SunCoke Energy, Inc. Q1 FY2025 Earnings Call

Good morning, and thank you for joining us this morning to discuss SunCoke Energy's first quarter 2025 results. With me today are Katherine Gates, President and Chief Executive Officer; 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 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.

Thanks, Shantanu. Good morning, and thank you for joining us on today's call. This morning, we announced SunCoke Energy's first quarter results. I want to share a few highlights before turning it over to Mark to discuss the results in detail. We delivered strong results for the quarter, and I want to thank all of our employees for their contributions to our results. Our logistics business continued to perform well. And as expected, our Domestic Coke business was impacted by the Granite City contract extension economics as well as the weak spot coke market. Together, we delivered consolidated adjusted EBITDA of $59.8 million during the quarter. As we discussed on our prior call, the spot blast coke pricing environment continues to be highly challenged, but there is demand for our coke, and we have essentially finalized all spot blast and foundry coke sales for the full year. Earlier today, we also announced a $0.12 per share dividend payable to shareholders on June 2, 2025. From a balance sheet perspective, we ended the first quarter with a strong liquidity position of $543.7 million. Our gross leverage was approximately 1.89 times on a trailing 12-month adjusted EBITDA basis at the end of the quarter. Looking ahead, we have extended our Granite City coke supply agreement with U.S. Steel through September 30, 2025, with the option for U.S. Steel to extend for an additional three months. We continuously monitor the challenging market conditions, but do not see a significant impact to our operations at this time. As a result, we are reaffirming our full year consolidated adjusted EBITDA guidance range of $210 million to $225 million. With that, I will turn it over to Mark to review our first quarter earnings in detail.

Thanks, Katherine. Turning to Slide 4. Net income attributable to SunCoke was $0.20 per share in the first quarter of 2025, down $0.03 versus the prior year period. Consolidated adjusted EBITDA for the first quarter of 2025 was $59.8 million compared to $67.9 million in the prior year period. The decrease in adjusted EBITDA was primarily driven by lower economics on the Granite City contract extension and lower spot blast coke sales volumes in the Coke segment, partially offset by lower legacy black lung expenses and employee-related costs in the Corporate and Other segment and higher transloading volumes at CMT in the Logistics segment. Moving to Slide 5, to discuss our Domestic Coke business performance in detail. First quarter Domestic Coke adjusted EBITDA was $49.9 million and coke sales volumes were 898,000 tons. The decrease in adjusted EBITDA, as compared to the prior year period, was primarily driven by the lower economics and volumes at Granite City from the contract extension. Domestic Coke's results were additionally impacted by lower spot blast coke sales volumes, due to timing and challenging market conditions. While the steel industry outlook remains uncertain and volatile, our coke production and sales plans remain on track. Our 2025 Domestic Coke guidance contemplated the lower sales during the first quarter, and we are reaffirming our Domestic Coke adjusted EBITDA guidance range of $185 million to $192 million. As a reminder, our guidance includes the assumption that our Granite City cokemaking agreement will be extended for an additional three months, through the end of 2025. Now moving on to Slide 6 to discuss our Logistics business. Our Logistics business generated $13.7 million of adjusted EBITDA in the first quarter of 2025, as compared to $13 million in the first quarter of 2024. The increase in adjusted EBITDA was primarily driven by higher transloading volumes at CMT, partially offset by the absence of an index price adjustment benefit in Q1 2025. Our terminals handled combined throughput volumes of 5.7 million tons during the first quarter of 2025, as compared to 5.5 million tons during the same prior year period. CMT handled 2.4 million tons during the first quarter of 2025, as compared to 1.8 million in the prior year period. Our previously announced barge unloading capital expansion project at KRT is currently on time and on budget. We are pleased with the strong performance from our Logistics business in the first quarter. As is the case with our Domestic Coke business, the market is volatile and things can change very quickly. However, we do not currently expect a significant impact to our operations through the remainder of the year, and we reaffirm our full year Logistics adjusted EBITDA guidance range of $45 million to $50 million. Now turning to Slide 7 to discuss our liquidity position for Q1. SunCoke ended the quarter with a cash balance of $193.7 million and a fully undrawn revolver of $350 million. Net cash provided by operating activities was $25.8 million. The first quarter was impacted by a buildup of coal inventory, but we expect this to reverse during the year, and our full year operating cash flow guidance is unchanged. We spent $4.9 million on CapEx and paid $10.9 million in dividends at the rate of $0.12 per share this quarter. In total, we ended the quarter with a strong liquidity position of $543.7 million. With that, I will turn it back over to Katherine.

Thanks Mark. Wrapping up on Slide 8. As always, safety is our first priority, and we are dedicated to maintaining our strong safety and environmental performance. Robust safety and environmental standards set SunCoke apart and are the foundation for our reliable delivery of high-quality coke and logistics services. We remain focused on safely executing against our operating and capital plans and maintaining the strength of our core businesses as we navigate difficult market conditions. At the same time, while we are providing high-quality coke and logistics services, we are continually pursuing opportunities to grow our business and broaden our customer base. As always, we take a balanced yet opportunistic approach to capital allocation. The GPI project continues to be a top priority for us. The strong fundamentals of the project remain unchanged despite our frustration with the ongoing government delays. We continuously evaluate the capital needs of the business, our capital structure, and the need to reward our shareholders, and we'll make capital allocation decisions accordingly. Finally, we are reaffirming our full year consolidated adjusted EBITDA guidance range of $210 million to $225 million. With that, let's go ahead and open up the call for Q&A.

