The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in our Annual Report, as well as the financial statements and related notes appearing elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. We caution you that our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences are discussed elsewhere in this Quarterly Report, particularly in the "Cautionary Note Regarding Forward-Looking Statements" and in our Annual Report and in this Quarterly Report under the heading "Item 1A. Risk Factors," all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.
Overview
We are an operator and developer of high-quality, low-cost metallurgical coal in southernWest Virginia , southwesternVirginia , and southwesternPennsylvania . We are a pure play metallurgical coal company with 39 million reserve tons and 769 million resource tons of high-quality metallurgical coal. We believe our advantaged reserve geology provides us with higher productivities and industry leading lower cash costs. Our development portfolio primarily includes four properties:Elk Creek ,Berwind ,Knox Creek andRAM Mine . Each of these properties possesses geologic and logistical advantages that make our coal among the lowest delivered-costU.S. metallurgical coal to our domestic target customer base, North American blast furnace steel mills and coke plants, as well as international metallurgical coal consumers. During the first quarter of 2022, we sold 0.6 million tons of coal. Of this, 39% was sold in North American markets, includingCanada , and 61% was sold in export markets, principally toEurope ,South America ,Asia andAfrica . During the first quarter of 2021, 46% of our sales were sold in North American markets, with the remaining 54% being sold into the export markets. AtMarch 31, 2022 , we had outstanding performance obligations for the remainder of 2022 of approximately 1.5 million tons for contracts with fixed sales prices averaging$188 /ton and 0.2 million tons for contracts with index-based pricing mechanisms. COVID-19 continues to impact countries across the world, and the duration and severity of the effects are currently unknown. We continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, suppliers, and stakeholders, or as required by federal, state, or local authorities. Regarding the military conflict involvingRussia andUkraine , resulting sanctions and future market or supply disruptions in the region, are impossible to predict, but could be significant and may have a severe adverse effect on the region. Globally, various governments have banned imports fromRussia including commodities such as oil, natural gas and coal. These events have caused volatility in the commodity markets. This volatility, including market expectations of potential changes in coal prices and inflationary pressures on steel products, may have a significant effect on market prices and overall demand for our coal and the cost of supplies and equipment. We are closely monitoring the potential effects on the market. We have no meaningful direct financial exposure toRussia andUkraine . As theEuropean Union ban on Russian coal goes into effect in August, it could create further tightness in the metallurgical coal markets asRussia was the third largest exporter of metallurgical coal in 2021 or 10% of global metallurgical coal trade. 17 Table of Contents Recent Developments
OnApril 29 , the Company closed on its previously announced acquisition of 100% of the equity interests of Ramaco Coal, an entity owned by an investment fund managed byYorktown Partners and certain members of the Company's management. The consideration for the acquisition will consist of (i) an initial payment of$10 million due at closing and (ii) an aggregate deferred purchase price of$55 million , consisting of (A)$15 million , to be paid during the remainder of 2022 in$5 million ratable quarterly installments, and (B)$40 million , to be paid during 2023 in$10 million ratable quarterly installments. Results of Operations Three months ended March 31, (In thousands) 2022 2021 Revenue$ 154,882 $ 43,455 Costs and expenses Cost of sales (exclusive of items shown separately below) 81,253 31,198 Asset retirement obligations accretion 235 151 Depreciation and amortization 8,680 6,155 Selling, general and administrative 11,824 4,707 Total costs and expenses 101,992 42,211 Operating income 52,890 1,244 Other income 366 2,935 Interest expense, net (1,130) (202) Income before tax 52,126 3,977 Income tax expense (benefit) 10,655 (166) Net income$ 41,471 $ 4,143 Earnings per common share Basic $ 0.94 $ 0.10 Diluted $ 0.92 $ 0.10 Adjusted EBITDA$ 64,058 $ 11,540 During the three-month period endedMarch 31,2022 , our net income and Adjusted EBITDA were significantly higher compared to the same period in 2021. Sales pricing and volumes were higher by 163% and 38%, respectively, during the three months endedMarch 31, 2022 than the same period during 2021, which was primarily due to the global rebound of metallurgical demand from the previous effects of COVID-19. In the first three months of 2021, we recognized a total of$2.5 million in other income for the CARES Act Employee Retention Tax Credit.
