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ARCH RESOURCES, INC. (ARCH)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 delivered revenue of $774.0M, diluted EPS of $6.07, and adjusted EBITDA of $180.0M; the metallurgical segment reduced cash cost/ton 10% QoQ and expanded per‑ton cash margin 52% QoQ, while thermal contributed $26.7M of EBITDA despite PRB demand softness .
  • Versus third‑party consensus, ARCH posted a revenue beat and an EPS miss: actual revenue $774.0M vs $706.7M (Seeking Alpha) and EPS $6.07 vs $6.76–$6.90 (Seeking Alpha/Zacks); S&P Global consensus was unavailable via our tool .
  • 2024 guidance calls for coking coal volumes of 8.6–9.0Mt, thermal 50–56Mt, met cash cost $87–$92/ton, thermal cash cost $16–$17/ton; management flagged Q1 shipping timing headwinds from Curtis Bay disruptions but expects catch‑up later in the year .
  • Capital return remains central: declared a $1.65/share dividend (25% of Q4 discretionary cash flow), increased cash/short‑term investments by $107M to ~$320.5M, and plans to unwind the capped call to retire ~2% of diluted shares; pivoting toward heavier buybacks opportunistically .

What Went Well and What Went Wrong

  • What Went Well

    • Metallurgical execution: average cash cost/ton fell 10% QoQ ($96.63→$86.51), coking coal sales realization rose 24% QoQ, and per‑ton cash margin increased 52% QoQ; segment EBITDA reached $193.6M .
    • Liquidity and cash build: operating cash flow was $181.6M; discretionary cash flow $126.5M; cash and short‑term investments rose by $107.0M to $320.5M; net cash position improved to $178.4M .
    • Strategic positioning: added six large Asian steelmaking customers in 2023; shipping ~40% of coking coal to Asia, with plans to grow penetration; arbitrage opportunities vs Australian PLV pricing .

  • What Went Wrong

    • PRB demand softness: negotiated shipment deferrals pressured Q4 thermal volumes; thermal cash margin/ton compressed to $1.64 vs $3.85 in prior year .
    • Q1 2024 shipping timing: weather and maintenance (including force majeure) at Curtis Bay expected to modestly reduce Q1 vessel loadings (5–10% below ratable), shifting volumes to later quarters .
    • Leer South ramp pacing: thinner seam in Panel 5 constrained Q3/Q4 advance rates before transitioning to Panel 6; management targets ~3Mt in 2024 with step‑change expected upon District 2 transition late 2024/2025 .

Financial Results

MetricQ2 2023Q3 2023Q4 2023
Revenue ($USD Millions)$757.3 $744.6 $774.0
Diluted EPS ($)$4.04 $3.91 $6.07
Net Income ($USD Millions)$77.4 $73.7 $114.9
Adjusted EBITDA ($USD Millions)$130.4 $126.3 $180.0
Q4 2023 Actual vs EstimatesActual Q4 2023S&P Global ConsensusThird‑Party Consensus
Revenue ($USD Millions)$774.0 Unavailable (tool access issue)$706.66 (Seeking Alpha)
Diluted EPS ($)$6.07 Unavailable (tool access issue)$6.76 (Seeking Alpha) ; $6.90 (Zacks)
Metallurgical Segment (per quarter)Q2 2023Q3 2023Q4 2023
Tons Sold (millions)2.5 2.3 2.3
Coal Sales per Ton ($)$143.67 $151.33 $169.42
Cash Cost per Ton ($)$89.94 $96.63 $86.51
Cash Margin per Ton ($)$53.73 $54.70 $82.91
Segment Adjusted EBITDA ($M)$132.8 $128.3 $193.6
Thermal Segment (per quarter)Q2 2023Q3 2023Q4 2023
Tons Sold (millions)16.3 16.8 15.5
Coal Sales per Ton ($)$16.81 $16.73 $17.89
Cash Cost per Ton ($)$15.04 $15.39 $16.25
Cash Margin per Ton ($)$1.77 $1.34 $1.64
Segment Adjusted EBITDA ($M)$29.2 $23.4 $26.7
Operating KPIsQ2 2023Q3 2023Q4 2023
Operating Cash Flow ($M)$196.8 $130.9 $181.6
Capital Expenditures ($M)$46.1 $44.4 $55.0
Discretionary Cash Flow ($M)$150.7 $86.5 $126.5
Dividend Declared per Share ($)$3.97 $1.13 $1.65
Share Repurchases ($M / Shares)$73.5 / 623,304 $28.2 / 215,551 $3.0 / ~20,000
Cash + Short‑Term Investments ($M)$235.1 $213.5 $320.5
Net (Cash) Debt ($M)$(97.4) $(82.3) $(178.4)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Coking Coal Sales Volume (Mt)FY 2024n/a8.6–9.0 New
Thermal Sales Volume (Mt)FY 2024n/a50.0–56.0 New
Average Metallurgical Cash Cost ($/ton)FY 2024n/a$87–$92 New
Average Thermal Cash Cost ($/ton)FY 2024n/a$16–$17 New
D, D&A ($M)FY 2024$150–$156 (FY 2023) $165–$175 Raised vs prior year guide
ARO Accretion ($M)FY 2024$19–$21 (FY 2023) $23–$25 Raised vs prior year guide
SG&A – Cash ($M)FY 2024$69–$73 (FY 2023) $72–$76 Raised vs prior year guide
SG&A – Non‑cash ($M)FY 2024$24–$28 (FY 2023) $22–$25 Lower range
Net Interest Income ($M)FY 2024$1–$3 (FY 2023) $0–$5 Broadened
Capital Expenditures ($M)FY 2024$160–$170 (FY 2023) $160–$170 Maintained
Cash Tax Payment (%)FY 20240–5 (FY 2023) 0–5 Maintained; near low end expected
Income Tax Provision (%)FY 202412–17 (FY 2023) 14–18 Raised midpoint
DTA Additional Maintenance ($M)FY 2024n/a~$10 (equity investment, not in CapEx) New
Working Capital (Q1)Q1 2024n/aOutflow up to ~$40M New
Curtis Bay LogisticsQ1 2024n/aModestly less‑than‑ratable shipments; timing only New

