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Text: With that, I'll now turn things over to Mike.
Let me start on Slide 3 with an update on our ongoing response to the COVID-19 pandemic.
As we discussed in our last call, SunCoke has been designated an essential business and our facilities continue to operate safely.
Our employees are working diligently to serve our customers with essential products and services.
We continue to take all necessary measures to ensure the health and safety of our workforce, and have implemented policies and procedures that follow the guidelines established by the CDC, OSHA and local health and governmental authorities.
Our COVID-19 task force continually monitors and evaluates the evolving situation and responds and adjust to the environment changes.
As we move into the second half of the year, we recognize that market conditions remain challenged.
In response, we have taken significant steps to support our customers in the short-term, while simultaneously providing long-term stability for our stakeholders.
Additionally, we are making investments to expand our product capabilities and diversify into new markets.
On the customer side, we have addressed the lower demand environment.
All of our customers have idled or banked blast furnaces during the first half of 2020.
While there has been modest recovery in demand, steel capacity utilization remains low at approximately 59%, and it is difficult to predict when demand will fully return to normal levels.
In response to these unprecedented and uncertain times, we have partnered with our customers to address their near-term coke needs.
In 2020, we will reduce our production by approximately 550,000 tons and now expect to produce approximately 3,750,000 tons for the whole year.
Substantially, all of this reduction will occur in the second half of the year.
In exchange for these near-term reductions, we have extended several of our coke contracts, as detailed on this slide.
Our business model is built on long-term customer relationships.
And the actions we have taken, not only address the near-term contracts that are approaching expiration, but also further strengthens our long-term customer relationships and adds meaningful certainty and stability to our business.
As we temporarily ramped down production in 2020 and address market conditions and logistics services, we have taken several steps to reduce cost and optimize our operations.
The impact of these actions coupled with lower volumes will result in a reduction of 2020 adjusted EBITDA of $40 million to $50 million from our previous guidance.
We now expect 2020 adjusted EBITDA to be between $190 million and $200 million.
We are also evaluating our cost structure to ensure that we remain a low cost provider.
We are taking meaningful actions, including a reduction in our workforce, which while difficult during these unprecedented times, will better position SunCoke for the future.
We anticipate that these initiatives will result in permanent annual savings of approximately $10 million beginning in 2021.
Turning to Slide 4.
As mentioned on prior calls, we have been looking at alternative coke products, one of which is foundry coke.
We have been evaluating foundry coke market and developing our production capabilities over the past year.
After significant testing and continued development, we have now determined that we can commercially produce and sell foundry coke.
We have recently successfully completed foundry coke trials with a number of potential customers, and our efforts in this area are ongoing.
Domestic demand for foundry coke is approximately 600,000 tons per year.
And recent shutdowns of foundry coke producers have forced foundries to look to imports as an alternative to domestic supply.
We therefore believe this is an opportune time to enter the market and establish SunCoke as a long-term reliable supplier of high quality foundry product.
Expansion into this market provides both industry and customer diversification.
There are more than 30 foundry coke customers across the country and numerous related industrial coke customers.
During the production of foundry coke, smaller-sized coke, known as egg, nut and stove coke is also produced and is utilized in other industrial applications such as sugar beet and rock wall [Phonetic] production.
The production of foundry and related industrial coke helps address the current blast furnace coke market imbalance.
Differences in the production process has the effect of replacing approximately two tons of blast furnace coke for each ton of foundry coke produced.
Our initial target is to produce approximately 100,000 tons of foundry coke in 2021.
Importantly, our ovens are capable of producing this product with no direct investment or need for production downtime to transition into the foundry coke market.
We're making capital investments of approximately $12 million on coal grinding, material handling, coke screening and laboratory equipment, all of which is necessary to meet market demands.
Given our cost efficient production process, we anticipate the payback period for these projects will be relatively short.
We will provide additional details on foundry coke when we provide 2021 guidance early next year.
Moving on to second quarter performance.
As you can see on Slide 5, diluted earnings per share was $0.08 per share in the second quarter of 2020 compared to $0.03 per share in the second quarter of 2019.
The prior year period included costs associated with the simplification transaction, which is the main driver of the increase year-over-year.
Looking at adjusted EBITDA, this came in at $59 million in the second quarter of 2020 versus $63.1 million in the second quarter of 2019.
Adjusted EBITDA from the coke operations increased $4.2 million compared to the prior year.
Domestic sales volumes were approximately 54,000 tons lower than the prior year due to customer turn downs.
The volume shortfall was more than offset by lower operating costs and better cost recovery.
The adjusted EBITDA contribution from the Logistics segment decreased approximately $9 million versus the second quarter of 2019.
Throughput volumes at CMT and the domestic terminals were approximately 2.7 million tons lower versus the prior year period.
Slide 6 bridges second quarter 2019 adjusted EBITDA to second quarter 2020 adjusted EBITDA.
