Earnings Call Transcript - AMR Q2 2022

Operator, Operator

Greetings, and welcome to the Alpha Metallurgical Resources Second Quarter 2022 Results Conference Call. Please note this conference is being recorded. I will now turn the conference over to your host, Emily O'Quinn, Senior Vice President of Corporate Communications. You may begin.

Emily O'Quinn, Senior Vice President of Corporate Communications

Thank you, Rob, and good morning, everyone. Before we get started, let me remind you that during our prepared remarks, our comments regarding anticipated business and financial performance contain forward-looking statements, and actual results may differ materially from those discussed. For more information regarding forward-looking statements and some of the factors that can affect them, please refer to the company's second quarter 2022 earnings release and the associated SEC filings. Please also see those documents for information about our use of non-GAAP measures and their reconciliation to GAAP measures. Participating on the call today, our Alpha's Chairman and Chief Executive Officer, David Stetson; and President and Chief Financial Officer, Andy Eidson. Also participating on the call are Jason Whitehead, our Chief Operating Officer; and Dan Horn, our Chief Commercial Officer. With that, I'll turn the call over to David.

David Stetson, Chairman and CEO

Thanks, Emily. Good morning, everyone, and thank you for joining us. This past six years, I joined the Alpha team. During those years, we have certainly experienced our share of obstacles and hurdles. And on many occasions, we had our share of people questioning whether Alpha would survive those ordeals. I come before you today as proud as ever of the accomplishments of the Alpha team, humbled by the opportunity given to me six years ago as part of that team, and confident that this team will be stronger and achieve more in the coming years. Throughout my tenure as CEO, we have always been transparent about our goals. We navigated markets that were more difficult while managing heavy debt. We knew it was essential to invest in our people and our assets to grow. Lastly, our loyal shareholder base had to be rewarded. Over the past quarters, we've clearly laid out the plans and actions we needed to take in order to accomplish those goals. To that end, let me share the great news from the second quarter: This is our first earnings call since fully paying off the remaining term loan balance in early June, completing our long-term debt elimination. As you know, deleveraging has been a top priority for us. Just over a year ago, Andy laid out a plan to reduce and possibly eliminate our debt by 2023. Our user-focused approach to financial management and actions taken to strengthen all aspects of our balance sheet enabled this time frame to be realized in the second quarter, well ahead of anyone's expectations. I couldn't be prouder of Andy and the entire executive team for their discipline in seeing this through to completion. It has transformed our balance sheet, and I believe it marks the start of a new chapter for the company as a more flexible, resilient organization better able to withstand the inevitable cycles of our industry. The strategic and tactical decisions of the team, along with strong markets we experienced this year, allowed us to post back-to-back record performance with the second quarter generating adjusted EBITDA of nearly $700 million. The decision and leadership of Jason over the past three years to bring on new and more efficient mines, as well as upgrades to our preparation and transportation infrastructure, is reflected in this record EBITDA. Our shareholders have been loyal, and we have rewarded that loyalty. Our Board's decision remains to increase our share repurchase program to $600 million reflects our appreciation for that loyalty. We have made significant progress in buying back our shares, with approximately $268 million spent to acquire 1.9 million shares, representing roughly 10% of our issued and outstanding shares since the program began. In our previous earnings call, we not only spoke about our dedication to eliminate debt, but we also began the conversation about our plan for the long-term growth and sustainability of Alpha. I tasked Dan's team to provide us with a marketing plan that would complement our vast and diverse resource base, and I tasked Jason's team with aligning our Safe Production with our vision of future markets' demand while maintaining a competitive cost structure. As always, both Dan and Jason generated not only a roadmap to bridge our current production and customer base with our vision of what Alpha will be in 15 years from now but have already begun to execute on the next chapter of what we fully expect to be a long, successful trajectory. In order to fully execute on these strategic goals, we need the company to be staffed and running well administratively. The behind-the-scenes efforts that Roger's team conducts allow Alpha to stay focused on safety and environmental stewardship efforts while maintaining the critical support framework the company needs in areas like legal, human resources, and land. In addition to being general counsel, Roger leads all these support networks. We have been engaged in succession planning to ensure the company is equipped with the leadership it needs for the near term while continually cultivating a deep bench of talent within the organization to step up as needed in the future. After all, any well-run company is larger than a single person. It should leverage the expertise and knowledge of the team to advance the company's goals. I believe this is exactly how Alpha has achieved so much in recent history. Over these past years, I've been fortunate to be surrounded by the best management team in the industry, a team that has navigated some of the most difficult financial, operational, and marketing hurdles that could easily disrupt value. Instead, with courageous decision-making and flawless execution, we are reporting another record quarter as a debt-free company with a robust capital return program. I believe the future is bright for Alpha, and that confidence has informed my decision to make an important personal announcement today. I've been contemplating retirement for some time, especially knowing that we built a strong and experienced team that can lead Alpha for decades to come. I have decided that later this year is the right time to hand over the CEO role to Andy. The board of directors met last week and formally and unanimously appointed Andy to serve as CEO beginning on January 1, 2023. He will join the board as a director at that time. As of December 31, 2022, I will transition to the role of executive chairman of the board, allowing me to step away from management and take on a higher level oversight. Andy and I have been working closely over the last few years to prepare for a seamless transition. Throughout this time, he has taken on increasingly broader responsibilities, and I have complete confidence in him stepping into the CEO role at the end of the year. Andy is intelligent, experienced, and highly qualified. He shares my vision for solidifying Alpha as the industry leader that we are. I know he will serve extremely well as the next CEO. I want to thank my board of directors and our shareholders for their dedicated unwavering support throughout my tenure as CEO of Alpha. With that, I will now turn the call over to Andy to share some additional details about the transition plan for his current role and his vision for the company.

