side. I can just simply reemphasize what I said. Earlier this year, our road partners came under a lot of strengthening. They brought before the Surface Transportation Board, people are writing letters. We were having private conversations. We prefer as a company to have conversations with our partners in a private setting versus a public setting. But just as they were experiencing labor issues, we were experiencing the same in our industry. And so we appreciate what they've done. We've certainly seen significant improvement on both CSX and Norfolk Southern. We appreciate their ability to try to ramp up. They're doing better every day. But with that, Dan, you're closer on the logistics side. So any insight you might have for...

Well, I think I'll just add that when we saw the changes coming with the railroad in the case of one real, there were several new changes. I'm going to give a shout-out to my team, the logistics team for reacting quickly and changing some of the way we do things and shout out Jason's team, the people at the preplant, and readouts to react to these changes as well. So part of the reason I think we're more successful here in the last quarter is due to the -- everyone stepping up and realizing it is a bit of a different world on the transportation side, and we had to change things we do in the business. That means we're in the train on a Sunday or whatever, we respond to that too.

That's very good to hear. Gentlemen, again congratulations and continued best of luck.

Thanks, Lucas.

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

Hi, good morning guys, congrats on the results, and I'll go Lucas' comments, congrats on all the transitions being made there by the team. Maybe I'll start with Jason. I appreciate all your comments related to the thermal business and what's behind the increased guidance for this year. But I just want to make sure I caught everything. It sounded like Slabcamp was extending through the first quarter. I think you also mentioned bringing back it was 0.5 million tons at the Republic Surface Mine, I think it was. If I did hear all that correctly, maybe you can give us one more rundown. And then where are those tons going to be flowing through? Is that the all other segment? Or is that still with the thermal piece of the Met Segment?

I think the answer to your latter question is probably both. So let me start with Slabcamp. The bonds been -- we've been talking about it for a year. It's been depleting. But as the market shift, times that were once considered resources are now much more economic. So therefore, we're able to bolt on small sections to the mine and mine them at a relatively good cost to where the market is. So you did hear me correct. We expect Slabcamp to operate into and maybe mostly through the first quarter. But again, we're mining the very end of the mine life. So things are subject to change, but we're ready to move and adjust accordingly. So Slabcamp would hit the All Other segment. And then the republic permits that we plan to start in the fourth quarter of this year, you did hear me right that it's upwards of 0.5 million tons. And these are, I guess, currently inactive surface mine permits, but they would be in the all -- I'm sorry, they would be in the Met Segment, but they'd be incidental thermal tons to the Met Segment, but available and will be sold into thermal markets. Does that answer your questions?

Yes, no, that's perfect. Jason, I think the other one maybe did you mention if I caught correctly with Black Castle?

Yes. And I thought we mentioned that on the last earnings call, but maybe my memory is fuzzy, but we have been releasing tons, not large amounts from Black Castle in the second quarter. And that will continue through most of the year but it's smaller volumes. I would estimate that somewhere between 80,000 and 110,000 that would be in the Met Segment but would be in the other incidental thermal bucket.

Got it. That's very helpful, Jason. Thank you. And then maybe sticking with other thermal for a second on the cost side. You guys maintained cost guidance of $58 to $63 a ton. Obviously, first half has done extremely well below $50. What do you foresee increasing the cost in the second half there, if that's the case? Is that just kind of getting to the end of the Slabcamp mine life that you spoke about?

Yes. I think you nailed it there. There'll be recovery type work and mine closeup type work, being spread across fewer tons, and probably expect to see a bit of an increase there. And I'll let Andy comment if he has anything to add.

No that's it, Jason, nailed it.

Great. Appreciate those all guys. And then maybe just shifting to a high-level question on the cash return side. You guys raised your regular dividend slightly this morning. Your clear preference has been share buybacks nearly completing half of that $600 million program, so far, it looks like. Now that you've essentially paid off all your debt, what are the priorities for cash going forward? How are you thinking about balancing shareholder returns with other uses of cash, whether those might be investing in the business organically that you pointed out earlier, M&A, things like that? And then any minimum liquidity or cash levels you guys would like to keep? Thank you.

Yes. Nate, this is David. That's a broad question. So let me start high level and we can drill down as much as you want to. As we stated on previous earnings calls, our priority was paying our debt off. So we checked that box. Our other priority was twofold: one, to increase cash balances and the other was to reward our shareholders for their loyalty over these past years. So we commenced our earnings program earlier than the last quarter, we increased it to $600 million. We have spent, as we've heard earlier, approximately 50% of that has been spent to the market. So from our perspective, we're going to continue our share repurchase program. We believe our shares are undervalued. Therefore, it's a good place for our investment. We'll continue to increase our cash balances as we move forward. As Andy mentioned, we battled our tone in some opportunities in the M&A side but to know Abel. So we -- as you know, we have a large and diverse reserve base. We're constantly evaluating that reserve base, the purpose of bringing on new production. But you also recall in the previous quarter, we went through a 15-year mining plan that show that over the next 15 years, we simply mine what we currently have in play. We do not need any large capital project. On the other hand, we're constantly evaluating opportunities to either bolt on and make some incremental production increases and/or replace existing mines with more efficient mines. So from my perspective, where we're not deviating from our strategy. We're going to continue to do a share return program via our share repurchase. We're going to continue to build strong cash balances and that is where our future is, Andy, I'll let you provide any other additional commentary.

