Good morning, ladies and gentlemen to Peabody's Fourth Quarter Earnings Call. At this time all participants are in a listen-only mode. Later we will conduct question-and-answer session. [Operator Instructions] And I’d now like to turn the conference over to Vic Svec, Senior Vice President-Global Investor and Corporate Relations. Please go ahead, sir.

Okay. Thank you and good morning, everyone. Welcome to BTU's earnings call for the fourth quarter and full year of 2018. 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 and that's available on our website at peabodyenergy.com. Now on slide two of this deck, you'll find our statement on forward-looking information. We encourage you to consider the risk factors that we reference here along with our public filings with the SEC. I would also note we use both GAAP and non-GAAP measures, we refer you to our reconciliation of those measures in this presentation as well as our earnings release. I'd also remind you that we adopted fresh-start reporting as of April 1, 2017, so most comparisons to metrics that are prior to that time do not provide useful information. And with that, I'll now turn the call over to Glenn.

Thanks, Vic, and good morning, everyone. Before Amy reviews the financials, I'd like to take a few minutes to put the quarter and year in context. Let's begin on slide three. Peabody's fourth quarter performance concludes what I believe to be a year of considerable success even with some notable challenges. The fourth quarter brought strong revenues and our highest quarterly net income of the year. We had a lighter adjusted EBITDA performance given the GAAP quarter that was unique with no real contributions from either the idle North Goonyella mine or the new Shoal Creek mine. Even so for the full year 2018, adjusted EBITDA margins totaled 25%, well above the average for the U.S. S&P 400 MidCap benchmark. Free cash flow of $1.3 billion exceeded targets. Liabilities reduced by more than $0.5 billion. Liquidity continued to build even after our recent acquisition and the execution of substantial capital returns to our shareholders. In December 2018 as part of our seaborne met strategy, we successfully completed the acquisition of the Shoal Creek mine in Central Alabama, bringing a well-capitalized high-margin mine into our portfolio. We expect it will quickly position itself as one of the company's top adjusted EBITDA contributors. We remain firmly committed to returning cash to shareholders and in just seven quarters have now repurchased $1.1 billion of common stock, representing more than 25% of our current market capitalization. From an ESG perspective, our hard work around safety was recognized in 2018 when the coal processing facility at Kayenta Mine received the prestigious U.S. Sentinels of Safety award. We also received three of the four national reclamation awards this year from the Office of Surface Mining with Bear Run, wellbore and the former Big Sky mine in Montana earning recognition. And CFI International has just awarded us best ESG Responsible Global Mining Company for 2018. With that, I'll turn the call over to Amy to discuss the financials and key industry fundamentals.

Thanks, Glenn, and good morning, everyone. Fourth quarter revenues, totaled $1.4 billion marking an 8% decline from the prior year. Continuing strong seaborne pricing mitigated the impacts of lower sales volumes from the Seaborne Metallurgical and PRB segments. DD&A of $176 million improved modestly from the prior year. For some time now, DD&A has been reduced due to the roll-off of contract amortization, recognized as part of our fresh-start accounting. This is a lower expenses are partially offset this quarter by the accelerated DD&A for Kayenta. During the quarter we increased our provision for estimated equipment loss at North Goonyella by $70 million and that is excluded from adjusted EBITDA inline with last quarter's treatment. We also incurred $49 million in costs that are included in the adjusted EBITDA related to North Goonyella. This came in above the high-end of our expectations by about $4 million, primarily due to additional drilling activities from the now completed segmenting of the mine. As part of our holistic liability management approach, we have significantly reduced our pension retiree healthcare obligations, through a combination of funding and program changes to best position the company for the future. We have also benefited from favorable company-specific healthcare trend rates and higher discount rates. Those changes are evident in our financial results with our total liabilities being reduced more than $550 million in the past year. The corresponding income statement impact of these changes was a net gain of $126 million related to mark-to-market adjustments on actuarially determined liabilities, which also benefited our discontinued operations where we recorded $27 million of net income. Income from continuing operations, net of income taxes decreased to $145 million compared to the prior year, in part, due to lower fourth quarter 2018 revenues as well as non-recurring items in the prior…

