Alpha Metallurgical Resources, Inc. ($AMR)

Greetings. Welcome to the Alpha Metallurgical Resources First Quarter 2026 Results Conference Call. [Operator Instructions] Please note that this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President, Investor Relations and Communications. You may now begin.

Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's first quarter 2026 earnings release and the associated SEC filings. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. On the call today, I am joined by Alpha's Chief Executive Officer, Andy Eidson; and Chief Financial Officer, Todd Munsey, who will provide prepared remarks. Also participating on the call are our President and Chief Operating Officer, Jason Whitehead; and our Chief Commercial Officer, Dan Horn. Following our prepared remarks, we will be available to answer questions. With that, I'll turn the call over to Andy.

Thanks, Emily, and good morning, everyone. Today, we released our definitive first quarter financial results, which included adjusted EBITDA of $30 million and 3.6 million tons shipped. Back in February on our last earnings call, we shared our expectation of a slower first quarter of production and shipments as compared to ratable guidance and the rest of the year. We also communicated that costs would likely be higher than usual due to those reduced volumes. The development of war-related inflationary impacts on diesel and other supplies was not included in our projections but this put additional pressure on our cost of coal sales, which came in at $108 for the quarter. While we have no way of knowing when the Iran conflict will end, we believe the war-related inflationary prospects are temporary. Given this and since we expect improved operational performance in both coal volumes and cost of coal sales for the balance of 2026, we believe it is still possible to finish the year within the top end of our existing cost guidance range of $95 to $101 per ton. However, if the Iranian conflict and its resulting inflationary impacts persist, we will likely adjust our cost guidance upward. Our realizations improved quarter-over-quarter, largely due to increases in the low-vol indexes that occurred in recent months due to supply-related issues from flooding in Australia. However, there are historically unusual divergences within the indexes that have either persisted or gotten more pronounced in recent weeks. Within low-vol pricing, the Australian PLV is currently $45 per metric ton higher or 23% more than the U.S. East Coast low-vol index. And of particular importance to us and our portfolio, there is a further $36 per ton gap down from the U.S. East Coast low-vol to the U.S. East Coast high-vol A, another difference of 23%. The U.S. East Coast spread from low-vol to high-vol A is likely related to how oversupplied the market for high-vol has become with additional tons recently brought to market in an already weak environment. We continually evaluate the productive capacity of our portfolio alongside the needs of the market, both in the near future and from a longer-term perspective. And we're watching to see if either of those index spreads tighten to a more normalized level or if the divergence persists. Across the organization, our employees are working hard to maintain safe, efficient operations despite the external headwinds we're facing. Within the first quarter, many Alpha teams received third-party recognition for exceptional work in the areas of operational safety, mine rescue, environmental stewardship and reclamation. I commend each of our team members who make positive contributions to their work every day. Our sales team also tackled a difficult challenge by successfully planning for and mitigating the potential disruption of a 4-week outage in March at Dominion Terminal Associates. They diligently work to keep as much Alpha coal moving as possible, both before and after the downtime by strategically utilizing our Hampton Roads terminal capacity beyond DTA. We're grateful to all of our partners for helping us overcome these challenges, and we're especially appreciative of the DTA team for their work to accomplish so many equipment maintenance tasks and upgrades in such a short time. With that, I will turn the call over to Todd for a review of our first quarter financial results.

