Welcome to the SXC's earnings call. My name is Christine, and I will be your operator for today's call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the call over to Ryan Osterholm. Please go ahead.

Thank you. Good morning, everyone. Thank you for joining us on the SunCoke Energy's First Quarter 2014 Earnings Conference Call. With me are Fritz Henderson, our Chairman and Chief Executive Officer; and Mark Newman, our Senior Vice President and Chief Financial Officer. Following the remarks made by management, we will be taking questions on our first quarter results. However, since SXCP is currently in registration for an offering of common units, we will not be taking any questions with respect to SXCP or any equity and debt financing related to the dropdown transaction. This conference call is being webcast live on the Investor Relations section of our website at www.suncoke.com. There will be a replay available on our website. If we don't get to your question during the call, please call our Investor Relations Department at (630) 824-1907. Before I turn over the call to Fritz, let me remind you that the various remarks we make about future expectations constitute forward-looking statements, and the cautionary language regarding forward-looking statements in our SEC filings apply to the remarks on our call today. These documents are available on our website, as are reconciliations of any non-GAAP measures discussed on this call. Now I'll turn it over to Fritz.

Good morning. Page 2 is a summary of the first quarter 2014 earnings. The quarter, when you look at adjusted EBITDA, down from $52 million to $33 million. It was a challenging first quarter. The Indiana Harbor performance is weak due in large part because of weather impacting both the production and the refurbishment projects. So we had a combination of things, which affected that community in the harbor, which significantly depressed the production volumes, increased costs and decreased yields. And apart from Indiana Harbor, the same factors affected the rest of our coke fleet. We were down about $7 million versus expectations, apart from Indiana Harbor, driven by weather-related impacts and yields, volumes and costs. So adjusted EBITDA down. The EPS loss of $0.11 reflects both the weak adjusted EBITDA. And then accelerated depreciation in Indiana Harbor as we're completing the projects, making decisions about assets, maintaining services, as well as assets to take out of service. We have accelerated depreciation in some assets in that regard. And then, we're also, and Mark will take you through this a little bit later in the presentation, taking a different approach to our ongoing floor and wall repair that we would have done relative to how we handled it in the past which also resulted from the accelerated depreciation in Indiana Harbor, so affected the first quarter. Relative to our 2014 guidance, our original guidance was $230 million to $255 million. Based upon the start that we've had to the year, the weaker start we've had to the year, we're adjusting our EBITDA outlook now from $220 million to $240 million. So it's narrowed a bit, and down relative to both the top and the bottom of the range, with the bottom of the range will be from $230 million to…

Thanks, Fritz. As Fritz mentioned upfront, Q1 was a weak quarter which we came in well below our expectations. Adjusted EBITDA was down about 36%. In our Domestic Coke segment, you'll see adjusted EBITDA deteriorated from $62.7 million to $48.6 million in the year, really driven by 2 principal factors, weak Indiana Harbor results, in fact we had a loss at Indiana Harbor of $6.6 million on an EBITDA basis, which is well below expectations. And then, across the entire cokemaking fleet, weather impacted both yield, reliability and, to some extent, operating costs. And here, about $7 million below our expectations. We're covering more detail, but Indiana Harbor continues to make progress from Q1, and the rest of our coke fleet is essentially back to normal production levels, and Fritz will cover that at the end of the call. On our coal business, the lost -- the loss continues due to price headwinds. Adjusted EBITDA were a loss of $8 million, down roughly $3.4 million. Again, primarily on deterioration in price, down $22 per ton year-over-year. We are continuing to make improvement in cash cost per ton of $9 in the quarter. And finally, we have engaged advisors to help us in launching the sale process of our coal mining business. As Fritz mentioned earlier, we did launch a restructuring in Q1 and is a $1.4 million charge in the quarter. Turning to Chart 5, which is our adjusted EBITDA bridge. Again, we reported $33.6 million adjusted EBITDA, versus $52.3 million last year. And the deterioration really results in, again, Indiana Harbor being down roughly $3.9 million, primarily on volume, and that was partially offset by a higher fixed fee as a result of the recently negotiated extension in the Indiana Harbor coke contract with ArcelorMittal. Our Domestic Coke fleet…

