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ARCH RESOURCES, INC. (ARCH)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 results were constrained by the Baltimore channel closure but execution was resilient: revenue $608.8M, diluted EPS $0.81, adjusted EBITDA $60.0M; metallurgical segment shipped 2.0M tons despite logistics disruption and set a quarterly production record .
  • Logistics impacts reduced metallurgical adjusted EBITDA by >$12M via demurrage, retimed vessel movements, rail surcharges, and midstreaming; unit costs were temporarily elevated by deferred thermal byproduct shipments, partially offset by a $12.8M West Virginia severance tax rebate .
  • Full-year guidance was largely maintained; the company lowered 2024 CapEx ($155–$165M vs. prior $160–$170M) and SG&A (cash $70–$74M, non‑cash $19–$22M), and now expects ~0% cash taxes for 2024; coking sales guidance held at 8.6–9.0M tons with lower unit costs expected in H2 as logistics normalize and Leer South transitions to District 2 .
  • Capital returns continued: 94,367 shares repurchased ($15.0M) and a fixed $0.25/share dividend declared; net cash ended at $146.0M with liquidity $366M, positioning the company to lean into buybacks as conditions improve .

What Went Well and What Went Wrong

  • What Went Well

    • Record metallurgical production despite the Port of Baltimore closure; “metallurgical segment delivered a record‑setting quarterly production performance” while progressing toward District 2 at Leer South .
    • Maintained coking coal shipping momentum (2.0M tons) and diversified routes via DTA; management commended rail and logistics partners and highlighted reopening of Baltimore on June 10 .
    • Balance sheet strength and capital returns: net cash $146.0M, share repurchases ($15.0M), fixed dividend declared; “centerpiece… is the planned return… of effectively 100% of discretionary cash flow” .

  • What Went Wrong

    • Logistics costs and netbacks: >$12M EBITDA impact from demurrage, retimed vessels, rail surcharges, midstreaming; higher High‑Vol B shipment mix also dampened realizations .
    • Metallurgical unit costs pressured by deferral of ~150k tons of thermal byproduct, adding ~$6/ton to segment cash cost; expected reversal in H2 as deferred volumes ship .
    • Thermal PRB operations were cash‑negative amid muted power demand and low gas prices; excess stripping built >8M tons of pit inventory for H2 margin tailwind, but Q2 margins were near breakeven .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Revenue ($USD Millions)$757.3 $680.2 $608.8
Diluted EPS ($USD)$4.04 n/a$0.81
Adjusted EBITDA ($USD Millions)$130.4 $102.9 $60.0

Segment operating metrics (non‑GAAP per company reconciliation):

Segment MetricQ2 2023Q1 2024Q2 2024
Metallurgical Tons Sold (M)2.5 2.2 2.2
Metallurgical Coal Sales per Ton ($)$143.67 $149.98 $131.97
Metallurgical Cash Cost per Ton ($)$89.94 $94.31 $91.03
Metallurgical Cash Margin per Ton ($)$53.73 $55.67 $40.94
Thermal Tons Sold (M)16.3 12.8 11.1
Thermal Coal Sales per Ton ($)$16.81 $17.60 $18.03
Thermal Cash Cost per Ton ($)$15.04 $17.65 $18.07
Thermal Cash Margin per Ton ($)$1.77 $(0.05) $(0.04)

KPIs (Q2 2024):

  • Coking coal shipped: 2.0M tons .
  • Operating cash flow: $59.2M; discretionary cash flow: $12.3M (incl. $15.2M working capital build) .
  • Net cash: $146.0M; cash & ST investments: $279.3M; total debt (ex issuance costs): $133.3M .
  • Liquidity: $366M .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Coking Sales Volume (M tons)FY20248.6–9.0 8.6–9.0 Maintained
Thermal Sales Volume (M tons)FY202450.0–56.0 50.0–56.0 Maintained
Avg Metallurgical Cash Cost ($/ton)FY2024$87–$92 $87–$92 Maintained
Avg Thermal Cash Cost ($/ton)FY2024$16–$17 $16–$17 Maintained
Capital Expenditures ($M)FY2024$160–$170 $155–$165 Lowered
SG&A – Cash ($M)FY2024$72–$76 $70–$74 Lowered
SG&A – Non‑cash ($M)FY2024$22–$25 $19–$22 Lowered
Cash Tax Payment (%)FY20240–5% ~0% Lowered
D, D&A ($M)FY2024$165–$175 $165–$175 Maintained
Net Interest Income ($M)FY2024$0–$5 $0–$5 Maintained
DividendQ2 2024Variable + fixed (prior quarter) Fixed $0.25/share declared Lower variable; fixed maintained
Committed, Priced Coking Seaborne (M tons; $/ton)FY20240.1 @ $201.35 3.4 @ $151.12 Repriced/more volume at lower price