Three Months Ended
Revenue. Our revenue includes sales of Company produced coal and coal purchased from third parties. We include amounts billed by us for transportation to our customers within revenue and transportation costs incurred within cost of sales. Revenue per ton sold (FOB mine) and cash cost per ton sold (FOB mine) each exclude the impact of transportation billings and costs. 18
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Coal sales information is summarized as follows:
Three months ended March 31, (In thousands) 2022 2021 Increase (Decrease) Company Produced Coal sales revenue$ 150,929 $ 41,794 $ 109,135 Tons sold 573 406 166 Purchased from Third Parties Coal sales revenue$ 3,953 $ 1,661 $ 2,292 Tons sold 10 16 (5) Coal sales revenue in the first quarter of 2022 was$154.9 million , 256% higher than in the first quarter of 2021 primarily due to increased tons sold in the first quarter of 2022 and increased revenue per tons sold (FOB Mine ). Revenue per ton sold (FOB mine) increased 168% from$88 /ton in the first quarter of 2021 to$236 /ton in the first quarter of 2022. We sold 583 thousand tons of coal in the first quarter of 2022, a 38% increase over the same period of 2021. We benefited from improved domestic, spot and index pricing for metallurgical coal in 2022. Additionally, favorable conditions in the steel and metallurgical markets contributed to an increase demand for metallurgical coal and stronger pricing. We expect these conditions to continue in the next quarter. Cost of sales. Our cost of sales totaled$81.3 million for the three months endedMarch 31, 2022 as compared with$31.2 million for the same period in 2021 due to higher tons sold and higher sales-related costs. The cash cost per ton sold (FOB mine) for the first quarter of 2022 was$110 /ton, compared with$59 /ton in the first quarter of 2021. Our cash cost per ton sold in the 2022 period was primarily due to higher sales-related costs directly associated with higher revenue per ton sold in 2022. Asset retirement obligation accretion. Asset retirement obligation accretion was$0.2 million for each of the three-month periods endedMarch 31, 2022 andMarch 31, 2021 .
Depreciation and amortization. Depreciation and amortization expense was
Selling, general and administrative. Selling, general and administrative expenses were$11.8 million for the three months endedMarch 31, 2022 and$4.7 million for the three months endedMarch 31, 2021 primarily due to higher stock compensation, incentives and professional services in 2022, related to the Company's production growth profile. Other income. Other income was$0.4 million for the three months endedMarch 31, 2022 . For the three months endedMarch 31, 2021 , other income was$2.9 million which includes$2.5 million for the CARES Act Employee Retention Tax Credit. Interest expense, net. Interest expense, net was approximately$1.1 million during the three months endedMarch 31, 2022 . Interest expense, net was approximately$0.2 million in the three months endedMarch 31, 2021 . Interest expense, net was higher from the prior period primarily due to the issuance of the Senior Notes inJuly 2021 . Income tax expense. The effective tax rate for the three months endedMarch 31, 2022 , excluding discrete items, was 19.5%. The effective tax rate for the three months endedMarch 31, 2021 , excluding discrete items, was 5%. Discrete items during the three months endedMarch 31, 2021 included the impact of legislative changes inWest Virginia . The primary difference from the federal statutory rate of 21% is related to state taxes, permanent differences for non-deductible expenses and the difference in depletion expense between GAAP and federal income tax purposes. 19 Table of Contents
Liquidity and Capital Resources
At
Significant sources and uses of cash during the first three months of 2022
Sources of cash:
Cash flows from operating activities were
positive impact from the primary components of our working capital (accounts
? receivables, inventories and accounts payable) of a net
primarily associated with an increase in accounts payable due to increases in
freight, purchases and other inflationary pressures. Increases in our accounts
receivable and inventories served as offsets.
Uses of cash:
? Capital expenditures were
projects at the
? We made net repayments of
purchases and management of our normal operating cash position.
? We paid dividends of
AtMarch 31, 2022 , we also had$1.0 million of restricted cash, classified in other current assets in the condensed consolidated balance sheets, for potential future workers' compensation claims.
Future sources and uses of cash
Our primary use of cash includes capital expenditures for mine development, ongoing operating expenses and deferred cash payments in connection with the Ramaco Coal acquisition. We expect to fund our capital and liquidity requirements with cash on hand, anticipated cash flows from operations and borrowings discussed in more detail below. We believe that current cash on hand, cash flow from operations and available liquidity under our existing credit agreements will be sufficient to meet our capital expenditure and operating plans.
Additional factors that could adversely impact our future liquidity and ability to carry out our capital expenditure program include:
? Timely delivery of our product by rail and other transportation carriers;
? Late payments of accounts receivable by our customers;
? Cost overruns in our purchases of equipment needed to complete our mine
development plans;
Delays in completion of development of our various mines, processing plants and
? refuse disposal facilities, which would reduce the coal we would have available
to sell and our cash flow from operations; and
? Adverse changes in the metallurgical coal markets that would reduce the
expected cash flow from operations.