Thanks, Mark. So sitting here in April, thinking about the rest of 2014, whether our priority starts with operational excellence as it always does, maintaining our top quartile safety performance in both coal and coke, getting the plants back on track -- I want to spend a minute here, because it's extremely important, obviously. In our Analyst Day in March, we had estimated that our results in the first quarter would be down, adjusted EBITDA results would be down, relative to targets of $10 million to $15 million, and you might -- those of you who were there would probably recall I said it was $15 million was the better estimate. First quarter, we came in about $20 million less than our targets, and $5 million delta. As I think about it, part of it is just a weaker March, and frankly, the weather continued to affect us, particularly in the Indiana Harbor, but it was a little weaker than we thought. And then, we did take the restructuring charge, which is we thought the right thing to do, but we had contemplated that when we met in March. But the first quarter is behind us. And it's about getting the plants back on track. Mark's already showed you what's been accomplished through April in terms of our daily rates of production. So I think what we've seen in April, relative to our expectations in the 2Q and for the year is supportive of the plan that we've outlined for the rest of the year in Indiana Harbor. Relative [ph] to the other plant is we look -- for example, in the second quarter levels of production, we think will be about 50,000 tons higher in the second quarter than we were in the first quarter. So sequentially, we will…

[Operator Instructions] Our first question comes from Neil Mehta from Goldman Sachs.

First, can you talk a little bit about the M&A landscape as you talked about driving growth. At your Analyst Day, you highlighted about a dozen smaller-sized M&A opportunities, where do you stand in that process? And which verticals seem the most promising, and which verticals seem the least promising?

I would say -- I'll have Mark answer the question, but one of the things I would say, Neil, is we've been -- the last certainly 30 to 45 days, we've been working hard at both the dropdown transaction as well as the -- getting our ducks lined up on coal. So relative to the Analyst Day, as I think about what we've doing for the last 45 days, we've been working on those, too. But I'll let Mark talk about the prospecting and what we're doing on M&A.

Thank, Fritz. So I think on Analyst Day, I think we outlined some of the areas where we believe there are M&A opportunities. I'd say we still continue to believe that coal logistics add-ons are likely the most feasible in the short run. And we don't comment on specific initiatives, but we are very active in this area. Looking at a number of opportunities really around the terminalling business or logistics -- or coal infrastructure assets, more generally. Beyond coal logistics, I'd say we do have an interest in certain cokemaking acquisitions, but we think these are likely to be episodic over time. And then finally, on the ferrous front, we recently received the ruling on beneficiation and pelletizing. We have submitted the ruling on DRI, we're awaiting dispensation on that. And we believe there are opportunities there, but I think those will take a bit longer to achieve.

And then on -- in terms of the sale of those coal assets, other companies in the industry have had the challenge in selling their metallurgical coal assets. If there -- if finding a seller is challenging, how would you -- is there still a path to exiting the business?

So finding a seller is not challenging, it's the buyer. I think that's what you're referring to. The -- I would say a couple of things. We will have an ultimate backup plan in the event that we're unsuccessful. I want to talk about our outlook in that regard. But I mean, our plan would be, if we're not successful, we would significantly downsize further in order to try to meet only the needs of the coke plant, and then over time, even rationalize that. So it just wouldn't be done immediately because in the end, we still need 1.05 million tons to go into the coke plants. And some reasonable portion of those tons need to come from -- should come from logistically the mines that are very close by. But the fallback plan would be to minimize the absolute level of adjusted EBITDA loss and cash that needs to be -- the cash that will be burned in the business, why you rationalize it over time. That's the fallback plan. Now the principal plan, if you think about it, we're surrounded by strategics. If we think about $110 of cash cost, which is -- and yet with our exit rated margin, with our goal really for 2014, we think that if our mines were combined with someone that had significant scale, they could take another chunk of cost out of the above ground cost, call it another $5 to $10 roughly, this is something I reviewed in Analyst Day. And then lastly, a more efficient per plant located better, in a better location to the mines, and probably another $10, which if we think about $90 of cash cost for deep room and pillar mid-vol coal is certainly a much more competitive level than we've been at. The asset itself, we have an offtake agreement that we could offer. We could do the prep plant and then offer it on an offtake basis and then put it into the MLP. And lastly, we're very flexible on structure of -- it's not like we need to do this transaction to raise cash, so we could take our consideration to multiple form. I think we've got, we've had quite a bit of inbound interest, but obviously, we need to be able to translate that into a transaction, so we're early in the process. But I think we believe we have both the assets and the opportunity and the openness to a transaction that would allow us to get this done, and that's what we're going to work on in 2014.

Great. And then last question, in terms of the timing of the final permit for the new coke plants, what is the milestone we should look out for?

