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Text: After my remarks, Dale will review our results in additional detail, and then you have the opportunity to ask questions.
During the third quarter, we were pleased to deliver our most profitable results since the onset of the COVID-19 pandemic driven by the resiliency and efficiency of our operational base.
As we have discussed over the past several quarters, our priority during the COVID-19 pandemic has been to focus on the things that we can control, our operations and cost base, to set us up for success when market conditions outside of our control improved.
This work has already been fruitful with the company maximizing its potential despite generally tough conditions during that period.
But now, with macro factors having become tailwinds instead of headwinds, we can see just how meaningful our work over the last 20 months has been for our company in delivering strong results and creating value for our stakeholders.
This quarter, we saw record high pricing, enabling us to leverage the strong global economic recovery to increase our average net selling prices.
Steel and met coal demand has continued to increase, which, when combined with the Chinese ban on Australian coal imports, has created an ideal environment for our operationally strong enterprise to demonstrate our resiliency.
Even with the current upswing in the macro environment, however, we continue to focus on managing expenses, enhancing liquidity and increasing cash flows with the objective of remaining well positioned to meet our customers' long-term commitments in the face of any potential future market volatility.
Throughout the third quarter, our customers continued to experience strong demand for the steel products, which translated into strong demand for our premium quality coal.
The combination of solid market fundamentals across the world, and ongoing geopolitical tensions between the world's largest met coal consumer and the world's largest met coal producer, have elevated pricing for our products to levels we have never seen before.
China remains locked in a self-imposed supply constraint due to the continued ban on the import of Australian coals, it’s rigid COVID-19 protocols at the Mongolian border crossing and due to policy measures, and limited output of domestic met coal production.
In addition, the Chinese government's mandate to keep steel production growth at 0% compared to 2020 has led to drastic cuts in steel production.
As such, Chinese producers have been able to absorb higher met coal prices as their margins have remained quite healthy due to higher steel prices and lower iron ore costs, both direct consequences of the aggressive steel production cuts mandated by the government.
In the short term, we see these trends continuing.
As recently reported by the World Steel Association, global pig iron production increased by 3.4% for the first nine months of the year, with China decreasing 1.3%.
Excluding China, the rest of the world's production grew at an impressive rate of 13.9%.
We were expecting our markets to remain strong as they did during the third quarter.
However, we were surprised by pricing levels achieved by our main indices.
During the third quarter, the Platts PLV, FOB Australia index price experienced a meteoric rise of $191 per metric ton, rising from $198 on July 1 to a high of $389 per metric ton at the end of September.
Likewise, the PLV CFR China indices increased by $295 per metric ton from $309 to a high of $604 per metric ton.
However, the majority of the rapid rise in pricing occurred in the final six weeks of the quarter, during which the PLV FOB Australian indices rose by $162 per metric ton, equivalent to 85% of the total increase for the third quarter.
This also occurred with the PLV CFR China indices rising by $232 per metric ton in the final six weeks, equivalent to 79% of the total increase for the third quarter.
Sales volume in the third quarter was 1.1 million short tons compared to 1.9 million short tons in the same quarter last year.
Our sales by geography in the third quarter were 47% into Europe, 4% into South America and 49% into Asia.
The higher, the normal sales to Asia were primarily driven by Chinese demand that we capitalized upon during the third quarter while capturing 100% of the CFR China index price on the day of the sale.
Production volume in the third quarter of 2021 was 1.1 million short tons compared to 1.9 million short tons in the same quarter of last year.
The tons produced in the third quarter resulted from running both longwalls at Mine 7 plus four continuous mining years.
By running the four continuous miner units, our lead days, or float times, have not materially changed since the strike commenced in April and are still several months out into the future.
Mine 4 remained idle during the third quarter.
Our gross price realization for the third quarter of 2021 was 81% of the Platts Premium Low Vol FOB Australian index price, and was lower than the 90% achieved in the prior year period.
The lower gross price realization was primarily due to the previously mentioned rapid rise late in the quarter of both the Australian and Chinese price indices.
Our spot volume in the third quarter was approximately 30% of total volumes and 38% year-to-date.
Our normal expectation of spot volume is approximately 20%.
The highest spot volume is primarily attributed to the sales to China.
I will now ask Dale to address our third quarter results in greater detail.
In the third quarter last year, we saw the ongoing impact of COVID-19 and its downward impact on the steel and met coal industries including our company, even as we continue to run both mines at near capacity.
In contrast, this year, our third quarter results were negatively impacted by the UMWA strike in which we idled Mine 4 and significantly reduced operations at Mine 7.
