Ladies and gentlemen, thank you for standing by. And welcome to the Peabody's First Quarter Earnings Call. As a reminder, today's conference is being recorded. And I'll turn the conference now to Mr. Vic Svec, Senior Vice President, and Global Investor and Corporate Relations. Please go ahead.

Okay. Thank you. Good morning, everyone, and welcome to BTU's first quarter earnings call. With us today are President and Chief Executive Officer, Glenn Kellow; and Executive Vice President and Chief Financial Officer, Amy Schwetz. During our formal remarks, we'll reference a supplemental presentation that's available on our website that's at peabodyenergy.com. And on Slide 2 of this deck, you will find our statement on forward-looking information. We encourage you to consider the risk factors referenced here as well as our public filings with the SEC. I would also note that we use both GAAP and non-GAAP metrics and we refer you to our reconciliation of those measures in this presentation as well as our earnings release. As we've noted previous calls, most income statement measures are not comparable to the prior period. That's due to the adoption of press start reporting as of April 1, 2017. And with that I'll now turn the call over to Glenn.

Thanks Vic, and good morning, everyone. In the first quarter, Peabody achieved solid year-over-year performance, record free cash flow generation and a number of additional milestones. All of which occurred against some operational challenges that now provide the opportunity for cost and margin improvements as the year progresses. As noted on Slide 3, first quarter volumes, revenues and adjusted EBITDA increased over the prior year. Liquidity rose to $1.65 billion and we generated record free cash flow of $573 million, or well over 10% of our enterprise value. Included in free cash flow with $254 million in collateral that was released through March. I'll remind you that it was just this quarter that all the company's preferred shares converted to common stock. That creates a more simplified capital structure and allows for future earnings that fully accrete to common shareholders We previously states that our focus in 2018, which shipped towards returning cash to shareholders. On that front, we have significantly accelerated our share buyback activities. And just today, we announced that we literally doubling down on our share repurchases by expanding our buyback program from $500 million to $1 billion. We also initiated and paid our first quarterly dividend as part of what we believe to be a sustainable program. In recent weeks, we successfully repriced the company's senior secured term loan. This provides additional financial and operational flexibility, extends the maturity profile and reduces our cash interest expense. Finally, we sold non-core assets including surface lands in Australia as part of our ongoing resource management activities. Before I turn the call over to Amy, I'd like to recognize several accomplishments we've had on the ESG front. First, our Wild Boar Mine in Indiana was honored with a 2018 National Reclamation Award by the Interstate Mining Compact Commission or its dedication to environmental protection. This mine also received the excellence in Mining Reclamation Award from the Indiana Department Natural Resources in 2017. In Australia, a member of our Wilpinjong Mine, was honored with the prestigious New South Wales Women In Mining Award. And colleague from the Metropolitan Mine was named runner-up in the Gender Diversity category. At the corporate level, Peabody was awarded "Employer of the Year of Mine Energy & Natural Resources Companies in the 2018 Corporate LiveWire Innovation and Excellence awards. The company also was recognized with three Communitas Awards for excellence in corporate and social responsibility and community service. That's a quick summary of actions over the past few months. Amy will now discuss our results for the quarter.

Thanks Glenn. Peabody's record free cash flow generation in the first quarter was driven by a number of factors. To review, let's start by going through the income statement and balance sheet items relative to the prior year. Beginning on Slide 4, first quarter revenue rose 10% over the prior year to $1.46 billion. On continued strength in seaborne coal pricing and increased Australian metallurgical coal shipment. Income from continuing operations, net of income taxes totaled $208 million during the quarter, including DD&A of $170 million and interest expense of $36 million. As a reminder on DD&A, we expect declines in 2019 and beyond as contract amortization established during our initial fresh start balances grows off. Net income attributable to common stockholders totaled $107 million. Diluted EPS from continuing operations with $0.83 for the quarter which included the impact of the $103 million non-cash dividend charge related to the full conversion of all preferred shares to common in January. On Slide 5, overall adjusted EBITDA increased $23 million from the first quarter of 2017 to $364 million, as strong seaborne coal pricing overcame the impact of operational conditions in both Australia and the U.S. Looking first at Australia, adjusted EBITDA reflected an improvement of $43 million over the prior year. Our seaborne thermal segment again delivered strong margins of 31%, despite lower volumes and higher costs. As expected, first quarter volumes were suppressed by a scheduled longwall move at the Wambo Mine. In addition, we mine through an area at Wilpinjong where there was a gap in coal due to geology. Those issues have since been resolved, but export tons were lower than expected as we work to first satisfy volumes required by our domestic contract. We would expect thermal volumes to increase sequentially as the year progresses. First quarter…