I think we're expecting at any time now, actually. We did submit -- in the first quarter, actually north -- getting into the first quarter, we submitted all of the responses to the public comments. The public comments were actually pretty straightforward. And now it's just grinding through the system. In the meantime, the dialogue, the discussion -- all of the 5 customers were for blast furnace coke, 3 of them are already our customers. So we've been talking with the customers about what we're doing here, what we might be prepared to do, the kind of terms we could offer, the multiplant, which could be different. I mean, historically, to a steel-making customer who's dealt with us, they signed up for 15- or 20-year terms for 550,000 tons. We don't believe that one customer is going to take 550,000 tons. We think this plan is likely to be multi-customer. I think that the really serious discussions can even -- can accelerate as we have that permit in hand. I would say, lastly, we're using the time to finish our engineering work. Because generally, when we sign up a customer, at that point, the capital risk is ours, so we want to try to finish the engineering work to try to minimize the risk we might have that the pricing cost will be higher than we expect.

Our next question comes from Lucas Pipes from Brean Capital.

My first question is actually a pretty straightforward simple one. So in terms of your adjusted EBITDA guidance for Indiana Harbor, $22 million to $25 million, does that include the floor replacement, et cetera, expense of $5 million?

Yes.

Okay, that's helpful. So this -- with that, when I think about your guidance change for 2014, Indiana Harbor essentially unchanged from where I had it previously. What do you think are the big kind of levers that caused the numbers to come down a little bit?

I would say Indiana Harbor is a little weaker, I'm not sure about your expectations, but certainly, versus our expectations. Second is the rest of the plants actually did have a weaker first quarter start, as the coal logistics and coal itself. So we basically, as Mark said, take the midpoint of that range down about 12.5, we were down about 20 in the first quarter relative to our target, so think of it as putting in roughly half of the first quarter mix into the guidance range.

Okay. That's helpful. I appreciate that. And then on the CapEx side, so your -- this environmental project and then Indiana Harbor refurbishment are going on, should we essentially expect all of that to be completed this year so that going into 2015, essentially, should be more or less left with the ongoing CapEx?

I'd say the last piece of the remediation project, though, is Granite City. And Granite City, I think the capital at Haverhill will largely be spent this year, a little bit in the next year. Granite City actually then get -- we take that on, that's about 1/3 of the total project, and that will be spent in '15 and a little bit in '16. So -- but you have 2/3 of the project roughly done by the end of this year, spending wise.

Our next question comes from Nathan Littlewood from Credit Suisse. Nathan Littlewood - Crédit Suisse AG, Research Division: I just wanted to talk about the increase in CapEx in Indiana Harbor a little bit. I was wondering if you could help us understand some of the offsets to that. Perhaps some of the offsets are an increased EBITDA margin that you can earn longer term, or maybe you can quantify the reduction in maintenance costs and the benefit of the higher charge that you talked about. I'm just actually trying to understand, this incremental CapEx, is that 100% hit on your chin? Or what are the sort of incremental cash flow benefits that we should think about?

Yes. Well, think about this post 2014, because it's really executing the project into 2014. But historically, if we would have problems or holes in the oven floors and/or repairs that we need to make sole flue issue, we'd do it with silica wells, which is maintenance expense. That process is effective when you have small, relatively small changes, it is pretty expensive and very, very intrusive if you have to do it on a more extensive basis. So the alternative approach, as we said, we spend about $15 million of capital. What does that do? It shortens the time associated with repairing the oven very significantly, number one. Number two, we think we can get at least 1 more ton of charge rate going forward, which in and of itself is a reasonably attractive return, relative to the silica welding that you did before, and you wouldn't get the additional 1 ton . And then ongoing maintenance expense going forward. When you silica weld, you're generally silica welding about 6 most to 3 years later, because it doesn't -- it's not a permanent fix, it's just ongoing maintenance. This would be a more permanent, as you can see from the picture, this would be a more permanent approach. So we do think this is actually number one, a better way to do it relative to silica welding; and number two, we do think it actually generates a return on investment. I'm not prepared today to say anything other than the additional 1 ton of charge weight, actually there is a return for that. And it's just a much better approach. Which we frankly came up with as we looked at the situation in the first quarter and looked at the -- we took an inventory. So it's about 1/4 of the ovens in the plant where we felt like we needed to do this. And frankly, our team that's been working on it came up with this approach, that was a much better, more intelligent way to do it, and we think will generate a return for us longer term. Nathan Littlewood - Crédit Suisse AG, Research Division: So there's nothing in the contract that allows for an incremental return on that capital for higher margins as such?