Thanks, Andy. Adjusted EBITDA for the first quarter was $30 million, up from $28.5 million in the fourth quarter of 2025. We sold 3.6 million tons in Q1, down from 3.8 million tons in Q4. Met segment realizations increased quarter-over-quarter with an average realization of $124.39 in the first quarter, up from $115.31 in Q4. Export met tons priced against Atlantic indices and other pricing mechanisms in the first quarter realized $110.32 per ton, while export coal priced on Australian indices realized $144.95 per ton. These results are compared to realizations of $106.13 per ton and $114.96, respectively, in the fourth quarter. Realization for our metallurgical sales in the first quarter was a total weighted average of $128.40 per ton, up from $118.10 per ton in Q4. Realizations in the incidental thermal portion of the Met segment decreased to $69.41 per ton in the first quarter, down from $77.80 per ton in Q4. Cost of coal sales for our Met segment increased to $107.98 per ton in Q1, up from $101.43 per ton in the fourth quarter. Alongside lower productive volumes for the quarter, higher diesel and other supply and repair costs were the primary drivers of the quarter-over-quarter cost increase. For the first quarter, SG&A, excluding noncash stock compensation and nonrecurring items increased to $13.5 million as compared to $10.9 million in the fourth quarter. Moving to the balance sheet and cash flows. As of March 31, we had $317.2 million in unrestricted cash and $49.6 million in short-term investments as compared to $366 million of unrestricted cash and $49.6 million in short-term investments as of December 31. We had $184.3 million in unused availability under our ABL at the end of the first quarter, partially offset by a minimum required liquidity of $75 million. As of the end of March, Alpha had total liquidity of $476.2 million, down from $524.3 million at the end of December. CapEx for the first quarter was $40.7 million, up from $29 million in Q4. Cash provided by operating activities was $29 million in the first quarter, up from $19 million in the fourth quarter. As of March 31, our ABL facility had no borrowings and $40.7 million of letters of credit outstanding. In terms of our committed position for 2026, at the midpoint of guidance, 48% of our metallurgical tonnage in the Met segment is committed and priced at an average price of $132.37. Another 43% of our Met tonnage for the year is committed but not yet priced. The thermal byproduct portion of the Met segment is fully committed and priced at the midpoint of guidance at an average price of $74.53. From a market perspective, geopolitical and weather-related supply issues influenced metallurgical coal markets in the first quarter of 2026, with the war in Iran causing increased volatility in the energy sector. While not directly linked to war-related electricity generation and power concerns, metallurgical coal markets also moved during the quarter with modest increases across the met quality -- met coal quality spectrum. Of the 4 indices Alpha closely monitors, the Australian Premium Low Vol Index represents the largest quarterly increase of 8.6%. The Aussie PLV index increased from $218 per metric ton on January 2 to $236.8 per metric ton on March 31, 2026. The U.S. East Coast low-vol index rose from $185 per metric ton in early January to $195 per metric ton by the end of March. The U.S. East Coast High-Vol A Index increased from $150.50 per metric ton at the beginning of the quarter to $159.50 per metric ton at the quarter's close. And the U.S. East Coast High-Vol B Index increased from $144.20 per metric ton to $149.50 per metric ton at the end of the quarter. Since then, the Australian PLV index has increased to $239.80 per metric ton as of May 7, while the U.S. East Coast low-vol is at $195 per ton, exactly the same as at quarter end. The U.S. East Coast High-Vol A and High-Vol B indices are also largely unchanged from quarter close at $159 and $149 per ton, respectively, as of May 7. In the seaborne thermal market, the API 2 index was $95.05 per metric ton at the beginning of January and increased to $125.75 per metric ton at the end of March. Since then, the API 2 index has dropped to $111.15 per metric ton as of May 7. With that, operator, we are now ready to open the call for questions.

[Operator Instructions] Our first question comes from Nick Giles with B. Riley.

Obviously, some higher costs in 1Q and some of it or a lot of it outside of your control. I was just hoping to get some more color on just kind of cost cadence starting here in 2Q, just with diesel prices remaining elevated here and now, how much of that cost pressure kind of carries over into 2Q? And what should we really be roughly penciling in for the quarter?

Nick, this is Andy. I don't want to guide too early because we are only partway through the quarter. I think diesel contributed couple of dollars a ton of the cost pressure. Of course, that was just really a late February, March impact. So it's looking like we'll see a full quarter's impact of it. So you could see a little bit more than that. And also the piece that -- that's the direct diesel cost. The piece that you don't see that's buried is diesel impacts the delivery cost of pretty much everything that we buy. And so you're going to see the indirect portion of that coming through supplies and maintenance, which we've also seen a step up there as well. So we do expect just from increased productive activity during the quarter compared to the first quarter, we should see some of that cost getting spread over more tons, particularly our fixed cost spread. So I do expect it to be coming down from Q1 but it's a little bit too early to tell the quantum on that.

Understood. That's still helpful, Andy. And maybe on the other side, realizations moved up. It's nice to see. Just was curious on -- are there any opportunities to shift more tons to kind of an Aussie-linked basis? How much -- what kind of incremental opportunities are you seeing in South Asia, maybe as Australian supply, especially for higher quality met remains tight?

Nick, this is Dan. I think the short answer is yes to that to the extent that we have some medium vol and low-vol coals that we can place into the Asian markets. The landscape for high-vol coals into Asia is pretty tough right now. You're essentially matching the lowest price the competitor throws out that day. So even if it's linked to the Aussie index, it's discounted pretty heavily. So we're pretty selective on which -- it's not so much about the indexes. Obviously, it's about the ultimate price and the netback to our coal mines. So we're -- but I think there is some upside as demand increases and if the Aussie production for the higher-quality coals remains a little bit short, there are opportunities.

Understood. No, I appreciate that, Dan. And maybe a last one for me is just -- what are you seeing in Central App in terms of some of your competitors out there? Have there been any incremental cuts in recent months? Are you seeing any production that could come back? Just an update more broadly on kind of the surrounding production areas would be helpful.