Thanks Amy. As we begin 2019, we do sell against the backdrop of positive seaborne conditions, a healthy balance sheet and the expectations of continued strong operating cash flows. We remain focused on enhancing shareholder value and continue to scope our portfolio to do so. On that front, we have a number of initiatives underway in each of our operational units that I'd like to highlight. Let's begin with our seaborne and thermal coal segment where we are pursuing several life extension projects to maintain our export thermal coal volumes at both Wambo and Wilpinjong. To provide an update, we're advancing an unincorporated joint venture with Glencore to extend the life of our Wambo surface mine in Australia. The transition of the mines through a JV is expected to begin in the second half of 2019 with production to commence in early 2020. We will not only have access to stratified reserves, we’ll also improve our strip ratio over time which ultimately should drive lower costs. In addition, we expect productivity improvements and enhanced blending capabilities as a result of the JV. You've also likely heard us talk about the Wilpinjong extension project which extends a life to the mine to 2030. In part, due to the extremely low-cost nature of Wilpinjong, we expect this project will realize substantial returns at a rapid pace. In addition, the extension project allows us to continue to exit seaborne demand centers, while meeting the requirements of our long-term domestic contract. Combined, these projects are expected to require approximately $100 million in capital investments over each of the next two years. In total, we're targeting 11.5 million to 12.5 million tons of export thermal coal shipments from our Seaborne Thermal segment. Let's focus now on our evolving Seaborne Metallurgical segment on Slide 10. We're…

Thank you sir. Ladies and gentlemen, at this time, we will now begin the question-and-answer session. [Operator Instructions] Jeremy Sussman from Clarksons Securities. Please go ahead sir.

Yes, hi. Thanks very much for taking my question.

Good morning Jeremy.

Good morning Jeremy.

Good morning everyone. So, maybe just since you finished on CapEx, I'll start there. If I take the CapEx guidance for 2019 and you're $400 million or at the midpoint. You noted some growth and extension projects in there. I guess I'm wondering what level is maintenance versus growth CapEx in there? And maybe if we look over the next, let's say, two to three years, kind of what is the sweet spot for CapEx for Peabody?

Yes. Maybe just, starting with sustaining CapEx in general, we'd say about $200 million a year of sustaining CapEx. And then, incremental to that, from time to time, you will see us layer in, in projects as we have done this year. I think relative to where we were at last year, there's a few things impacting our capital expenditures as we move into 2019. And some of them actually have to do with events that occurred in 2018. So generally, you think about three things that will drive the width of the CapEx range, whether that's carryover capital that occurs in any given year, is probably just timing between years, as well as capital opportunities that may arise in any given year. And 2018 is a year that both of those things happen. So we saw some capital flip out of 2018 into 2019. So, with that, we actually would have anticipated that we would come in sort of more towards the low end of our CapEx guidance in 2018. However, we had some opportunities during the year to pay for some very accretive projects, particularly in the form of lease buyouts between $20 million and $25 million and so that was additive to our 2018 CapEx. Additionally, we've got about $20 million of capital planned in 2019 for Shoal Creek. And going forward, we would anticipate that to be more in the $10 million range for that mine.

That's very helpful. Thanks, Amy. And maybe just a follow-up. So you're spending about $30 million to $35 million a quarter on North Goonyella in 2019, which is a decent amount. So I would take that as you all have some pretty good conviction of ultimately getting back in the mine and seeing longwall production by 2020, as you noted in the release and on the call. So, I guess, maybe what do you know today that you didn't know a few months ago that sort of gives you this, what seems to be, a bit of an increased confidence in getting back in there?

Well, as we said, the fourth quarter was largely about initially consignment in that early part. And then we set about doing an assessment of the conditions underground through use of thermal imaging, the ability to get cameras down to look at parts of the mine. And certainly, as we've indicated, the vast majority of the mine remains unaffected. There was some damage around some roof falls, some affected segments of conveyor belt that we think needs to be rectified. And that has helped to assist in this sort of stage reventilation process that we're talking about and reentry process. So we've now gone about segmenting the mine in 3, 3.5 zones. And we intend to in turn reventilate and reenter each of those segments in a staged way. That will give us the ability to do further assessments at each stage as we advance. But that's the plan that we have outlined to-date and we are managing this as a project. We recognize the amount of dollars involved. We think the returns and value are there. And we'll continue to run this project through our investment filters. But that's what we know to-date and execution of the reventilation or reentry is what we're undertaking at this point.

Glenn highlighted in his remarks and I'll add in for good measure here that we do have about $125 million of insurance proceeds that we expect to collect this year as well, which has not been factored into those expenditures that will also be used to cover some of the cash outlays for equipment as well.

Your next question comes from the line of Lucas Pipes with B. Riley FBR.

Hey, good morning, everyone. I want to follow-up on Jeremy's first question regarding capital. Should we be thinking about kind of the $200 million run rate for 2020? Or could we be seeing some of those incremental projects being layered on such as the life extension projects on the seaborne thermal coal site? Would really appreciate your perspective on 2020 CapEx specifically? Thank you.

Well, it's pretty early days in terms of looking at 2020 CapEx, but what I would say is starting with that base level of sustaining capital of $200 million, we've anticipated about $100 million for Wambo and less in CapEx as well. So I think you will continue to see those projects have a little bit of a life to them as we extend out into 2020 and 2021.