No. You see, you got to get the return from more tons, which we can sell more tons, and I think ArcelorMittal would take the tons if we produce them. And the contract does provide for us to do that, and then lower maintenance costs, which benefit, frankly, us as well as the customer longer term. Nathan Littlewood - Crédit Suisse AG, Research Division: Got it. Okay. I certainly appreciate all the color, but, I guess, from our perspective -- and I think anyone on this call is actually able to kind of quantify what an extra 1 million ton charge rate actually means in terms of marginal cash sales. So it would be helpful if we could get a little bit of guidance on that at some point in the future. The next question I had was just on the distributable cash flows. Back at the Strategy Day, you've indicated that the dropdowns would increase distributable cash flow by about $38 million on a pre-financing basis. The number you've given today is $23 million. Is the difference between the 2, being $15 million, purely the financing costs? In other words, it is the underlying apples-to-apples?

Yes, the difference is financing costs. Nathan Littlewood - Crédit Suisse AG, Research Division: Right, okay. Third and final question was just on your guidance on tonnage. The change from 4.3 million to 4.2 million tons, is really pretty modest, I guess, in terms of what we're seeing in the steel industry at the moment with all of the sort of iron ore and raw materials issues that they're having. Could you talk a little bit about the underlying blast furnace utilization numbers that are embedded into your full year production guidance?

So, interestingly, obviously, the blast furnaces have been affected by iron ore shortages, Lake Superior logistics, I've learned all sort of things about icebreaking barges. And let's face it, it's been a -- the winter has affected our customers in a pretty significant way. Interestingly, relative to the demand for our coke, there's been no desire on the part of our customers for us to dial back production. On the contrary, frankly, we wish we could've produced more from -- particularly from Indiana Harbor. So relative -- I can't really comment on overall blast furnace utilization as we go into 2014, my crystal ball is not that good. If you look at order books, and I do -- we do talk to our customers, their order books are strong, they would prefer to be running more. And I think if they get through the disruptions of the winter and get iron ore delivery more normalized, they want to run their blast furnaces at higher utilization rates and they're going to be pulling on our coke. So we don't really think -- we don't -- if we look out the rest of the year, we don't see demand constraints hitting anything. Nathan Littlewood - Crédit Suisse AG, Research Division: Got it, okay. And on Mittal's Indiana Harbor specifically, do you know much about their inventory position in terms of iron ore at the moment?

No, I don't. You'd have to ask ArcelorMittal for that one.

Our next question comes from Erin Scully from Indaba Capital.

It's actually Tom McConnon from Indaba. Quick question guys. With the dropdown that should obviously increase the GP cash flows pretty significantly, can you give us some kind of sense of pro forma what the GP cash flows should be once you've completed this dropdown?

Yes, based on where we are in the splits, we've identified $23 million, and probably close to $4 million of that relates to GP cash flows.

So that's $4 million incremental from the dropdown?

Correct.

Our next question comes from Brett Levy from Jefferies.

I guess, with respect to selling the coal coke or I'm sorry, the met coal assets, I guess, it would reflect a certain amount of bearishness longer term. I mean, you listen to some of these guys saying, "Listen, 2014 is not going to be a great year, but maybe 2015 will be much better." I guess, the question is, why not wait if you're at least medium bullish on met coal?

First of all, I don't have a view on met coal. I'm not that good. And even Mike Hardesty who works for me, who is that good, I mean, his crystal ball is not that great either. And so our view is no time like the present, might as well just get on with it. We don't really have -- we don't have a strategy which could make us successful. We are subscale. We have all the challenges. In other words -- and we won't -- it's not like we were printing cash when met coal prices were high. So as we think about it, now that the tax sharing agreement is over, yes, it's a tough time to sell the business, it's an even more difficult time for us to be in the business. And so we felt like it will be the right time to just get moving. And to the extent that we want to -- if we have a view on met coal, it's part of the transaction, some form of the consideration as an upside for met coal, fine. I'm flexible on that. But I just don't think staying in a business where you don't have a recipe for success, and to wait for commodity prices to rise is good strategy for us.

Got it. And then in terms of buying the balance of the JVs, is there a financing plan for that? Or I did not understand that fully?

Could you clarify the question a bit?

The -- was it $325 million transaction?

It's the dropdown.

Yes, yes.

Oh, I'm sorry, you're talking about -- well, that's the dropdown transaction, $365 million is a 33%. Are you talking about the remaining 2%?

No, no, no. The whole thing.

Oh, got it. Oh, look, we're not going to comment actually on that. What we said was, at Analyst Day, that our dropdown plan in its entirety, including all the customer-related assets, would be able to support an 8% to 10% minimum growth and distributions over the 3-year period, end of 2016, and we certainly see this transaction as being highly consistent with that.

[Operator Instructions] Our next question comes from Sam Dubinsky from Wells Fargo.

Is 8x now a good barometer for how we should think about future dropdowns? Just because I believe the initial plants you're dropping down were some of your better plants. So potentially, you may have been able to sell at slightly higher multiple. So I'm just trying to think about how you're shaping the future EBITDA multiples when you look at it? And then I have a follow-up.