Once again, coke operations were favorable by $4.2 million, driven by strong cost control and favorable cost recovery.
Logistics operations were lower $8.8 million quarter-over-quarter, mainly due to Foresight and Mercury bankruptcies.
Corporate and Other was better by $0.5 million.
Moving on to the next slide, you can see in the chart that our cash balance at the end of the quarter was approximately $81 million, which is a more normalized cash balance.
Our cash at the beginning of the quarter was artificially high because the company increased its borrowing under its revolving credit facility by approximately $157 million in order to preserve financial flexibility.
We no longer believe that enhanced cash position is necessary, and we have reduced the revolver borrowings.
In the quarter, cash flow from operations generated $21.8 million and we had capex of $14.1 million.
Additionally, we paid $0.06 per share dividend in the quarter, which was a use of cash of $5 million.
Today, we announced the declaration of the second quarter dividend.
We established the dividend at a rate that we believe is sustainable even during challenging market conditions.
And while this is a decision made quarterly by our board of directors, we believe we have ample liquidity to maintain this dividend.
At the end of the quarter, on an LTM basis, our gross leverage was 3.3 times and our net leverage was 2.96 times.
Using the midpoint of our new adjusted EBITDA guidance range, our year end net leverage would be 3.65 times, which is well within our leverage covenant.
Over time as market stabilizes, we intend to resume executing on our long-term capital allocation priorities with the primary focus on reducing gross leverage to 3 times or lower.
Slide 8 details domestic coke operating performance and 2020 outlook.
We sold 977,000 tons of coke in the quarter.
Sales volumes for all facilities were impacted by the volume relief provided to our customers.
Despite these volume concessions, Indiana Harbor volumes were higher than the prior year period, which was expected given the increased volumes from the rebuilt ovens.
Q2 2020 adjusted EBITDA per ton was approximately $63 compared to $55 per ton in Q2 of 2019 with the per ton increase driven by favorable cost recovery and strong cost management.
Looking at domestic coke on a full year basis, we now expect domestic coke to generate between $198 million and $202 million of adjusted EBITDA in 2020 on 3,750,000 tons of production.
This is approximately $45 million lower than our previous adjusted EBITDA guidance, and production is estimated to be 550,000 tons lower.
The decrease in volumes is offset partly by lower operating costs.
Our plans have been diligent to variablize costs where possible by managing supplies and services over time, contractor usage, optimizing capital work and various other efforts.
Moving to Slide 9, which summarizes the logistics business and 2020 outlook.
The pandemic has impacted demand at our logistics facilities.
The domestic terminal handle [Technical Issue] million tons in Q2 2020 versus 3.6 million tons in Q2 of 2019 and 2.9 million tons in Q1 of 2020.
CMT volume comparisons to the prior year impacted by the bankruptcy of Foresight Energy, but were also impacted by the global effects of the pandemic.
CMT had throughput volumes of 704,000 tons, which is lower than the first quarter and lower than our original guidance.
In [Technical Issue] logistics operations have also taken measures to reduce costs, including a sizable reduction in our workforce as well as lowering other variable costs.
Fay, why don't I take it from here.
And again, we'll look to be at the lower end of our original guidance in the Logistics segment at $17 million.
The next slide, Slide 10, summarizes our 2020 revised guidance.
We now expect adjusted EBITDA to be between $190 million and $200 million.
This incorporates all of the volume changes we discussed as well as foundry development expenses and cost reduction activities.
Our capital expenditures are estimated to be approximately $80 million, which now includes $12 million of capital for foundry coke.
This amount was not contemplated in our original guidance.
We have reduced our free cash flow guidance based on revised adjusted EBITDA.
We now anticipate that free cash flow will be between $36 million and $52 million in 2020.
Wrapping up on Slide 11, as we continue to operate in these extraordinary times, our first priority continues to be the safety and well-being of our employees and contractors.
We will continue to do everything possible to ensure that they are well protected and able to perform their jobs with confidence.
We remain focused on our core business and how to best optimize our operations, including our logistics assets.
As we discussed earlier, we have made significant progress in reducing our cost structure and adding stability by working collaboratively with our customers to address both current market challenges and longer term supply needs.
We also continue to maintain our asset base to ensure that we are able to operate efficiently in the long-term even as operating levels may fluctuate in the near-term.
We are proud of the investments we have made, creating the highest quality assets in the industry, which we are committed to fully utilizing and maintaining.
Looking forward, we are developing a new business line in foundry coke and are confident that we will be successful and able to capture significant share in the domestic foundry market.
Finally, we are fully committed the revised financial targets we have put forward and we'll make every effort to ensure that they are achieved.
With that, we can open up the call to Q&A.

user
compname reports q2 earnings per share $0.08.
q2 earnings per share $0.08.
revised full-year 2020 adjusted ebitda guidance of $190 million to $200 million.
cost savings initiative, including reduction in workforce, estimated to result in fy savings of about $10 million in 2021.

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