Thanks Amy. Let's begin with seaborne supply and demand details on Slide 9. During the first quarter, we continue to see strong seaborne pricing despite some revising for our peak levels. Within seaborne thermal coal, Newcastle's spot process averaged $103 per ton compared to $80 per ton in Q1 2017, supported by increased the imports in China, India and Southeast Asian countries. I'll mention that Peabody has secured additional fixed price agreements to capitalize on strong thermal processing levels. We now have approximately 5.5 million tons locked in for 2018 in an average price of $76 per short ton and some 2 million tons committed to 2019 in an average price of $75 dollars per short ton. We also expect to price an additional 2 million short tons on the JFY that runs from the second quarter 2018 through the end of the first quarter 2019. We also beginning to wire in volumes to 2020. Through March, India imports were up 6 million tons compared to the prior year, as utilities rebuild stockpiles and domestic production fail to keep pace with demand. China imports also rose nearly 60 million ton through March, as cold weather drive a 10% increase in power consumption and impacted domestic production of rail systems. Our ASEAN demand increased on continued strong economic growth and expanding coal generating capacity. Turning now to seaborne metallurgical coal, global steel production rose 4% through February. During this time. India imports increased 21% compared to the prize year, nearly offsetting reduced demand from China, despite strong domestic steel production. During the first quarter, from seaborne hard coking coal prices increased proximately $60 compared to the prior year to an average of $228 per ton. The index-based pricing settlement for premium hard coking coal was at a $237 per ton. This…

[Operator Instructions] And we'll take our first question from Michael Dudas from Vertical Research.

Good morning, gentlemen, Amy.

Good morning, Michael.

Good morning.

Australia, first Glenn or Amy, your customer base from a metallurgical side, could you just remind us is it shifting a bit, India has been a very big consumer, at least the growth has been question stronger, how you position there relative to other traditional markets? And are those customers starting to feel a bit more resize effect that normalize pricing for the products that they're purchasing are probably going to be a higher level than they would have thought 6 or 12 months ago or are you getting a sense of that with your discussions is my first question.

I think Michael, as you indicated, we certainly favor a traditional relationship market approach given out our platforms. So those traditional markets of Japan, Taiwan, central markets, increasingly, so India as you've indicated, China are actually being a bad about the signs as India. I think because of that we continue to make sure that we provide high quality products into those markets and we know that certainly look to us to continue to provide quality products into those relationship areas.

Probably worth noting just as a follow-up to that, that although that pricing mechanism is rapidly changing. We really only sell about 30% of our volumes on a spot bases with the remainder being under some sort of contract over the course of the year.

Okay, fair enough. And my follow-up is, Glenn you mention about orders on situation and you're somewhat insulated from it which is helpful. But as that develops and are there - are you seeing other issues on the inventories in rail import in Australia, is that also going to be you think a limiting factor throughout into the summer into the fall and potential shipments out of Australia?

I can't speak for us. I can only speak for us in terms of what we're seeing, we're obviously continue to execute well. I'll go back to the fourth quarter of last year, but it seemed an outstanding job to move through logistical constraints and what not to deliver. I think we've had a solid execution in the first quarter and I'd expect to see that continue. In fact what we've indicated is we do expect to see sequentially increasing thermal volumes for example moving through the course of the year.

And our next question comes from Lucas Pipes of B. Riley FBR. Please go ahead.