Got it. That's helpful. And maybe to turn to the domestic side. So first, it appears that there was some contact roll-off on the PRB site, when I look at your committed prices for 2019 versus 2018. If you could give us a little bit more color around the moving pieces there and where you're contracting coal more recently? And then kind of higher level, what is your view on PRB demand for 2019 versus 2018? Thank you.

Maybe starting with pricing. A couple of things are happening as we look at our 2019 pricing: first, we did have some higher priced contracts that have rolled off over the course of the year, but you also see a shift in that realization number towards a lower quality PRB coal. As we look at the production that we've both removed from the plan and the volumes that we still have left to price that is around that 8,800 product which is -- would be the highest priced product out of the basin. And I would say we have been -- as we looked at contracting activities over the last month or so, we have been by and large on the sidelines not pleased with the margins that would be generated out of the basin at those levels. So we might not be in the best position to say where those contracts are pricing at this point.

Maybe in terms of 2019 view on market obviously we closed through 2018. We draw down in inventory levels that were occurring. And I think going forward the dynamics will be related to weather conditions overall economic growth, but it is -- to watch the inventory levels remain at those low levels.

And just a few points of punctuation on that. We are -- we do have a forward curve that's slightly below what at the average 2018 levels were on natural gas prices. As you know the U.S. burn for coal tends to be most correlated with that. We're at a year of lower retirements as we noted this year than the prior year which certainly benefits us, but it is still a year of retirement. So, with no additions obviously. So, and you have the full year effect of some of those larger retirements that occurred last year. Probably in terms of the overall reduction in U.S. coal demand this year, we were expected to be relatively proportionate between the PRB and other regions.

And your next question comes from the line of John Bridges with JPMorgan.

Hi. Good morning, everyone.

Good morning, John.

Hi. With respect to Goonyella you speak of the plan is being the base case. If you get down there and you're pleasantly surprised are there other cases which could perhaps get your mining earlier? When do you get the longwall machine available to you?

That would be in the second half of 2019. I think John we're obviously managing this as a project. We look to debottleneck as we go and sort of stress the critical pass-through that project outcome. The team are focused on safely and quickly moving through this, and executing against the project plan. So there maybe some ability, but it's really too early to call that. And we'll certainly be updating as we move through the project.

Okay, okay. That's helpful. And then, you mentioned another lease – what might the terms of would that be? Would that be a capital cost? Would that be a higher operating cost lease royalties related to that? Or is it going to be more business as usual?

Sorry, John you cut out with us on that last question. What were you describing?

Moorvale, you got the lease extension there. What can we model there after 2025? Will there be capital involved in picking that ground-up? Would there be different royalties? How would that be characterized?

I think it's essentially very similar coal quality to the current Moorvale activity. It's an area to the south. We have the majority of that area to-date. I'd say that, we are evaluating it, so we haven't committed to the project. But it would essentially be lower infrastructure, a new box cut and via satellite development of that Moorvale complex. So low capital and similar profile is the way I would describe it.

Similar costs?

Yes.

That's correct.

Okay. Thank you very much guys.

Next we'll go to Michael Dudas with Vertical Research.

Good morning, gentlemen, Amy.

Good morning.

Good morning.

Maybe Amy, as you go into 2019 certainly you did indicate and the company's got through a lot of operational challenges, but also a very solid year. For 2019, how do we think about managing expectations on the balance sheet relative to the liability management very successful at certainly pace of acquisitions because of a little bit more certainty with the investment over North Goonyella does Peabody feel a bit more comfortable about being more active in the marketplace? Or is there caution in the supply-demand fundamentals that might lead to being a bit more tepid on that front?

So as we think through our financial approach, Mike we talk – we talk about generating cash maintaining financial strength. We think we're doing that in terms of thinking through 2019 and what we've accomplished in 2018. And then, we talk about investing wisely and returning cash to shareholders. I think that some of the best way is to judge and the company -- what the company will do next is what we've done in the past. And I think one of the reasons why we wanted to highlight the activities that we undertook in both the fourth quarter of the year amidst some uncertainty around the mine and what's occurred in January between share repurchases and dividends is to indicate that we remain committed to our shareholders and providing returns to them over time.

I appreciate the thought. And then maybe turning to the markets over -- thermal markets in the Asian region. How do you anticipate how volume out of Indonesia looks in 2019 given the pricing dynamics and certainly some of the favorable fundamentals that you talked about there? Is demand expectations picking up enough that will require a bit more export profit because there's going to be difficulties with that spread to effectively fill those needs and then provide better opportunities for your higher-quality coals?