Andy Eidson, President and CFO

Thanks, David, and good morning, everyone. Before I get started, I want to take a moment to acknowledge the incredible work that David has done as Alpha’s CEO. I've had a front-row seat to the positive impact he created, and I can attest to the critical role he has played. Throughout our journey, he has never failed to give the team credit, and he faced serious challenges, seizing opportunities to turn setbacks into even greater successes. David will forever be part of this company, and we cannot thank him enough for what he has done. As he mentioned, today's announcements are a glimpse into what Alpha's next chapter will look like. After paying off our debt and significantly reducing our legacy liabilities, the company is entering an exciting new phase. It will be different without the weight of our previous debt load, but I believe that the discipline, resilience, and leadership vision that brought us to this point are the same characteristics that will propel us into an even more successful future. What this team has accomplished over the past three years is nothing short of incredible, and that is due primarily to two things: the strategic vision and foundation that David created and the unparalleled efforts of the world-class Alpha team members. This new phase will continue to honor that foundation. In addition to the CEO transition we have announced today, I'm pleased to report that the board has selected Todd Munsey to take over the duties of CFO as of tomorrow. Todd served as the company's SVP Controller since 2016 and, prior to that, held a number of high-level roles in our tax and accounting departments after starting at PricewaterhouseCoopers. The board has named Todd as the Executive Vice President and Chief Financial Officer, effective as of August 9. I have great confidence in his ability to excel in this new role, and we look forward to bringing him into the earnings call process next quarter. Additionally, and very importantly, I want to highlight one more change that will happen at year-end: The board has appointed Jason Whitehead to serve as Alpha's President in addition to his current position as Chief Operating Officer, effective January 1, 2023. We all know Jason is an integral part of this organization. In my opinion, he is the best operator in the industry, and I am excited for him to take on this broader leadership role. Before I turn to the quarter's results, I want to echo David's comments about the strength of this team. Alpha will retain the benefit of David's wisdom and guidance as the executive chairman of the board. I think Jason, Roger, and Dan are the best in this industry, and Alpha is very fortunate to have them on the team. I am truly humbled by the opportunity to lead this phenomenal company, and I couldn't be prouder to be a part of this team. Turning now to our second-quarter results, I'm pleased to say that we achieved yet another record in back-to-back quarters — excuse me, back-to-back-to-back quarters, that's three in a row. Our $695 million in adjusted EBITDA in Q2 was 38% higher than the first quarter's adjusted EBITDA of $504 million. In terms of volumes, we sold 4.3 million tons in the second quarter, with 4.1 million tons coming from our Met Segment. As we mentioned in the press release, thermal market volatility has created some opportunities for crossover met tonnage to be sold into the thermal market. We have taken advantage of this opportunity and slightly increased our shipment tons for the thermal byproduct piece of the Met Segment as a result. As expected, realizations on export tonnage continued to improve quarter-over-quarter, with an average of $337.38 per ton realized on export business for the second quarter compared with $278 in Q1. Export tons priced on the Australian indices continued