Hey, good morning, everybody.

Good morning, Lucas.

Amy, I wanted to touch on the capital return profile a little more. And specifically I wanted to ask how much capital you're able to return over the remainder of this year under the existing bond of interest? Thank you.

Sure. So you know what, we think at this point in time we have to have a significant amount of flexibility to begin our second tranche of $500 million. But I will say that we know that this is a question that is on the minds of our investors and that's why we are exploring the amendment process for us to be able to say with certainty to investors that we've got the capacity to complete the second $0.5 billion of our share repurchase program. It's something that we think at the right price. It's something valuable for equity holders to have and that's we're beginning that review process right now.

I appreciate that. I think it's fair to say that investors look at your liquidity and your free cash flow profile and I think it is great how you double down on the share repurchase. But as you put it, I think there's also an expectation that maybe more is to come. So is it possible to give us a number in terms of how much capital you could return this year?

I think what I would say is that capital return to shareholders are probably going to be our largest non-operating related use of cash over the course of the year. That will be a shift from last year where we were more focused on debt reduction. The other thing that I would say about our share repurchase program and we hope it's evident from what we've done on the first $500 million program. This is not a management team that intense to utilize self-program. The dominations that we have we have put out there are programs that as a team we intend to execute on. And you can see that in the pacing that we've had over the last several months that as our cash flows have increased particularly with the return of that collateral in Australia that we picked up the pace on our share repurchase program.

That's very helpful and maybe one related question. Obviously, investors are highly focused on capital returns but at the same time there is some concerns and I think this is placed across the industry that operations are not fully capitalized and that in some way the capital returns are may be kind of borrowing from the future. So when you think about your operating portfolio on an annual basis and on average, how much do you think you have to spend in terms of sustaining capital in order to maintain current levels of output? Thank you.

Yeah, I think we've spent lots of time sort of taking investors we hope through their process that we undertook in terms of thinking about sustaining capital levels. We've indicated for 2018 and for 2019 that we would have slightly higher CapEx programs, particularly aimed at supporting out Wambo and North Goonyella activities to really underpin the strength of that platform. Going forward, we'd indicated around about $125 million - sorry $225 million, in excess of $200 million of sustaining capital would be the run rate but notwithstanding 2018 and 2019 levels.

We'd spent a lot of time within the organization focused on maintenance and you can - you saw some of that actually in our first quarter costs as we look forward, but we do pride ourselves on running our equipment well, but also monitoring our equipment to determine when the optimal time is to perform that maintenance. Some of the costs associated with the upkeep of our fleet to see in our operating cost and some of that you see in capital. But I think overall our operators feel like they are well positioned to deliver tonnage into the future.

Great. Well, thank you very much and good luck.

Thanks.

And our next question comes from Mark Levin of Seaport Global.

Great. Couple of just quick modeling related question, so tax refund to cash for 2018, Amy, maybe how to think about that on a yearly basis and also maybe on a quarterly basis if you know?

Yes. So as we indicated, we received $61 million in the first quarter. We've actually started to receive some refunds in the second quarter as well. We've got about $23 million in so far in the second quarter with just a little bit more expected to come in over the course of the year. As we look forward to 2019, you'll recall that we had - that we had a benefit in the fourth quarter of 2017 related to AMT tax credits. That was an $85 million benefit. And we expect to see about 50% of that in 2019 and then the remainder of that to come in over 2020 and 2021. So the tax refunds will be a component of our cash flow through 2021, although with decreasing size benefits in those years.

Got it. Great. Thank you for the help on that. And then with regard to meet price realization, so if I take your average realize net revenue per ton in the quarter and I kind of look at it against the benchmark settlement was, it comes out after the conversions to around just call it 71%, 72%. The met is obviously becoming more opaque in terms of pricing and how to model pricing given the varying types of contract structures. I mean should we be thinking around like obviously we all will have our own different expectations for what met prices are, but is that kind of 71%, 72% of the ACC settlement, the right kind of zip code to be thinking about realizations?