Well, let's start with 8.3, which is the multiple here. Let's hold market conditions constant. Obviously, market conditions, whether in interest rates -- so let's hold market conditions constant for purposes of addressing your question. These are our best assets. But one of the -- a very important consideration for the multiple is the ratio of distributable cash flow to EBITDA, it's expressed in this 8.3 relative to EBITDA. Embedded in that is both the quality of assets, the amount of replacement capital, the amount of ongoing capital. But also what's interesting the financing that comes within the individual transactions. So as I think about 8.3, these are some of our newest assets, some of our better assets. If we were to put -- when we were to consider either Jewell or Indiana Harbor, we're going to have higher replacement capital accruals. We could very well have higher ongoing capital accrual, and so the ratio of distributable cash flow to EBITDA could be lower, so therefore the multiple would be lower. I guess, the last point I would make about this is that part of the transaction, obviously, is the GP. We're taking back roughly half the unit, so we maintain, even at part of this dropdown transaction, we're getting about half the equity issued back to us as LP units, and obviously, it's the GP, we're moving up the splits in getting the GP cash flow. So we benefit both directly and indirectly from the dropdown.

Okay, great. And then just on your revolver, I know you're paying down the revolver. Technically, I don't think you have to, but I know you're doing it. In theory, does this mean that you now have more gunpowder to make logistics acquisitions? With the revolver paid down, a little extra cash at the MLP's balance sheet?

Yes, Sam, it's Mark. We thought it was -- since we're accessing the capital markets and this was a draw that was ready to buy a long-term asset that it made sense to term it out. And so with the refreshing of the revolver, we really are then able to do acquisitions, and candidly fund some of the remainder of the environmental remediation. But your answer -- your question is right on. We want to be able to do acquisitions without financing contingencies or accessing the capital market. It made sense to just add this on when we went to market.

Okay, great. And then in terms of your capital allocation strategy at the parent SXC, at what point do you think it makes sense for SXC to start paying dividends? What are you looking for? Do you need -- most of the assets will be dropdown, do you need a decision on DRI? Maybe just clarify what point do you think it makes sense to pay a dividend.

Yes. I'll give you same answer I gave at Analyst Day. What we wanted to do is get first transaction done, which we're working on now, obviously we expect to close in May. That's a dialogue for the board. And I anticipate the board -- the dialogue will take place in 2014. You'd have to wait for all of the dropdown to be done. I think the dialogue will be taking place in 2014 and anticipate we have that with the Board and be able to factor in all considerations, including the MLP, including cash flows, including our capital plan in order to arrive at a rational capital allocation strategy for the parent. So that's work in front of us.

Okay. And then my last question is just housekeeping. I know you're pushing some corporate overhead from the parent to the MLP, once you do all your dropdown, how much corporate overhead is leaving the parent and going to the MLP, do you think? If you could provide that.

Sam, it may be a little bit too early to comment of that. I think what we would like to do is as we think about the parent without the operating assets, we want to get to something that's more nominal than what we retain today. Obviously, today, the retained corporate overhead is approximately $35 million. We're taking steps, as Fritz mentioned, to reduce that in view of selling the coal business. And then further, we've done a pretty in-depth assessment as to where we're spending our time, vis-à-vis, the operations and the GP, and really what we're trying to do is do a fair rational allocation of cost and reduction of cost, so that when we get to a parent that has no operating asset and you look at the retained corporate overhead, it makes sense.

And lastly, the right time to do it is when we consider dropdown transactions, because then the MLP, the complex committee as they approve a transaction, both costs are included in evaluation. So it's absolutely the right way to handle it and the right time to do it.

And I apologize if I missed this, but what is the corporate overhead associated with the coal business?

Interestingly, you didn't miss it. If you just look at our total corporate costs before allocations, we're generally $80 million to $85 million, and then we allocate roughly $50 million of that to whether it's coke plants or the coal business. The coal business is a reasonable part. We spend a fair amount of time on the coal business. However, if you were to come to our headquarters and try to pick the 25 people who work on coal, everybody works on it a part of their time. We have some people, but it's -- and so the decision we took in order to reduce our manpower about 10% and curtail a number of other spending-related categories was really intended to meaningfully reduce that growth number so that if we were to sell the coal business and no longer have the allocation, that we wouldn't end up having a negative effect on our coke assets. We've not really talked about how much goes to coal versus other plants, so you didn't miss it. But that gives you some sense of what we're trying to get accomplished.

We have no further questions at this time.

All right. Well, again thanks very much for your interest in SunCoke. And we look forward to talking to you next quarter. Thank you.