to lead with average realizations of $350.56, while coal priced against Atlantic indices and other pricing mechanisms in Q2 realized $321 per ton. Total weighted average realizations for our pure met production as a whole were $304 per ton for Q2, an increase of 20% over the prior quarter's $254 per ton. Realizations in the All Other category were $61.41 for the quarter, up from the $57.39 realized in prior periods. While we anticipate that coal volumes may drop from recent highs, current pricing levels remain robust relative to historic norms. Our second quarter results reflect the elevated pricing environment from the first half of this year. As a result, higher royalties and service taxes continue to drive costs higher. Met Segment cost of sales in the second quarter increased to $111.36, up from first quarter levels of $103.61. Cost of coal sales in the All Other category remained flat against the prior period at just under $50 in the second quarter. SG&A, excluding non-cash compensation and nonrecurring items, increased to $16.8 million in Q2 as compared to $14 million in Q1, primarily due to increased incentive compensation driven by outperformance against budgeted metrics. We are increasing our SG&A guidance to a range of $55 million to $59 million, up from a prior range of $50 million to $54 million. Capital Expenditures were $41.9 million, up from $28.1 million in the prior quarter. In terms of balance sheet and cash flows, we closed out the second quarter with $161.7 million in unrestricted cash and $91 million of unused availability under our ABL. Total liquidity increased quarter-over-quarter to a level of $252.8 million at the end of June. This amount is also net of our final term loan payment of $99.4 million, which eliminated our remaining balance and $176.3 million in share repurchases during the quarter. Cash provided by operating activities increased from $336 million in Q1 to $466 million in the second quarter. As of June 30, our ABL had no borrowings against $64 million of letters of credit outstanding, a significant reduction from the $121 million of LCs standing in Q1. We are making additional progress in our committed and priced business for 2022, with 69% of our net tonnage in the Met Segment committed and priced at the midpoint of guidance at an average price of $260.69. Another 29% of our 2022 net tonnage at the midpoint is committed but not yet priced. The thermal byproduct portion of the Met Segment is fully committed and priced even against our increased guidance range at an average of approximately $89.91. We are also fully committed and priced for '22 in our all other categories with an average price of $83.38. Our management team has been focused on capital allocation strategies that add value for our many stakeholders and ensure we are making the best use of our resources. To this end, we have evaluated new potential transactions in the M&A space. However, after careful consideration, we concluded that our best course of action would be to continue the development of our own assets and to bolster our share repurchase program. Since our last earnings call, we've made substantial progress in buying back shares using a programmatic approach that allows for opportunistic purchasing and maximizes the efficiency of our dollar spent. As a reminder, the board's authorization is for $600 million in the program. As of August 5th, we spent a total of $268 million, or nearly half of the authorization, to acquire roughly 1.9 million shares of Alpha's common stock at a volume-weighted average price of approximately $140 per share. As of today, we have approximately 17.17 million shares outstanding, not including the impact of approximately 220,000 exercises. With that, I will turn the call over to Jason for some details on our operational performance.