You know you can think about it that way or will often times where there is slice and dice it a little bit more. So thinking about our mix of PCI to our coking coal has being somewhere around 55% to 65% PCI. And then if we break it down a little bit further for both our HCC products and our PCI products, we generally realize between 85% and 90% of the benchmark pricing for each of those products.

Okay. Great.

And obviously those are - I'm sorry, Mark, those are annual ranges. Within a given quarter, you can understand that you will have boats that kind of move in and out of a particular quarter and can adjust your mix by 5% in points or so.

Got it, got it, got it. And then last question goes back to Glenn on horizon. So the railroad itself is talking about maybe 20 million tons of potential loss coal on an annualized basis and if you look at their mix, it's about 70% met, so that's about 14 million, 15 million tons of met. I know most of the impacts of forest being on Black Water not on Goonyella but I guess one would assume if they're talking about losing that many tons, a good chunk of that would probably be on the Goonyella side. If in fact the regulators there can't reach a decision, how should we think about like a yeah or reach compromise I should say, how should we think about a worst case scenario for Peabody, is it a million tons, is it 2 million tons, I know you have to take or pay and you expect them, but in a situation where they declare force measure, what's the worst case shipment number to be thinking about if there is one solution?

And it just drilling on horizon a little bit further. As you know this is part of right case that's securing between the rail operator and the Queensland Competition Authority in which both sides really articulate and negotiate a particular position. Both coming out taking about potential worst case impacts associated with taking maintenance practices to one level. We'd really whether it was Australia or the United States, we'd really expect rail providers to be seeking to maximize the competitiveness of the integrated rail chain. I wouldn't like to speculate on the impact to Peabody other that we've demonstrated, to date we have still been average ship strongly. I think it's going to come down to the continued discussions and negotiations through that competition authority process. I would say each respective shipper they like cut their mind, their loading capacity, their location on particular rail would be important, contract positions with respect to available capacity, short positions et cetera maybe a determining factor and then overall I would say relationships between particular customers and the rail operator. We're holding our guidance. We have no reason to believe anything would be different on that front and we expect to continue to ship.

. :

Good morning.

Brett, please check your mute function. And we will move on to our next question from Matthew Fields of Bank of America.

Hey, Everyone.

Good morning.

Good morning.

I wanted to ask about capital returns as well. You know I know that you're talking about getting flexibility in your bond indentures, but right now it seems like you have unlimited RP capacity when you're under 1.25 times total leverage which you have a good amount of headroom under right now and especially with sort of the way the world looks in your guidance. So I'm wondering sort of why the sort of urgency to put statements like that in your press release to try to get something done. Is really accelerating buybacks or is it hey, we have secured bonds, we'd like to refund them with them unsecured bonds. Can you just talk a little bit more about that calculus?

Sure. So I think that probably urgency is a little bit stronger term in terms of where we view that we're at with this process. It is about flexibility. We like the tenor of these bonds. We like the rate from these bonds. And so we are - our head is not necessarily in the refinance space at this point in time. And the governor that we're looking at in the bond indentures is the C&I calculation related to payments and what that calculation doesn't necessarily reflect is the cash flow generation outside of net income that we have had over the past 12 months, particularly with the return of collateral in the form of cash to us. And so we are we are trying to correct, our goal would be to correct that imbalance through an amendment. That being said, we do have flexibility and some headroom that we built in that C&I calculation. And so if this isn't something that is economically attractive to us over time, then I think that we can and we'll wait for the day that it is.

Okay. That's very helpful. Thank you very much.

And I would now like to turn the call back to Mr. Kellow for any additional or closing remarks.

Okay. Thank you for your questions and for taking part in today's call. It was strong start to the year on a number of fronts, we demonstrated our ability to generate significant free cash flow as well as our commitment to returning that cash to shareholders. To all our employees, thank you for your ongoing focus on safe productive work places and to our shareholders, bondholders, lenders and sale side analysts, thank you for continued interest and support. Operator that concludes today's call.

And this concludes today's conference. Thank you for your participation and you may now disconnect.