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2023)Current Period (Q4 2023)Trend
Metallurgical cost/marginFirst‑quartile cost structure; Q2 coking realizations fell; Q3 margin per ton improved despite Leer South seam thinning QoQ met cash cost/ton −10%; cash margin/ton +52%; segment EBITDA $193.6M Improving execution
Leer South rampQ2 best productivity since inception; Q3 seam thinning in Panel 5; ~3Mt run‑rate expectation Transition to Panel 6 in Dec; guide ~3Mt in 2024; District 2 late 2024 for step‑change Near‑term stabilized; medium‑term step‑up
Asia penetrationIncreasing index‑priced seaborne exposure; 1.5Mt 2024 NA fixed price at $158 Six new Asian customers; ~40% of coking shipments to Asia; arbitrage vs PLV Expanding
Thermal/PRBRolling 5Mt commitments to 2024; strong cost control; expect gradual decline ~50Mt PRB commitments at ~$15/ton; expect possible rollovers; maintain margins Managing decline; cash harvest
Logistics/terminalsDTA strategic asset; excess capacity monetization; capex manageable Curtis Bay disruptions to Q1; timing only; DTA maintenance ~$10M offset by throughput sales Temporary Q1 headwind; mitigations in place
Capital returnsHeavier buybacks; shifted dividend formula to 25% of DCF $1.65 dividend; plan to unwind capped call (~2% share reduction); build cash for opportunistic repurchases Acceleration of buybacks

Management Commentary

  • “During the fourth quarter, our core metallurgical segment achieved – on a sequential basis – a 10‑percent reduction in its average per‑ton cost, a 24‑percent improvement in its average coking coal sales realization, and a 52‑percent increase in its per‑ton cash margin.” — Paul Lang, CEO .
  • “We anticipate a step‑up in output as we progress into the second longwall district late this year [2024]…we are guiding to coking coal volumes of 8.8 million tonnes at the midpoint for full year 2024.” — John Drexler, COO .
  • “We ended the quarter with cash and short‑term investments of $321 million and total liquidity of $444 million…Debt at year‑end was $142 million, resulting in a net cash position of $178 million.” — Matt Giljum, CFO .
  • “The settlement of the capped call in and of itself should result in the retirement of nearly 2% of our outstanding shares.” — Paul Lang .

Q&A Highlights

  • Met volume outlook: 2024 coking coal midpoint 8.8Mt; Leer South ~3Mt; portfolio aiming to exceed guide; District 2 transition late 2024 targeted for structural improvement .
  • Thermal mix and pricing: West Elk ~4.0–4.5Mt in 2024 (vs ~3.0Mt in 2023); PRB pricing around ~$15/ton with $1–$1.50 margin; anticipate possible ~5Mt rollovers given low gas prices .
  • Price differentials: HVA vs PLV spread unusually wide; pursuing arbitrage by selling into Asia; U.S. East Coast HVA realization fully captured relative to index .
  • Q1 timing: Curtis Bay force majeure implies 5–10% less‑than‑ratable Q1 shipments; expect catch‑up later in 2024 .
  • Capital returns: heavier buyback weighting; building “dry powder” for repurchases during pullbacks; potential refresh of buyback authorization .

Estimates Context

  • S&P Global Wall Street consensus was unavailable via our estimates tool for ARCH for Q4 2023 (tool mapping error).
  • Third‑party previews indicated EPS consensus of $6.76–$6.90 and revenue consensus of ~$$706.7M; ARCH delivered revenue of $774.0M (beat) and diluted EPS of $6.07 (miss) .

Key Takeaways for Investors

  • Metallurgical margin expansion and cost control were notable; sustained HVA pricing and arbitrage into Asia underpin near‑term cash generation despite steel market softness .
  • 2024 guide is constructive (8.6–9.0Mt met; $87–$92/ton met cash cost); expect temporary Q1 logistics headwinds but no full‑year volume impact—monitor Q1 vessel timing .
  • Capital allocation is shifting toward buybacks; cash build and capped‑call unwind (~2% dilution reduction) are tangible catalysts for share count reduction and per‑share value accretion .
  • Thermal remains a cash‑harvest: PRB book near ~$15/ton pricing supports margin, while West Elk volumes step up in 2024 with better geology; risk remains tied to low U.S. gas prices and utility rollovers .
  • Watch Leer South execution and District 2 transition (late 2024/2025) for a structural step‑up in productivity and potential approach toward 9–10Mt met sales longer term (ex‑byproduct) .
  • ESG/safety performance remains strong (zero SMCRA violations; TSM Level A at Leer), supporting license‑to‑operate and customer acceptance in premium markets .
  • Near‑term trading: Q1 shipment timing could create noise; medium‑term thesis favors met margin durability, increasing Asia penetration, and buyback‑led share count decline .