Jason Whitehead, Chief Operating Officer

Thanks, Andy, and good morning everyone. I'll start by congratulating our teams on another outstanding quarter. In addition to our everyday focus on Safe Production, the quarter was also positive in terms of advancing several of our special projects. I want to highlight the Glen Alum Mine, which will feed into our Marfork preparation plant. Our teams have worked incredibly hard and against several supply chain obstacles to keep this mine's development on track, and I'm pleased to report that the Glen Alum Mine took its first cut of coal in June. We're excited to bring this mine into our portfolio, and we continue making progress on the plant upgrades and various CapEx projects we announced late last year. Additionally, we closed on the purchase of the Crown Hill dock at the end of June. This is a river barge loading facility in Canola County, West Virginia, and we believe this property will provide some future optionality for logistics and transportation of our coal. We continue to see volatility in the global coal markets, with thermal coal having had an especially volatile span in recent months. This is due to several geopolitical factors, including the Russian invasion of Ukraine and its effect on the European energy landscape. Thermal coal indices have jumped higher than even the highest quality metallurgical coals, inverting what has historically been a predictable pricing hierarchy. As a result, high-volatile metallurgical coals are finding their way into thermal coal markets, and Alpha has taken advantage of some opportunities in this regard. We have High-Vol B commitments for both Q3 and Q4 for servicing thermal markets, and we continue to mind the reclamation on our Black Castle surface mine, where we're producing incremental thermal production while cleaning up legacy Asset Retirement Obligation on the balance sheet. Similarly, we will resume production in the fourth quarter of this year on two permits on our Republic surface mine. These permits will produce nearly 0.5 million tons of high-BTU thermal coal through 2023 and position the permits for final grading and seating, which will take place near the end of next year. The radically changing economics in the thermal market have also increased the reserve life at our Slabcamp deep mine. Formerly planned to idle this year, more resource tons have been identified, and mine plans are being developed. Our last pure-play thermal mine is now expected to operate into the first quarter of next year. As a result, we've increased our guidance for the incidental thermal byproduct of the Met Segment by 200,000 tons on either end of the range. We moved from a previous guidance range of 800,000 tons to 1.2 million tons to a new range of 1 million tons to 1.4 million tons. This also slightly increases our total shipment guidance to 15.6 million tons to 17.2 million tons for 2022. Before I wrap up my remarks, I want to once again highlight the collective efforts of our employees, which have fueled Alpha's back-to-back-to-back record quarters. Without their daily focus on safety, environmental compliance, and efficient and reliable production, we wouldn't be able to achieve the financial results we are announcing today. Our employees are critically important to our success, and we have continued to invest in our workforce while incentivizing strong performance toward our safety, environmental, and production goals. Since the beginning of 2021 and on an annualized basis, we have invested an additional $120 million in our employees in the form of wage increases, expanded benefits offerings, and incentive bonuses. We believe Alpha is the employer of choice, and we strive to maintain that distinction by sharing the company's financial success with our employees when possible. I will now hand the call over to Dan for some additional information on the markets and our sales efforts.

