SunCoke Energy, Inc. (NYSE:SXC) Q3 2023 Earnings Call Transcript
SunCoke Energy, Inc. (NYSE:SXC) Q3 2023 Earnings Call Transcript November 1, 2023
SunCoke Energy, Inc. misses on earnings expectations. Reported EPS is $0.08 EPS, expectations were $0.18.
Operator: Good morning, everyone and welcome to the SunCoke Energy Third Quarter 2023 Earnings Call. My name is Chad and I'll be coordinating your call today. [Operator Instructions] I'd now like to hand over to Shantanu Agrawal, VP Finance to begin. Please go ahead.
Shantanu Agrawal: Thank you, Chad. Good morning and thank you for joining us this morning to discuss SunCoke Energy's third quarter 2023 results. With me today are Mike Rippey, Chief Executive Officer; Katherine Gates, President; and Mark Marinko, Senior Vice President and Chief Financial Officer. Following management's prepared remarks, we'll open the call for Q&A. This conference call is being webcast live on the Investor Relations section of our website and a replay will be available later today. If we do not get to your questions on the call today, please feel free to reach out to our Investor Relations team. Before I turn things over to Katherine, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements.
The cautionary language regarding forward-looking statements in our SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call. With that, I'll now turn things over to Katherine.
Katherine Gates: Thanks, Shantanu. Good morning and thank you for joining us on today's call. Earlier today, we announced SunCoke Energy's Third Quarter Results. Before I turn it over to Mark to review the results in detail, I do want to share a few highlights from Q3. I'd like to start by thanking all of our SunCoke employees for their contributions to our third quarter results. Our domestic coke plants operated well and continued to run at full capacity. When compared to last year's record third quarter results, we delivered lower contribution margins on noncontracted blast coke sales. Similarly, our logistics terminals continued to operate well but saw lower volumes and pricing driven by weaker demand during the quarter. Through our collective efforts, we delivered consolidated adjusted EBITDA of $65.4 million.
We continue to successfully navigate through challenging market conditions with all of our noncontracted blast furnace coke sales finalized for the remainder of the year. Earlier today, we announced a $0.10 per share dividend payable to shareholders on December 1, 2023. From a balance sheet perspective, we ended the third quarter with a strong liquidity position of $475.9 million. Our gross leverage was approximately 1.91x on a trailing 12-month adjusted EBITDA basis at the end of the quarter. Finally, we continue to execute against our 2023 objectives and remain well positioned to achieve the high end of our full year adjusted EBITDA guidance range of $250 million to $265 million. With that, I'll turn it over to Mark to review our third quarter earnings in detail.
Mark?
Mark Marinko: Thanks, Katherine. Turning to Slide 4. Net income attributable to SunCoke was $0.08 per share in the third quarter of 2023, down $0.41 versus the prior year period. Tax adjustments of $0.29 per share impacted EPS, primarily due to tax law changes in the U.S. and Brazil in both 2022 and 2023. Excluding the impact of these adjustments, EPS was lower by $0.12 per share quarter-over-quarter, primarily driven by lower contribution margins on noncontracted blast coke sales, partially offset by favorable coal-to-coke yields. Adjusted EBITDA for the third quarter 2023 was $65.4 million, a decrease of $18.3 million from record results of third quarter 2022. The decrease in adjusted EBITDA was primarily driven by the lower contribution margins on noncontracted blast coke sales, partially offset by favorable coal-to-coke yields and lower transloading volumes and pricing in our Logistics segment.
Moving to Slide 5 to discuss our Domestic Coke business performance in detail. Third quarter domestic coke adjusted EBITDA was $64 million and coke sales volumes were 1,016,000 tons. While the domestic coke fleet has continued to run at full capacity, the decrease in adjusted EBITDA as compared to the record prior year period was primarily driven by lower contribution margin on our noncontracted blast coke sales, partially offset by higher coal-to-coke yields. As Katherine mentioned, we continue to successfully navigate through difficult market conditions and all our coke sales are finalized for the rest of the year. Given the solid year-to-date performance of our Domestic Coke segment, we are well positioned to deliver domestic coke adjusted EBITDA on the high end of our guidance range of $234 million to $242 million.
Now moving on to Slide 6 to discuss our Logistics business. Our Logistics business generated $8.4 million of adjusted EBITDA and handled combined throughput volumes of approximately 5 million tons during the third quarter of 2023 as compared to $12.9 million and 5.7 million tons, respectively, during the same prior year period. The decrease in adjusted EBITDA was primarily due to lower throughput volumes and a lower API2 price adjustment benefit at CMT. We continue to see volatility in thermal coal pricing as evidenced by CMT recognizing a limited API2 price adjustment benefit during the third quarter. However, we expect the API2 price adjustment to recover during the fourth quarter. Based on our year-to-date performance and anticipation of continued volatility in the market, we expect to deliver Logistics full year adjusted EBITDA at the low end of our guidance range of $47 million to $50 million.
Now turning to Slide 7 to discuss our liquidity position for Q3. SunCoke ended the third quarter with a cash balance of approximately $126 million. Cash flow from operating activities generated approximately $94 million. For the quarter, cash flow was favorably impacted by working capital changes, mainly the timing of receivables and payables. We expect this favorability to reverse in the fourth quarter. We paid $8.4 million in dividends at the rate of $0.10 per share this quarter and spent $34.1 million on CapEx. In total, we ended the quarter with a strong liquidity position of approximately $476 million. With that, I will turn it back over to Katherine.
Katherine Gates: Thanks, Mark. Wrapping up on Slide 8. Safety, environmental and operational performance are top priorities for our company. We remain focused on safely executing against our operating and capital plan for full utilization of our coke-making assets. As mentioned in our second quarter earnings call, we completed the foundry expansion project on time and on budget. This project allows us to grow our foundry market participation while maintaining flexibility to make either blast or foundry coke. We will continue to pursue a balanced opportunistic approach to capital allocation as we've demonstrated in the past. We continuously evaluate the capital needs of the business and our capital structure and we'll make capital allocation decisions accordingly.
As mentioned earlier, despite challenging market conditions, we were able to finalize all of our noncontracted blast furnace coke sales for the year. Finally, based on the reliability and performance of our operating segments, we look to achieve the high end of our full year consolidated adjusted EBITDA guidance of $250 million to $265 million. With that, let's go ahead and open up the call for Q&A.
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