Yes. Nick, I'll take this first, and then I'll ask Dan to jump in if he's got anything additional. We obviously have seen some tons coming offline in the past really earlier in Q1 but as the quarter has gone on, it's been some smaller incremental batches. I don't think it's anything that's terribly needle moving thus far. I think the quantum has been less than what's required to fill some of the gaps in the supply and demand situation. Dan, any thoughts on that?

No, I think you said it well, Andy. I mean if you look at today versus where we were a couple of years ago, there's probably something like 11 million tons of new longwall, high-vol production that's in the marketplace. And the round numbers of how many tons have come out of Central App is probably 1 million, 2 million, somewhere in that range. So still a pretty good imbalance. Again, demand is down globally. I also point -- you have to point out that the global demand for these high-vol coals is something less than it was a couple of years ago, too. So as demand improves, that will help somewhat with the rebalancing.

Our next question comes from Nathan Martin with the Benchmark Company.

I think it would be helpful maybe to get some thoughts on shipping cadence for the balance of the year. I think, Andy, you said you expect 2Q to improve for the reasons we already talked about. Does that get made up mainly in 2Q? Or do you kind of expect those tons to be spread out in subsequent quarters?

Nate, yes, I would expect because normally, we have a bit of a bell curve during a regular year where Q1 and Q4 are going to be your lightest quarters, Q2 and Q3 and through the summer, you have your best shipments. I think it will probably look similar to that this year. I do think most of the makeup where it happens will happen in the middle 2 quarters and then we'll probably start tailing off a little bit as we get to the end of the year with the holidays and that kind of stuff. So I think that's probably -- it's going to look like a normal year. It's just a little bit steeper curve from Q1 into Q2 and Q3.

Okay. Helpful, Andy. I appreciate that. And then maybe, Dan, obviously, freight rates elevated post the start of the conflict in the Middle East. I believe you guys have traditionally sold very little based on the CFR prices. Is that still true? And then I guess the spot market, maybe a little bit quiet. You just mentioned high-vol especially. What do you think needs to happen for things to pick up there?

Yes, on the freight, you're correct. Most of our business is FOB vessel. To the extent we do some chartering, we've seen freight increases, pick a number, 40%-ish increase in the freight rates. To the extent that coal travels halfway around the world to South Asia and places like that, yes, that's a pretty significant hit. And the impact of that is some of that freight will be shared between the buyer and the seller. It's not necessarily all passed over, particularly on new business. If you're chasing new spot business, the freight is absolutely a factor as opposed to a term contract where you've got a set price. In that instance, the freight responsibility shifts to the buyer. The second question, what has to happen? As I mentioned to Nick, I think we have to see some demand improvement and some continued supply discipline. It's -- we're more oversupplied than we've seen in a while. We've seen it before in the marketplace. But at this moment in time, it's a pretty significant hill to climb for most of the U.S. producers here.

Okay. Got it. And then maybe the 3.1 million tons of export you guys have committed and priced export met, can you give us an idea of that mix by quality?

It's primarily high-vols and mid-vols with a little low vol thrown in there, Nate. I don't have -- we don't give an exact breakdown. I'll point out kind of to your question on the shipping cadence, too, as Wildcat mine, our low-vol mine ramps during the year, that mix will include -- we expect to see more low-vol going into that mix. I can't quantify it any more than that, but our long-term strategy was to put more of the high-rank, higher-quality coke strength coals into our portfolio. So that should continue this year and next.

That actually bridges me to the last question I had. Could we kind of get an update on Kingston Wildcat, maybe from Jason, I guess. I mean, it seems like those tons coming online maybe with an -- excuse me, an opportune timing just given the wide relativities we're seeing between premium low vol and high volume.

Sure. So the Wildcat mine is -- I'm pleased to announce that they are on coal, and there are tons coming out of the mine. They're still in the development phases, but we actually plan for that to conclude here in the Q2 and Q3 and Q4, we actually see a ramp in the production coming out of the mine.

Our next question comes from Matthew Key with Texas Capital Securities.

Kind of piggybacking off of the diesel discussions. I was wondering if you could provide a sensitivity to diesel pricing that we could use as a general rule of thumb moving forward?

That's a tough one, Matt, as far as knowing that off the top of my head. I'm looking at Todd right now to see if he's got some viewpoints on that.

Yes, Matt. In a typical year, we use about 22 million, 23 million gallons of diesel. And so if you think about the balance of the year with the movement we've had in diesel prices, to the point Andy made earlier, the diesel we use, we expect that to be a couple of bucks influence on the cost. But then there's also the surcharges and whatnot that will flow through from transportation-related costs. So hopefully, that helps a little bit as you think about the balance of the year. I mean, obviously, we all hope that issue goes away. But if not, that's kind of how we think about it.

