SunCoke Energy, Inc. (NYSE:SXC) Q1 2023 Earnings Call Transcript May 7, 2023

Operator: Good morning. Thank you for attending today’s SunCoke Energy First Quarter 2023 Earnings Call. My name is Bethany, and I will be the moderator for today’s call. [Operator Instructions] I would now like to pass the conference over to our host, Shantanu Agrawal, VP of Finance and Treasurer with SunCoke Energy. Please go ahead.

Shantanu Agrawal: Thanks, Bethany. Good morning and thank you for joining us this morning to discuss SunCoke Energy’s first quarter 2023 results. With me today are Mike Rippey, Chief Executive Officer; Katherine Gates, President; and Mark Marinko, Senior Vice President and Chief Financial Officer. Following management’s prepared remarks, we’ll open the call for Q&A. This conference call is being webcast live on the Investor Relations section of our website, and a replay will be available later today. If we do not get to your questions on the call today, please feel free to reach out to our Investor Relations team. Before I turn things over to Katherine, let me remind you that the various remarks we make on today’s call regarding future expectations constitute forward-looking statements.

The cautionary language regarding forward-looking statements in our SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today’s call. With that, I’ll now turn things over to Katherine.

Katherine Gates: Thanks, Shantanu. Good morning and thank you for joining us on today’s call. Earlier today, we announced SunCoke Energy’s first quarter results. I want to discuss a few highlights before turning it over to Mark to review the results in detail. I’d like to start by thanking all of our SunCoke employees for their contributions to our first quarter results. Our domestic coke business operated at full capacity during the quarter, and our Logistics segment performed well as we continue to pursue new customers. Through our collective efforts, we delivered consolidated adjusted EBITDA of $67.1 million. Last week, we also announced the extension of our Indiana Harbor coke agreement with Cleveland-Cliffs through September 2035.

The key provisions of the extension are similar to the current contract. This renewal affirms our mutually beneficial relationship with Cleveland-Cliffs and positions Indiana Harbor well for the future. Our foundry coke business continues to perform well, with all sales finalized for the full year. The foundry coke expansion project is also progressing and it remains on time and on budget. Our order book for non-contracted blast furnace coke is solid, and all of our non-contracted blast furnace coke sales are finalized through the third quarter. From a leverage perspective, at the end of the quarter, our gross leverage ratio was approximately 1.93x on a trailing 12-month adjusted EBITDA basis. Finally, as we continue to execute against our 2023 objectives, we remain well positioned to achieve our full year adjusted EBITDA guidance of $250 million to $265 million.

With that, I will turn it over to Mark to review our first quarter earnings in detail. Mark?

Mark Marinko: Thanks, Katherine. Turning to Slide 4, net income attributable to SunCoke was $0.19 per share in the first quarter 2023, down $0.16 versus the prior year period. Adjusted EBITDA for the first quarter of 2023 was $67.1 million, a decrease of $16.7 million from first quarter 2022. Lower contribution margin on export coke sales was the primary driver of the decrease in both net income attributable to SunCoke and adjusted EBITDA. Moving to Slide 5 to discuss our Domestic coke business performance, first quarter domestic coke adjusted EBITDA was $60.4 million and coke sales volume was $950,000, $6 million decrease in adjusted EBITDA as compared to same prior year period, was primarily driven by lower contribution margin on export coke sales.

The timing of non-contracted blast coke sales also impacted results this quarter. The domestic coke fleet continues to operate at full capacity and all non-contracted blast furnace coke sales are finalized through the third quarter. Additionally, all foundry coke sales are finalized for the full year. Given our solid first quarter performance, we remain well positioned to deliver our Domestic coke adjusted EBITDA guidance of $234 million to $242 million. Moving on to Slide 6 to discuss our Logistics segment. The Logistics business generated $13.5 million of adjusted EBITDA during the first quarter of 2023 as compared to $12.6 million in the same prior year period. The increase in adjusted EBITDA was primarily due to higher volumes at our Convent Marine Terminal.

Our logistics terminals handled combined throughput volumes of 5.3 million tons during the quarter as compared to 5.2 million tons during the prior year period, with CMT handling approximately 200,000 additional tons as compared to the same prior year period. Although thermal coal pricing has declined modestly, CMT continues to benefit from the API2 price adjustment. Our full year adjusted EBITDA and volume guidance are unchanged. Now turning to Slide 7 to discuss our liquidity position for Q1, SunCoke ended the quarter with a cash balance of approximately $83 million. Cash flow from operating activities generated approximately $30 million. It was impacted by working capital changes. We spent $22.6 million on CapEx during Q1 and also paid $6.7 million in dividends at the rate of $0.08 per share during the quarter.

In total, we ended the quarter with a strong liquidity position of approximately $398 million. With that, I will turn it back over to Katherine.

Katherine Gates: Thanks Mark. Wrapping up on Slide 8, as always, safety and operational performance is top of mind for our company. We continue to focus on safely executing against our operating and capital plan for full utilization of our coke making assets. As I mentioned previously, we are pleased with the performance of our foundry coke business. The foundry expansion project is progressing as planned, and its implementation later this year will allow SunCoke to grow its market participation meaningfully. As we have demonstrated in the past, we will continue to pursue a balanced opportunistic approach to capital allocation. We continue to evaluate the capital needs of the business, our capital structure and the need to reward our shareholders and will make capital allocation decisions accordingly. Lastly, we look to achieve our full year adjusted EBITDA guidance of $250 million to $265 million for 2023. With that, let’s go ahead and open up the call for Q&A.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Lucas Pipes with B. Riley. Please go ahead.

Operator: Thank you. Our next question comes from the line of Nathan Martin with the Benchmark Company. Please go ahead.

Operator: Thank you. That concludes our question-and-answer session. I would now like to pass the conference back to Katherine Gates, President of SunCoke for any additional remarks.

Katherine Gates: Thank you all again for joining us this morning and for your continued interest in SunCoke.

Operator: That concludes today’s conference call. I hope you all enjoy the rest of your day. You may now disconnect your lines.