Yes. I think that hits it all, David. The other question, Nathan you hit us with was minimum cash or minimum liquidity levels. And while that's not a hard and fast rule, and there's really not much of a side to, I do think that broadly speaking, we like to look at somewhere in that $250 million to $300 million range for total liquidity target. Of course, including an ABL in that mix, ABL could be as volatile as anything else based on where the markets are. So you can't always rely on the ABL to provide roughly $100 million of liquidity. So we need to probably be thinking a little bit less on that over the full cycle. So probably somewhere in that $250 million to $300 million range is what we're going to target. And that will naturally wax and wane. And as David mentioned, we've got the 15-year plan as a bit of a guide. We're also going through our budget cycle for 2023, and that will inform what kind of capital projects we'll be looking at for next year. But as we've said in the past couple of calls, we don't have those huge projects that really require any material deviation from any of our plans. We can do most of the things we want to do at once. And I think that in the decent markets and such the really good markets we're experiencing now, that has certainly been the case. It should be going forward.

Got it. Appreciate those comments, guys. I'll leave it there. Thank you for the time and information best of luck for the second half.

Thanks, Nathan.

Thank you, Nate.

Our next question is from Jonathan Everett with Cowen. Please proceed with your question.

Hi, good morning, everyone, congrats on the quarter, as well as everybody with the new promotions. My first one is, can you touch maybe a little bit on the cadence of shipments from the remaining of the two quarters?

I think, Jon, it's sitting here today. I think part of that is I don't see any big changes. We have a fair amount of our book committed. We have -- we're just starting to talk about Q4 with our seaborne customers. Typically, we start to find out what their schedules are in mid-August. But at this point, I would say the pro rata shipping level. Now whether some of those times convert from met to thermal is still to be determined. I expect some of them will. I don't have a number in my head yet, though. We're in discussions with there's multiple thermal coal customers in the market. So we're going to come on that.

Understood. Okay. And I guess it's somewhat related, and I'm sorry to beating a dead horse here. But in terms of revenue, can we expect the second quarter to be the peak of the year? Or can we maybe expect a gradual decrease quarter-over-quarter from here until the fourth quarter?

Jonathan, it's Andy. Yes, I mean, just based on actual realizations and where the futures are sitting through the rest of the year, at least pointing right now, I think Q2 doesn't appear to be the high watermark and it was very, very high water. But yes, it looks like while the curve is and it's still in a bit of contango going into Q4 and Q1 of next year, it looks like there's overall going to be downlink as compared to Q2.

Yes. That makes sense. And then just one more on my end. I noticed the increase in SG&A guidance, is all of that really composed of in census cop? Or are there other items embedded in there?

Yes, it's a combination of multiple items, Jonathan. But the primary impact is coming from just cash impacts on our LTIP program and incentive compensation. So naturally, the outperformance in the first half of the year drives bonus programs. And so we're just adjusting the accrual for that. Now depending on where the pricing goes, it may come down a little bit over the back half of the year, but that's just getting us caught up based on the extraordinary first half on the super extraordinary second quarter.

Okay. Got it. And just my last one. In terms of inflation in labor, how are you seeing -- what are your expectations? Or how are you guys looking at in terms of the second half of the year?

So I'll let Andy grab that. We haven't changed guidance on our cost that.

No, I think it's obviously a struggle, Jason mentioned in his prepared remarks, the amount of additional costs that we've put into the system to maintain our employment and keep our folks happy and productive and to try to battle some of the exits from the coal industry. But all of that's baked into the cost We're obviously seeing some productivity improvements elsewhere and Jason's team is always finding a couple of places to save some -- find some productivity enhancements, reduce costs to offset some of these things. But I don't think there's anything specific that we can point to as far as additional cost impact from labor inflation. But Jason, if there's anything you want to add specific on just what you're seeing in the labor markets.

No, I think you said, Andy, we've, as we've mentioned, we've done what's necessary to stay competitive and I think Andy said that I believe we'll be able to stay in the range through the rest of the year.

Got it. Thank you and congrats again.

Thank you.

We have reached the end of the question and answer session. I will now turn the call over to David Stetson for closing remarks.

We thank you, everybody, for getting on the call with today. I want to reiterate my appreciation and being humbled to lead Alpha for these past six years. I so much appreciate the team being not only my executive team but the people that work for us day to day in our minds and in other parts of our company. I really can't tell you much appreciate it. And obviously, the support of my board of directors and our shareholders over the past six years has been phenomenal, and I want to thank each and every one of them for that support loyalty. With that, we'll close the call. Thank you once again for joining us.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.