No, that's helpful. And I was wondering if there's anything that the company could do to manage some of these inflationary cost pressures. Like do you currently do any diesel hedging? Or would that be something you'd consider in the future?

Yes. We've actually -- historically, we've done some -- not necessarily diesel hedging but buying forwards through our diesel providers go ahead and lock in pricing around budget time. We've done that some of the past 3, 4 years. Most of the time, it's actually gone upside down on us. This year, of course, happens to be the one where we choose not to do those forwards because back in August and September of last year, we could have seen this coming. But it is something that we're discussing actively simply because the world seems to be getting more and more politically volatile and to a degree where maybe it may just require locking in as many of your inputs as possible whenever you have the opportunity just because things do seem to be changing at a pace that's faster than the world can actually keep up with.

Our next question comes from Chris LaFemina with Jefferies.

It's Chris LaFemina from Jefferies here. Just wanted to go back to the market. So we're all kind of waiting for the high-vol discounts to narrow. And this has been an issue for quite a long time. And now we have iron ore prices are rising. You have obviously energy prices globally rising, premium low-vol met coal price has strengthened pretty materially. Global steel markets appear to be okay but the high-vol discount is widening. And I'm wondering if there's something else going -- I mean, I understand the point about there being quite a bit of high-vol supply that's gone online, but I would have thought of anything that would have brought the premium low-vol price down rather than just result in a wider spread. So is there anything else going on in that market that is more kind of structurally problematic? Or is this purely a short-term cyclical issue that we should expect to resolve? And if it's a cyclical issue, why hasn't it resolved yet? It's been going on for again, an extended period of time and the spreads have been kind of wider than we've ever seen and doesn't seem to be reversing at all. So yes, just trying to figure out what's going on there.

Chris, this is Dan. I'll try to unpack that a little bit. We don't -- the PLV is its own creature. It's an index that follows primarily Australian coals. We use it -- we link our higher quality low vols and medium vols to that index. We do believe that the U.S. East Coast low-vol index is too far below the Aussie index. When there's a shortage of Australian PLV, we get phone calls about -- and we -- when I say we U.S. producers that produce low vol, ship our coal to replace that PLV. So we believe that the gap between East Coast low-vol and PLV is too wide, to your point, it is. The high-vol coals are used differently. They don't contribute to the coke strength. They're used for plastic properties and arguably at times just as a cheap filler. They move differently, but they've been depressed. And again, I think that's more of the supply -- just old-fashioned supply-demand working on that. Buyers are trying -- obviously, when they see the potential for low price or big discounts, they'll adjust their blends to try to buy more of that. I think they'll run into the freight issue, the ocean freight issue that those tons of coal that have to go halfway around the world at a high freight number, they're not going to travel well if they're low-value coals. I wouldn't lump that all together the way you did. I think you kind of have to break that apart.

Yes. And Chris, this is Andy. If I could add one more piece to that. The differential between East Coast high-vol A and East Coast low-vol is somewhat of a recent phenomenon. If you go back to the first of 2025, that differential was only $5. And now it's climbed to $38. And so I do think that's pretty directly attributable to all the new tonnage that's come online, both in Northern Appalachia and in Alabama, just hitting a market that is having trouble absorbing it.

Yes. I mean, I guess I was thinking -- I would have assumed that there'd be -- coal is a very actively traded commodity by commodity traders globally. I would have assumed that the traders would have stepped in, and kind of capitalize on that arbitrage opportunity and that hasn't really happened. So I was wondering if there was something else going on there. But your answer is very helpful. I appreciate it.

We have a follow-up question from Nick Giles with B. Riley.

Just wanted to ask more broadly, the -- we had the presidential memorandum Section 303 a few weeks back in April. And I wanted to ask if this has really translated to your business or if you could expect to see any benefit or funding from these actions by the administration. I think maybe some of this is more related to the thermal side. They call out baseload power generation explicitly, but even export terminals are mentioned. So could DTA, for instance, be a candidate for some sort of government support?

Yes. That -- so that one is still developing as with most of these executive orders and other proclamations going back into last fall. A lot of the details are still developing real time. And so we are involved to a high degree with the federal government on a couple of different -- evaluating the different programs, seeing what's out there. I don't know -- from what we've seen thus far, it does seem that it's mostly thermal-focused. There are some smaller areas where there may be some benefit. But as of yet, I don't think we're seeing anything that's hugely material to what we're doing right now. Fingers crossed that some of it translates to a bigger benefit on the met side of the house, but I'm not sure we've seen anything in that regard yet.

We have reached the end of the question-and-answer session. I would now turn the call over to Andy Eidson for closing remarks.

Yes. We appreciate everyone joining us this morning for the earnings call, and we hope everyone has a great weekend. Thank you.

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.