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023)Previous Mentions (Q1 2024)Current Period (Q2 2024)Trend
Logistics/BaltimoreForecasted modest Q1 vessel impacts at Curtis Bay; viewed as timing Detailed contingency routing via DTA; expected Q2 shipments 1.9–2.2M tons; working capital build expected Shipped 2.0M coking tons; Baltimore reopened June 10; >$12M EBITDA impact; logistics normalized post‑reopening Improving logistics post‑reopen
Asian customer expansionSecured six new large Asian steelmakers; 40% coking shipments to Asia in 2023 Growing interest from major Chinese mills; targeting 50–60% to Asia over time Continued strong Asian inquiries; building base with major buyers in Malaysia, Vietnam, Indonesia Expanding penetration
Coking coal market balanceSupported by constrained supply; PLV arbitrage to Asia Prices softened; marginal producers pressured; HVA ~$220/mt Prices below marginal cost; outages remove 2–3% global supply; expect quick re‑balancing with demand Near‑term subdued; constructive medium term
Thermal PRB executionSolid Q4 contribution; strategy to optimize cash generation Cash‑negative in Q1; stripping above shipments; plan to monetize pit inventory in H2 >8M tons pit inventory; expect shipments > production in H2; thermal segment breakeven in Q2, positive in H2 H2 margin tailwind
Capital return/buybacksBuilt cash to enable opportunistic repurchases; unwind capped call Prioritized buybacks; cautious in Q2 due to WC; normalization expected in Q3 Continued repurchases ($15.0M); board emphasis on buybacks as primary vehicle in H2 Accelerating buybacks in H2

Management Commentary

  • “Shipped 2.0 million tons of coking coal despite the extended closure of the Baltimore shipping channel… delivered a record‑setting quarterly production performance” — Paul Lang, CEO .
  • “Logistical disruptions had an estimated impact of greater than $12 million in Q2… lower average sales netbacks” — Press release; John Drexler elaborated on rail surcharges, demurrage and midstreaming .
  • “Operating cash flow totaled $59 million in Q2… ended June with total debt of $133 million, a net cash position of $146 million and liquidity of $366 million” — Matt Giljum, CFO .
  • “We have maintained our full‑year guidance for coking coal sales volumes… expect lower unit costs in the year’s second half” — Matt Giljum .
  • “We remain sharply focused on driving continuous improvement… exceptionally well‑positioned to capitalize as global steel demand stabilizes” — Paul Lang .

Q&A Highlights

  • Metallurgical margin outlook: Management expects margin expansion in Q3 as logistics surcharges roll off, rail rates potentially lower, volumes higher; the ~$6/ton byproduct cost headwind should reverse in H2 .
  • West Elk pricing and margin trajectory: Building North American industrial book above $70/ton for ~2M tons; legacy contracts ($40s/ton) rolling off; BC district transition in mid‑2025 should lower costs by $15–$20/ton and improve quality, expanding margins .
  • Capital allocation in a downturn: Emphasis on flexible dividend/buyback mix; maintain ~$200M minimum cash; strong cost position supports continued returns even if prices weaken .
  • Shipping cadence H2: To meet the 8.6–9.0M ton guidance, management targets ~2.4M tons/quarter in H2; rail and port cadence viewed as sufficient post‑reopening .
  • Severance tax rebate: Initial Q2 benefit of $12.8M; potential additional rebates ~half of Q2 in 2024 and ~$5–$10M in 2025 depending on markets .

Estimates Context

  • Wall Street consensus (S&P Global) for Q2 2024 EPS and revenue was unavailable due to missing mapping; as a result, we cannot quantify beats/misses vs. consensus.*
  • Implications: Given maintained full‑year coking guidance, lower unit cost expectations in H2, and reduced CapEx/SG&A, sell‑side models may shift shipments to H2, trim cost lines, and reflect modestly better margins as logistics normalize .

*Values retrieved from S&P Global — consensus data was unavailable due to mapping limitations.

Key Takeaways for Investors

  • Execution through exogenous logistics shock underscores asset quality and marketing flexibility; reopening of Baltimore and DTA throughput suggest H2 volume step‑up and unit cost relief .
  • H2 setup is favorable: deferred byproduct shipments and pit inventory monetization should improve margins; Leer South’s move to District 2 in Q4 supports volume and cost trajectory into 2025 .
  • Balance sheet optionality remains a catalyst: net cash $146M and liquidity $366M enable heavier share repurchases as cash flow improves in H2 .
  • Near‑term pricing is subdued, but supply constraints (mine outages, underinvestment) and Asian demand interest support a constructive medium‑term view for coking coal realizations .
  • Thermal PRB is positioned for a margin tailwind in H2 as shipments exceed stripping; West Elk’s contract mix shift above $70/ton in out‑years strengthens baseline thermal cash generation .
  • Watch catalysts: Q3/Q4 shipping cadence vs. 2.4M/quarter target, met unit cost progression, seaborne pricing vs. marginal costs, and buyback pace signaling board confidence .
  • Risk monitor: Prolonged weak steel demand or extended Asian destocking could delay margin recovery; however, logistics normalization and cost actions provide internal offsets .