As we execute our business continuity plans to meet our contractual commitments to our customers.
We took advantage of strong market conditions to generate strong results of adjusted EBITDA and free cash flow.
In the third quarter of 2021, the company recorded its largest net income in over two years on a GAAP basis of approximately $38 million or $0.74 per diluted share compared to a net loss of $14 million or $0.28 per diluted share in the same quarter last year.
Non-GAAP adjusted net income for the third quarter, excluding the nonrecurring business interruption expenses, idle mine expenses and other nonrecurring income was $0.97 per diluted share compared to a loss of $0.28 per diluted share in the same quarter last year.
Adjusted EBITDA was $105 million in the third quarter of 2021, the largest in over two years as compared to $17 million in the same quarter last year.
The quarterly increase was primarily driven by a 108% increase in average net selling prices, partially offset by a 45% decrease in sales volume.
Our adjusted EBITDA margin was 52% in the third quarter this year compared to 9% in the same quarter last year.
Total revenues were approximately $202 million in the third quarter compared to $180 million in the same quarter last year.
This increase was primarily due to the 108% increase in average net selling prices, offset partially by 45% lower sales volume in the third quarter versus the same period last year.
In addition, other revenues were negatively impacted in the third quarter this year by a noncash mark-to-market loss on our gas hedges of approximately $6 million which were entered into earlier this year before hurricane season and gas supply deficits.
The Platts Premium Low Vol FOB Australian Index price averaged $129 per metric ton higher, were up 130% in the third quarter compared to the same quarter last year.
The index price averaged $264 per metric ton for the quarter.
Demurrage and other charges reduced our gross price realization to an average net selling price of $189 per short ton in the third quarter this year compared to $91 per short ton in the same quarter last year.
Cash cost of sales was $91 million or 46% of mining revenues in the third quarter compared to $151 million or 86% of mining revenues in the same quarter last year.
The decrease in total dollars was primarily due to a $68 million impact of lower sales volume, partially offset by $8 million of higher variable costs associated with price-sensitive transportation and royalty costs.
Cash cost of sales per short ton, FOB port, was approximately $86 in the third quarter compared to $78 in the same quarter last year.
Cash costs and price-sensitive items such as wages, transportation and royalties that vary where met coal pricing were higher in the third quarter this year compared to the same quarter last year.
Depreciation and depletion expenses for the third quarter of this year were $29 million compared to $28 million in last year's third quarter.
The net increase of $1 million was primarily due to two things.
First, the immediate recognition of $8 million of expense related to Mine 4 depreciation that would have normally been capitalized as inventory as it was produced.
However, since Mine 4 is currently idled, it was instead directly expensed.
Second, these expenses were lower by $7 million due to the 45% decrease in sales volume.
SG&A expenses were about $7 million or 3.7% of total revenues in the third quarter of 2021 and were lower than the same quarter last year, primarily due to lower employee related expenses and lower professional fees.
During the third quarter, we incurred incremental nonrecurring business interruption expenses of $7 million directly related to the ongoing UMWA strike.
These nonrecurring expenses were primarily for incremental safety and security, legal and labor negotiations and other expenses.
As a result of the ongoing UMWA strike that began April 1, we idled Mine 4 in the second quarter.
We incurred $9 million of expenses in the third quarter associated with the idiling of Mine 4 and reduced operations at Mine 7.
These expenses for electricity, insurance, maintenance, labor, taxes, and are primarily fixed in nature.
Net interest expense was about $9 million in the third quarter includes interest on our outstanding debt, interest on equipment financing leases, plus amortization of our debt issuance costs associated with our credit facilities, partially offset by interest income.
The slight increase quarter-over-quarter was primarily related to new equipment financing leases.
Other income represents proceeds received as a result of the settlement of a lawsuit.
We recorded income tax expense of $5 million during the third quarter of this year compared to a benefit of $8 million in the same quarter last year.
The third quarter tax expense was primarily due to pre-tax income, offset partially by benefits for depletion and additional marginal gas well credits.
Turning to cash flow.
During the third quarter of 2021, we generated $52 million of free cash flow, which resulted from cash flows provided by operating activities was $63 million less cash used for capital expenditures and mine development cost of $11 million.
Free cash flow in the third quarter of this year was negatively impacted by an $18 million increase in net working capital.
Increase in net working capital was primarily due to an increase in coal inventory due to the lower sales volume.
Cash used in investing activities for capital expenditures and mine development costs were $11 million during the third quarter of this year compared to $28 million in the same quarter last year.