Daniel Horn, Chief Commercial Officer

Thanks, Jason, and good morning everyone. As Jason mentioned, coal markets continue to shift in response to various factors. The weakening of the global economies, the ongoing war between Russia and Ukraine, inflation concerns, and recession fears have all influenced the pricing and movement across the globe. Greater irregularities resulting from the Russian invasion created inefficiencies in trade flows and a new balance in the typical pricing hierarchy. On the metallurgical side, concerns regarding global steel demand have caused markets to soften recently with indices retreating significantly from record highs earlier this year. While Alpha levels are still considered strong relative to historical averages, they represent a meaningful drop from where they stood earlier in '22. The industrial premium low-vol index dropped from $480 per metric ton on April 1st to $302 per metric ton at the end of the second quarter. After the quarter, the PLV indices continued to drop further down to roughly $203 per metric ton in recent days. As another comparison, the U.S. East Coast low-vol index declined from $485 per metric ton at the start of the quarter to $317.50 per metric ton at the end of June, and it has now dropped to around $232 per metric ton. The East Coast high-vol A index declined from $480 per metric ton to $330 per metric ton when the quarter closed and is now down to roughly $245 per metric ton. Similarly, the East Coast high-vol B index dropped from $455 per metric ton to $320 over the course of the second quarter and is now down to around $243 per metric ton. We use several economic indicators to understand the health of the steel industry, one of which is the World Steel Association's crude steel production report. We noted that global crude steel production decreased about 6% as compared to the year-ago period, with all regions represented recording declines against their June 2021 levels. Among our key markets, European crude steel production for June 2022 represented a decline of about 12% compared to year-ago levels. South American production was down about 5% against June 2021, while North American production decreased by 2.4% over that same period. Turning to the thermal market, the war has created an energy crisis in Europe, causing certain thermal coals to command a higher price and premium cooking coals in some markets, further challenging pre-pandemic coal market norms. Looking at the seaborne market, where this is most pronounced, the API 2 index started the second quarter at $260 per metric ton on April 1st, rose to $375 per metric ton as of quarter close on June 30, and has since come back down to hover around $278 per metric ton. As a comparison point, central delivery costs from 12,500 feet oil on CSX have been around $190 per short ton. Despite the slowdown in steel production, we are receiving consistent interest in our products. As Jason said, we continue to capitalize on opportunities to sell some incremental tonnage into the coal markets to take advantage of the current pricing environment. While net metallurgical coal pricing has significantly declined from all-time highs earlier this year, the recent levels are still quite strong relative to historic averages. I'm optimistic about the upcoming domestic season negotiations and am looking forward to beginning the process of finalizing our 2023 commitments. Alpha is well-positioned to finish 2022 strong, and we are excited to start our planning for the upcoming calendar year. Before we move into the Q&A section of the call, I want to end on a positive note regarding our transportation providers. The beginning of the year was challenging as our rail partners worked to address their labor challenges and established new operating practices to create a more reliable service framework. Alpha is continuing to see improvement from our rail partners, moving towards pre-pandemic benchmark levels at various times within the second quarter. We understand the labor issues are complex and cannot be fully solved overnight, but we appreciate the effort and cooperation of the railroads, which resulted in a significantly improved performance of supply. I will now turn the call back over to David.

David Stetson, Chairman and CEO

To follow on Dan's comment, I want to thank both CSX and Norfolk Southern for their work to improve rail service over the past quarters. We appreciate those partnerships. And with that operator, we are now ready to open the call for questions.

Operator, Operator

Thank you. At this time, we'll be conducting a question-and-answer session. Our first question comes from Lucas Pipes with B. Riley Securities. Please proceed with your question.

Lucas Pipes, Analyst

Thank you very much, operator. Good morning everyone and congratulations on a strong quarter, being debt-free. David, I want to congratulate you on your well-deserved retirement, and Andy, Todd, and Jason also congratulations on your promotion. So a lot is going really well here, and this is terrific to see. I want to turn my first question to the market and the inversion we've seen on thermal versus metallurgical coal. You're taking advantage of it this year. What are the limits to maybe switching more tons into the thermal coal market? So next year, when you have maybe a three-year head, where could this go and how would you frame that up? I appreciate your thoughts. Thank you.

David Stetson, Chairman and CEO

Hi Lucas. Thanks for the question. Yes, that’s — where could it go is a question I’m wrestling to answer, but what we're doing at Alpha is looking at these opportunities as they come along. And by the way, we've been selling some thermal coal into the market for several months now, not just lately. But some of the constraints we face are due to things you've probably read about, such as the matter of FS, sizing of the coal. A lot of the utilities, particularly in Europe, haven’t used a lot of capital in several years. So there are some technical issues to overcome as well as logistics-related concerns. But again, for us, that’s what DTA comes in handy, and we can use DTA as a platform to move some additional thermal over. I should have started by saying that we still expect the met market to be strong. We have a great group of customers who are still active in the market. We continue to engage with them globally and we still receive interest from Asia, including China. So there are still plenty of opportunities out there. However, the thermal market does have its limitations. Not every ton of coal can shift to the thermal market. But I suppose if you're looking for a number, we can easily add several hundred thousand tons more into the thermal market moving forward in the coming months if we find favorable conditions. Hopefully, that answers your question.

Lucas Pipes, Analyst

And that was on an annual basis, that number?