I think that we believe the supply and demand between those two products is the main driver of what is going on with thermal prices right now, meaning that lower -- the abundance of that lower quality product is driving that spread. And frankly, we don't see anything changing significantly as we move into 2019 in terms of that relative supply and tightness occurring at the higher quality spectrum and there being relative abundance in lower quality products. Of course, Indonesian policy can impact that, but although the spread is wide and the pricing for that product is still inducing exports out of Indonesia. So, I think that we see that dynamic staying in play as we look through the balance of 2019.

Yes. And just a few major points around that. We saw Indonesia at about 365 million tons. If you go back a few years to 2015 that went up to probably at the end of the day 425 million to 430 million tons in 2018. That's probably a tough mark for them to increase on over time. They do have domestic market obligations to be thinking about another factors, but they have certainly been a go-to for additional lower CV kind of product for the latest couple of years remains to be seen if that trend continues or if it stabilizes or backs off from that point in 2019.

My follow-up I guess relative to the positive trends you've and others have pointed out in Indian imports for thermal met is Peabody looking to benefit more improved marketing excess or some opportunities to better serve or be involved in that market over the next several years because those expense can be very important for everybody?

It's already an important market for us and we are focused on that activity, but our overall strategy with marketing probably tends to be more the traditional markets of Japan, Korea Taiwan. India would probably rank the next in the mix and then China probably being in area that we'd have a lower amount of volume going towards. So we like the -- the higher-quality products that we have, tend to enable us to move into those traditional markets and get premiums associated with that. So I certainly think that continues to be a focus area for us, but there's no doubt India we see as an important market going forward.

Next question comes from the line of Mark Levin with Seaport Global.

Hey, great. So my first question has to do with M&A. You guys obviously went out and purchased a met coal asset in Alabama this year. There maybe - there is one that's in the market now, but without asking you to comment on that specifically, how do you guys think about 2019 in terms of potential for more U.S. met coal M&A?

Yes. I think, I'd like to look at the Shoal Creek acquisition from a number of different perspectives. But it starts with the fact that, for us we saw it as a seaborne met acquisition. And what's unique when you look at the photos of Shoal Creek is that, the load out to the barge directly to wood -- through river transportation out to those seaborne export markets. We believe that the valuation was attractive -- highly attractive. We like the quality of the coal and we think that the cost particularly on the waters is very, very competitive. I think Shoal Creek was somewhat unique. It's not signaling U.S. met play per se, it's really about the fact that we were looking at an enhancement to our seaborne metallurgical platform and it managed to tickle the rigid investment filters that we had.

Yes, that makes sense. And then the second -- or my follow-up question is for Amy. Amy when you think about the cadence of earnings throughout the year as we have to kind of put together or kind of quarterly estimates, can you maybe walk through some of the sort of key items that we should be thinking about in the first quarter and maybe second quarter? And how maybe things, absent the price, might look in the first half of the year versus the second half of the year?

Yes. So I think maybe starting with the seaborne products, one of the things that we are focused on, you might call last -- recall last year, we anticipated early in the year that thermal volumes would be backloaded. This year, we're anticipating a much more ratable pace to our thermal coal volume. Although I'll say that, we generally see AGL volumes more focused in the first and fourth quarter to deal with summer in Australia and electricity generation necessary as a result of that. From a Met's perspective, we are going to see our met volumes this year backloaded. So Glenn commented on mine plans at Coppabella and Moorvale specifically. So we'd anticipate higher volumes for our Metallurgical segment in the last six months of the year and that will primarily be on the PCI side and PCI flag shipments. And looking at the U.S., I think that the major drivers are going to be as they always are, the shelter season. So -- and we're having very favorable weather in the U.S. right now, and the first quarter tends to be a strong shipping quarter for us out of our U.S. business. I think that this year will not be an exception to that, but as we move into shelter season you'll start to see those volumes fall off a bit.

And just from a cost perspective, you were just kind of applying sort of the operating leverage piece, if you're in our shoes. Is there anything kind of discrete from a cost perspective that we should be thinking about in any given quarter?

Yes. So I think just a couple of things around our longwall operations, starting with maybe North Goonyella and just saying that, early this quarter we have been still very heavily involved in drilling activities. So as we think about our quarterly range, we would expect that the first quarter will be a bit higher than the remaining quarters of the year, based on those activities. And then, moving on to our other longwall operations, we will have longwall move at Wambo and Metropolitan in the second quarter of the year.

Great. Thank you, guys, very much.

At this time, I'd like to turn it back over to Mr. Kellow for any additional or closing remarks.

Well, thank you for your questions and participating in today's call. I'd like to thank all of our employees for your continued commitment to safety, hard work and dedication. And as we enter 2019, prepared for the opportunities and challenges ahead of us and look forward to your continued support as we remain focused on generating meaningful returns for our investors. We appreciate your continued support and interest in BTU. And operator, that concludes today's call.

Thank you, sir. This concludes Peabody's fourth quarter earnings presentation. Thank you for your participation.