However, we do expect to spend more in the fourth quarter than we did in the third quarter to keep the mines well capitalized.
Cash flows used by financing activities were $51 million in the third quarter of 2021 and consisted primarily of payments on our ABL facility at $40 million, payments for capital leases of $8 million, and the payment of the quarterly dividend of $3 million.
Our total available liquidity at the end of the third quarter was $356 million, representing a 24% increase over the second quarter and consisted of cash and cash equivalents of $268 million and $87 million available under our ABL facility.
This is net of outstanding letters of credit of approximately $9 million.
Our balance sheet has a leverage ratio of 0.6 times adjusted EBITDA.
And notably, we have no near-term debt maturities.
We believe our liquidity position and strong balance sheet, combined with our low and variable cost structure, has enabled us to weather this period of uncertainty.
It gives us the flexibility to continue to manage through a continued volatile global marketplace.
Now turning to our outlook.
Due to the ongoing uncertainty related to our negotiations with the union, the COVID-19 pandemic, the Chinese ban on Australian coal and other potentially disruptive factors, we will not be providing full year 2021 guidance at this time.
We expect to returning to providing guidance once there is further clarity on these issues.
We continue to appropriately adjust our operational needs, including managing our expenses, capital expenditures, working capital, liquidity and cash flows.
In addition, we have delayed the development of the Blue Creek project.
And our stock repurchase program also remains temporarily suspended.
Before we move on to Q&A, I'd like to make some final comments on our outlook for the fourth quarter and next year as well as the ongoing UMWA strike.
We continue to execute successfully on our business continuity plans in response to the UMWA strike, which began on April 1, allowing us to continue to meet the needs of our valued customers.
While we continue to negotiate in good faith to reach a new contract, UMWA unfortunately, remains on strike.
Despite incurring incremental costs associated with the strike, we've been able to manage our working capital and spending to deliver strong results in this market.
Looking ahead, we understand there are questions about the status of the UMWA negotiations, estimates of potential outcomes and possible time lines.
Unfortunately, we cannot speculate at this time on any of those topics for various reasons.
Let me just say, we value and appreciate the hard work of our hourly employees.
Our priorities have always been keeping people employed and working safely with long-lasting careers and ensuring the company remains financially stable in a particularly volatile coal market.
While we are disappointed that the union continues with the strike, we continue to negotiate in good faith to reach a resolution.
We expect the current strength in the steel markets to continue in the fourth quarter and into early next year, supported by our forecasted sales orders and ongoing discussions with our valued customers.
Likewise, we anticipate supply to remain tight in supportive of favorable market conditions.
We expect pricing for our products to remain strong due to the positive demand and supply dynamics but recognize that the likelihood of a pricing reset is high.
However, when a reset does occur, we expect pricing to remain above historical averages due to the strong market fundamentals.
We believe we are well positioned to fulfill our customer volume commitments for 2021 of approximately 4.9 million to 5.5 million short tons through a combination of existing coal inventory and expected production during the fourth quarter.
While we have business continuity plans in place, the strike may still cause further disruption to production and shipment activities, and results may vary significantly.
We're in the early stages of planning our budget for 2022, including updating our business continuity plans.
There are various scenarios that may play out depending upon our negotiations with the union.
If we're able to reach an agreement soon with the union, we believe that we could ramp to a run rate of production of approximately 7.5 million short tons in about three to four months.
We would like to capitalize on the current market strength of met coal pricing in support of steel and met coal environment that exhibit strong demand and tight supply.
Currently, we believe our customers will purchase every ton that we can produce for the remainder of this year and next year.
If we are unable to reach a contract with the union in the near term, we believe our production and sales volume to be between 5.5 million and 6.5 million short tons.
This could possibly include restarting the Mine 4 longwall as early as January with a small number of crews working on limited shift schedule.
We have recently started in the fourth quarter one continuous mining we did at Mine 4.
As we finish up the fourth quarter results, we expect to have further clarity into 2022 volumes and expectations, which could change from those that I've just outlined.

user
q3 adjusted earnings per share $0.97.
q3 earnings per share $0.74.
warrior met coal - believes it is well positioned to fulfill anticipated customer volume commitments for 2021 of about 4.9 to 5.5 million short tons.
even though mine 4 remains idled, expects production to continue at mine 7, although at lower than usual rates.
warrior met coal - co's collective bargaining agreement contract with united mine workers of america expired on april 1, 2021, & umwa initiated a strike.
warrior met coal - believe production, sales volume over 12-month period could be between 5.5 million & 6.5 million short tons, possibly including restarting mine 4.

assistant