David Stetson, Chairman and CEO

I don't have an exact figure at this moment. I mean, we're already doing roughly 1 million tons a year of thermal. So with some adjacent production increases, we could be adding to that. But honestly, I don't have that specific number.

Lucas Pipes, Analyst

Okay. That's helpful. And for — Dan, I think you mentioned the contract season for 2023. Can you elaborate a bit on how you’re approaching domestic versus export met coal sales here in this environment? Obviously, the metallurgical market has softened a bit internationally. You have a debt-free balance sheet that may allow you to take more risk in the international markets. So a few cross currency would appreciate your thoughts on how you think placement could make sense and if there might be any deviation from our existing models.

David Stetson, Chairman and CEO

Lucas, this is David. I'll make a comment that Dan can expand on. We are in the middle of our budget process for 2023, and we will assess all of our portfolios. As Dan mentioned, we have many of our existing customers who are already talking to us, both domestically and internationally. With the relationships we've developed, we’re also exploring new markets in Asia. Historically, Alpha has been about 35% domestic and 65% international. We like that ratio for a number of fundamental reasons, but I won't go into detail on a public call. That remains our sweet spot. But again, we're going to approach the season like we always do. We've got great products, quality, and diversity, and we have strong interest across the board, both domestically and internationally. Our decisions will be made in the coming months, and certainly, in our November call, we’ll have updated information on how we approached the net side. Dan, do you want to add anything to my comments?

Daniel Horn, Chief Commercial Officer

I think you covered it well, David. I will just note that regarding the export market slowing down, it's worth mentioning that last year, about a year ago when the market started moving upward, we and other companies signed more long-term contracts than we had in the past. So while the absence of new deals in the market doesn't necessarily mean our business is slowing down, it does mean we are shipping a lot of previous contracts. You’ll see in our numbers that we shipped 4 million tons in the previous quarter. So I take exception to the assessment on volume. Certainly, the industry has slowed somewhat, but Alpha's volumes remain strong. We are certainly eager to pursue opportunities on the thermal side, as I mentioned earlier. And with regard to the domestic met, we're currently working on proposals. They're not due until the next few weeks, so it's too early for detailed commentary on expectations.

Lucas Pipes, Analyst

I appreciate the color. And I'll ask one final question for today. For now, David, you mentioned the improvements in rail service, which is great to hear. Could you frame how the service today compares to an optimal level? Is it at 90% or better than that, or is there still room for improvement?

David Stetson, Chairman and CEO

You may have more insights on the logistics side. I can simply reemphasize what I mentioned earlier. Earlier this year, our rail partners had a lot of difficulties, as you know. They brought concerns before the Surface Transportation Board, and people were writing letters. We prefer to have candid conversations with our partners privately rather than publicly. They were experiencing labor issues, just as we faced similar challenges in our industry. We appreciate their efforts. We've seen significant improvements from both CSX and Norfolk Southern. Their operations are progressing, and we are grateful for their ability to ramp up. They're doing better every day. But with that, Dan, you might have additional insights on logistics.

Daniel Horn, Chief Commercial Officer

I'll just add that when we noticed changes with the railroad, there were several new developments. I want to recognize my logistics team for reacting quickly and adapting some of our processes. I also want to commend Jason's team for their responsiveness to these changes. Part of the reason for our success in the last quarter was due to everyone stepping up and understanding that we had to adjust our operations in light of the new transportation landscape.

Lucas Pipes, Analyst

That's very good to hear. Gentlemen, again congratulations and continued best of luck.

David Stetson, Chairman and CEO

Thanks, Lucas.

Operator, Operator

Our next question is from Nathan Martin with The Benchmark Company. Please proceed with your question.

Nathan Martin, Analyst

Hi, good morning guys, congrats on the results, and I'll echo Lucas' comments, congrats on all the transitions being made there by the team. Maybe I'll start with Jason. I appreciate all your comments related to the thermal business and what's behind the increased guidance for this year. But I just want to ensure I caught everything. It sounded like Slabcamp was extending through the first quarter, and I think you also mentioned bringing back about 0.5 million tons at the Republic Surface Mine. If I heard all that correctly, could you give us one more rundown? And where are those tons expected to flow through? Is that the All Other segment, or is that still within the thermal piece of the Met Segment?