If future cash flows are insufficient to meet our liquidity needs or capital requirements, we may reduce our expected level of capital expenditures and/or fund a portion of our capital expenditures through the issuance of debt or equity securities, the entry into debt arrangements or from other sources,
such as asset sales. Indebtedness Revolving Credit Facility and Term Loan-OnNovember 2, 2018 , we entered into a Credit and Security Agreement (as amended or amended and restated the "Revolving Credit Facility" or the "Credit Agreement") withKeyBank National Association ("KeyBank"), as the administrative agent, and other lenders party thereto. The Credit Agreement was amended onFebruary 20, 2020 andMarch 19, 2021 . OnOctober 29, 2021 , we entered into the Amended 20
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and Restated Credit and Security Agreement (the "Amendment and Restatement") withKeyBank . Prior to the Amendment and Restatement, the Credit Agreement consisted of the$10.0 million term loan (the "Term Loan") and up to$30.0 million revolving line of credit, including$3.0 million letter of credit availability. The Amendment and Restatement increased the overall availability under the revolving credit line to$40.0 million and extended the maturity date toDecember 31, 2024 . All personal property assets, including, but not limited to accounts receivable, coal inventory and certain mining equipment are pledged to secure the Revolving Credit Facility. The Revolving Credit Facility bears interest based on Secure Overnight Financing Rate ("SOFR") + 2.0% or Base Rate + 1.5%. "Base Rate" is the highest of (i)KeyBank's prime rate, (ii) Federal Funds Effective Rate + 0.5%, or (iii) SOFR + 2.0%. Advances under the Revolving Credit Facility are made initially as Base Rate loans but may be converted to SOFR rate loans at certain times at our discretion. AtMarch 31, 2022 , there was no amount outstanding under the Revolving Credit Facility and we had remaining availability of$39.6 million .
The Term Loan is secured under a Master Security Agreement with a pledge of
certain underground and surface mining equipment, bears interest at LIBOR +
5.15% and is required to be repaid in monthly installments of
The Credit Agreement contains usual and customary covenants including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as financial covenants. AtMarch 31, 2022 , we were in compliance with all financial covenants under the Credit Agreement. Key Equipment Finance Loan-OnApril 16, 2020 , we entered into an equipment loan with Key Equipment Finance, a division ofKeyBank , as lender, in the principal amount of$4.7 million for the financing of existing underground and surface equipment (the "Equipment Loan"). The Equipment Loan bears interest at 7.45% per annum and is payable in 36 monthly installments of$147 thousand . There is a 3% premium for prepayment of the note within the first 12 months. This premium declines by 1% during each successive 12-month period. The outstanding principal balance of the Equipment Loan was$1.8 million atMarch 31, 2022 . 9.00% Senior Unsecured Notes due 2026-OnJuly 13, 2021 , we completed an offering of$34.5 million , in the aggregate, of the Company's 9.00% Senior Unsecured Notes due 2026 (the "Senior Notes"), and incurred$2.4 million for note offering costs. The Senior Notes mature onJuly 30, 2026 , unless redeemed prior to maturity. The Senior Notes bear interest at a rate of 9.00% per annum, payable quarterly in arrears on the 30th day of January, April, July and October of each year. We may redeem the Senior Notes in whole or in part, at our option, at any time on or afterJuly 30, 2023 , or upon certain change of control events, at a redemption price equal to 100% of the principal amount plus accrued and unpaid interest to, but not including, the date of redemption. Issuance costs for the Senior Notes included underwriters' fees, attorney, accounting and filing costs totaling$2.4 million . These issuance costs are reported as a debt discount which is being amortized over the Senior Notes term using an effective rate method. The outstanding principal balance under the Senior Notes was$34.5 million atMarch 31, 2022 and is presented net of unamortized discounts of$2.0 million . The effective interest rate is approximately 10.45%.J. H. Fletcher & Co. Loan-OnJuly 23, 2021 andNovember 24, 2021 , we entered into equipment loans withJ. H. Fletcher & Co. , as lender, in the principal amount of$0.9 million and$3.9 million , respectively, for the financing of underground equipment (the "Fletcher Equipment Loans"). The Fletcher Equipment Loans bear no interest and are payable in 24 monthly installments of$200 thousand . The outstanding principal balance of the Fletcher Equipment Loans was$3.8 million atMarch 31, 2022 . Komatsu Financial Limited Partnership Loan-OnAugust 16, 2021 , we entered into an equipment loan withKomatsu Financial Limited Partnership , as lender, in the principal amount of$1.0 million for the financing of surface equipment (the "Komatsu Equipment Loan"). The Komatsu Equipment Loan bears interest at 4.6% per annum and is payable in 36 monthly installments of$36 thousand for the first six months and then at$28 thousand until maturity. The outstanding principal balance of the Komatsu Equipment Loan was$0.8 million atMarch 31, 2022 . 21
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Brandeis Machinery & Supply Company -OnJanuary 11, 2022 , we entered into equipment loans withBrandeis Machinery & Supply Company , as lender, in the principal amount of$1.4 million for the financing of surface equipment (the "Brandeis Equipment Loans"). The Brandeis Equipment Loans bear interest at 4.8% per annum and are payable in 48 monthly installments of$24 thousand . The outstanding principal balance of the Brandeis Equipment Loans was$0.9 million atMarch 31, 2022 .