Jason Whitehead, Chief Operating Officer

I think the answer to your latter question is probably both. Let me start with Slabcamp. We've talked about it for a year now. It's been depleting, but as the market shifts, times once considered resources are now much more economic. Therefore, we are able to bolt on small sections to the mine and mine them at a relatively good cost in relation to the market. You did hear me correctly: We expect Slabcamp to operate from now into the first quarter. But we are indeed mining the very end of its life, so things are subject to change, but we're ready to adjust accordingly. Slabcamp would hit the All Other segment. The Republic permits we plan to start in the fourth quarter of this year will yield up to 0.5 million tons. These are currently inactive surface mine permits, but they will fall under the Met Segment even though they will generate incidental thermal tons for the thermal market. Does that answer your question?

Nathan Martin, Analyst

Yes, that’s perfect. Jason, I think you mentioned Black Castle?

Jason Whitehead, Chief Operating Officer

Yes, I thought we mentioned that on the last earnings call, but maybe my memory is fuzzy. However, we have been releasing some tons, not large amounts from Black Castle in the second quarter, and that will continue for most of the year, albeit at smaller volumes. I estimate that to be somewhere between 80,000 and 110,000 tons, which would fit in the Met Segment but would be in the incidental thermal bucket.

Nathan Martin, Analyst

Got it. That's very helpful, Jason. Thank you. And then maybe sticking with the thermal segment on the cost side. You guys maintained cost guidance of $58 to $63 a ton. Obviously, the first half has done extremely well below $50. What do you foresee increasing the cost in the second half there, if that's the case? Is that just due to nearing the end of Slabcamp's mine life that you spoke about?

Jason Whitehead, Chief Operating Officer

Yes, you nailed it there. There will be recovery-type work and mine closeout work shared across fewer tons, so we expect to see a rise in costs there. I'll let Andy comment if he has anything to add.

Andy Eidson, President and CFO

No, that's it, Jason nailed it.

Nathan Martin, Analyst

Great. Appreciate those responses, guys. Then maybe just shifting to a high-level question on the cash return side. You guys raised your regular dividend slightly this morning. Your clear preference has been share buybacks, nearly completing half of that $600 million program. Now that you've essentially paid off all your debt, what are the priorities for cash going forward? How are you thinking about balancing shareholder returns with other uses of cash, whether that be organic investment in the business that you pointed out earlier, M&A, or other opportunities? And then any minimum liquidity or cash levels you would like to maintain?

David Stetson, Chairman and CEO

Yes. Nate, this is David. That’s a broad question, so let me start high-level and we can dive into specifics as needed. As stated in previous earnings calls, our priority was paying our debt off — check that box. Our other priority was twofold: increasing cash balances while rewarding our shareholders for their loyalty over these past years. So we commenced our repurchase program earlier than last quarter, increasing it to $600 million. We have spent approximately 50% thus far acquiring shares from the market. From our perspective, we will continue with the share repurchase program as we believe our shares are undervalued and it’s the best place for our investment. We will continue to build our cash balances. As Andy mentioned, we are eyeing opportunities in the M&A space but to no avail as of yet. We possess a large and diverse reserve base and are constantly evaluating that reserve base for new production. As you recall from last quarter, we went through a 15-year mining plan showing that over the next 15 years, we can mine what we currently have in play without needing significant capital projects. At the same time, we are always reviewing opportunities to enhance production or replace existing mines with more efficient ones. Therefore, from my viewpoint, we are not deviating from our strategy: We will continue share buybacks, increase cash reserves, and that is our future. Andy, I'll let you offer any additional insights.

Andy Eidson, President and CFO

Yes, that covers it well, David. The other question, Nathan, regarding minimum cash or liquidity targets isn’t really a strict rule. However, broadly speaking, we generally look for a range of $250 million to $300 million for total liquidity. Of course, this includes our ABL in the mix, and ABL can fluctuate considerably based on market conditions. So we can't always depend on the ABL to provide a consistent amount of liquidity. Therefore, we should aim for a target of $250 million to $300 million. This amount will ebb and flow, and as David mentioned, we are currently going through our budget cycle for 2023, which will inform any potential capital projects for the coming year. As stated in our previous calls, we don’t have large projects necessitating material deviations from our plans. We can execute our desired activities effectively, and I think that should persist in the good markets we are experiencing now.

Nathan Martin, Analyst

Got it. Appreciate those comments, guys. I'll leave it there. Thank you for the time and information, and best of luck for the second half.

Andy Eidson, President and CFO

Thanks, Nathan.

David Stetson, Chairman and CEO

Thank you, Nate.

Operator, Operator

Our next question is from Jonathan Everett with Cowen. Please proceed with your question.

Jonathan Everett, Analyst

Hi, good morning, everyone, congrats on the quarter, as well as everyone involved in the new promotions. My first question is, can you discuss the cadence of shipments for the remaining two quarters?

David Stetson, Chairman and CEO

I think, Jon, it's hard to say definitively. At this point, we have a good amount of our book committed, and we’re just starting to discuss Q4 with our seaborne customers. Typically, we find out what their schedules are in mid-August. At this juncture, I would say the pro-rata shipping levels seem steady. Though some of those tons may convert from met to thermal, that’s still to be determined. I expect that some will.

Jonathan Everett, Analyst

Understood. And I guess it's somewhat related, and I'm sorry for beating a dead horse here. But in terms of revenue, can we expect the second quarter to be the peak of the year? Or should we expect a gradual decline quarter-over-quarter from here until the fourth quarter?

Andy Eidson, President and CFO

Jonathan, it’s Andy. Yes, based on actual realizations and current futures, Q2 doesn't appear to be the high watermark. It was indeed a record high. While the curve is slightly contango into Q4 and Q1 of next year, there is an expected decline compared to Q2.

Jonathan Everett, Analyst

That makes sense. And then just one more from my end. I noticed the increase in SG&A guidance; is all of that really composed of incentive compensation, or are there other items embedded in there?

Andy Eidson, President and CFO

Yes, it's a combination of multiple items, Jonathan. But the primary impact comes from cash impacts on our Long-Term Incentive Plan and incentive compensation. Naturally, the outperformance in the first half of the year drives our bonus programs. While pricing may fluctuate, it's likely to decrease slightly in the back half of the year, but that's just getting us caught up based on an extraordinary first half and a particularly exceptional second quarter.

Jonathan Everett, Analyst

Got it. And just my last question. In terms of inflation in labor, how are you seeing — what are your expectations? How are you guys looking at that in terms of the second half of the year?

Jason Whitehead, Chief Operating Officer

I’ll let Andy address that. We haven’t changed guidance on our costs this year.

Andy Eidson, President and CFO

It’s indeed challenging. As Jason noted in his prepared remarks, we have integrated substantial additional costs to maintain our employment and ensure our employees are satisfied and productive, helping to combat some of the sector's exits. All of this has been factored into our costs. While we’re seeing productivity gains elsewhere, Jason's team is always identifying opportunities to save costs. But I don’t believe there is additional inflationary labor impact to point out. Jason, do you have anything specific to add regarding the labor markets?

Jason Whitehead, Chief Operating Officer

No, I think Andy is correct. We have done what’s necessary to remain competitive, and I believe we’ll maintain our cost range through the rest of the year.

Jonathan Everett, Analyst

Got it. Thank you, and congrats again.

Jason Whitehead, Chief Operating Officer

Thank you.

Operator, Operator

We have reached the end of the question-and-answer session. I will now turn the call over to David Stetson for closing remarks.

David Stetson, Chairman and CEO

We thank you all for joining the call today. I want to reiterate my appreciation and humility in having led Alpha for these past six years. I cannot express how much I appreciate the team, not only my executive team but the many individuals who work with us daily, in our mines and elsewhere in the company. I deeply appreciate the support of my board of directors and our shareholders over these six years. Thank you for your loyalty. With that, we will close the call. Thank you once again for joining us.

Operator, Operator

This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.