Critical Accounting Estimates
A discussion of our critical accounting policies is included in the Annual
Report. There were no material changes to our critical accounting policies
during the three months ended
Off-Balance Sheet Arrangements
At
Non-GAAP Financial Measures
Adjusted EBITDA - Adjusted EBITDA is used as a supplemental non-GAAP financial measure by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance. We define Adjusted EBITDA as net income plus net interest expense, stock-based compensation, depreciation and amortization expenses and any transaction related costs. A reconciliation of net income to Adjusted EBITDA is included below. Adjusted EBITDA is not intended to serve as an alternative to GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies. Three months ended March 31, (In thousands) 2022 2021 Reconciliation of Net Income to Adjusted EBITDA Net income$ 41,471 $ 4,143 Depreciation and amortization 8,680
6,155
Interest expense, net 1,130 202 Income tax expense (benefit) 10,655
(166) EBITDA 61,936 10,334 Stock-based compensation 1,887 1,055
Accretion of asset retirement obligation 235
151 Adjusted EBITDA$ 64,058 $ 11,540 22 Table of Contents Non-GAAP revenue per ton - Non-GAAP revenue per ton (FOB mine) is calculated as coal sales revenue less transportation costs, divided by tons sold. We believe revenue per ton (FOB mine) provides useful information to investors as it enables investors to compare revenue per ton we generate against similar measures made by other publicly-traded coal companies and more effectively monitor changes in coal prices from period to period excluding the impact of transportation costs which are beyond our control. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Revenue per ton sold (FOB mine) is not a measure of financial performance in accordance with GAAP and therefore should not be considered as an alternative to revenue under GAAP. Three months ended March 31, 2022
Three months ended
Company Purchased Company Purchased (In thousands, except per ton amounts) Produced Coal Total Produced Coal Total Revenue$ 150,929 $ 3,953 $ 154,882 $ 41,794 $ 1,661 $ 43,455 Less: Adjustments to reconcile to Non-GAAP revenue (FOB mine) Transportation costs (17,131) (239)
(17,370) (5,803) (421) (6,224)
Non-GAAP revenue (FOB mine)
573 10 583 406 16 422 Revenue per ton sold (FOB mine) $ 234$ 354 $
236 $ 89
Non-GAAP cash cost per ton sold - Non-GAAP cash cost per ton sold is calculated as cash cost of sales less transportation costs, divided by tons sold. We believe cash cost per ton sold provides useful information to investors as it enables investors to compare our cash cost per ton against similar measures made by other publicly-traded coal companies and more effectively monitor changes in coal cost from period to period excluding the impact of transportation costs which are beyond our control. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Cash cost per ton sold is not a measure of financial performance in accordance with GAAP and therefore should not be considered as an alternative to cost of sales under GAAP. Three months endedMarch 31, 2022
Three months ended
Company Purchased Company Purchased (In thousands, except per ton amounts) Produced Coal Total Produced Coal Total Cost of sales$ 77,863 $ 3,390 $ 81,253 $ 29,636 $ 1,562 $ 31,198 Less: Adjustments to reconcile to Non-GAAP cash cost of sales Transportation costs (17,134) (239) (17,373) (5,803) (421) (6,224) Non-GAAP cash cost of sales$ 60,729 $ 3,151 $ 63,880 $ 23,833 $ 1,141 $ 24,974 Tons sold 573 10 583 406 16 422 Cash cost per ton sold $ 106$ 300 $ 110 $ 59$ 72 $ 59 23 Table of Contents
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