Thank you. We will now begin the question-and-answer session. The first question comes from Nick Giles with B. Riley Securities. Please go ahead.

Hey, good morning, everyone. Thanks for taking my questions. My first one is your annual guidance does imply an uplift in quarterly adjusted EBITDA from here. So I was wondering if you could speak to cadence, specifically as it relates to any assumptions in the second half as some contracts move around and there's more spot exposure. I would have assumed that EBITDA should be somewhat stronger in the first half. So just wanting to get your take there.

Hey, Nick, good morning. This is Shantanu. I believe you're referring to the Domestic Coke EBITDA. Yes, that's correct. Our Cliffs contract at Haverhill II is set to expire in June 2025, and we are collaborating with them to spread out the shipments evenly throughout the year. As a result, you will notice some margin contributions from those shipments in the second half of the year. This is why we are seeing lower EBITDA in the first quarter due to decreased domestic sales and lower blast sales, but we anticipate recovery in the second half of the year.

Got it. That's very helpful, Shantanu. I appreciate that. My next one was really just curious to hear an updated view on capital allocation priorities. Really, my question is, while the GPI project remains on the drawing board, what other long-term growth opportunities could you be considering?

No, great question. As we've said and talked about last quarter, we continue to look for profitable growth opportunities beyond the GPI project. We've remained very, very disciplined in looking for those long-term growth opportunities. They would have to be profitable and take into account the environment that we sit in today in order to reward our long-term shareholders. At the same time, we've said that we expect to continue our dividend in 2025, and we think that that is another very good way to deploy our capital to reward our long-term shareholders. And with the dividend, we've been able to continue that while still preserving cash to be able to do the Granite City project. So the dividend fully takes into account the ability to do the Granite City project as well.

Got it. No, thanks for that Katherine. I guess as we think about other potential projects, should we think about something that's similar to the GPI project in nature? Would it be something more on the Logistics side? Any flavor of what other opportunities could be?

Well, I think when I say that we're very disciplined, we know that we need to look for growth opportunities in areas where we can add value and where we already have experience. So while I can't get into any specifics, I think you can think about it in terms of areas where we already have a level of expertise and we think that we can bring value to any potential growth opportunity just as we see ourselves being able to bring that value to the GPI project.

Fair enough. My last question was just curious what drove the inventory build on the coal side. Was this driven by weaker-than-expected spot demand? Or was this more attributable to shipment timing for instance?

Yes. No, this is Mark. Yes, it's really just at the beginning of the year you get a new coal blend and we were just building the inventories for the year. It didn't have anything more than that. You will see some seasonality of that happening at this time of year in the first quarter or late Q4. So it's fairly normal. But like I said, we expect that to reverse, and we're reaffirming our cash flow guidance.

Got it. Guys, thanks for all the color. I’ll jump back in the queue but continue best of luck.

Thank you.

Thank you. The next question comes from Nathan Martin with Benchmark Company. Please go ahead.

Thanks, operator. Good morning, everyone. I wanted to start with CapEx. I noticed you guys only spent $5 million it looked like in the first quarter, again maintaining your full year guidance of $65 million. Katherine, I know I asked you last quarter about a possible cadence of spend and I think you said it would be pretty steady. So just curious what might have changed there?

Yes. No great question. And really given some of the uncertainties that we obviously are all seeing as we look out ahead, we're just being very judicious with our spending. At this point in time, we are likely to not spend the $65 million that we had planned for at the end of the year. And again, that's really just about being judicious in light of this environment and making appropriate deferrals. We'll continuously evaluate those investment decisions but we really at this point are just being very, very cautious.

Can I get some color around maybe what you're looking at deferring? I think you still had about $5 million left for the growth there at KRT. I'm assuming that's going to be finished up but any additional thoughts there?

Yes. And that's correct. I mean the KRT project is on track. It's on budget. So yes we will be spending that capital here in the next couple of months as that project is completed. Beyond that, I would say is that we make appropriate deferrals for projects that are longer term or not an immediate top priority at some of our plants. As we've always said, we're investing in our plants as the long-term reliable supplier of coke and logistics services. So we continue to invest and ensure that our assets are there and ready to be the top-performing assets over the longer term. But at the same time, as you know we invest a lot of CapEx in these businesses and that gives us some flexibility for things that are not immediate priority to be deferred when we're sitting in an environment like the one we are today.

Okay. So it could possibly include some things like deferred maintenance and things like that as well I'm assuming.

That's correct.

Okay. Perfect. I appreciate that information. It might also be helpful to get some additional thoughts on the health of the foundry and export coke markets. I mean you guys called out essentially sold out now there but you also highlighted once again the extreme challenges there. I mean how long could the weakness persist? And what do you think tightens the market back up eventually?

We are closely monitoring the market situation, which is difficult to predict. We've learned from others that forecasting the market's future is challenging. This year, the pricing environment, along with Cliffs' operations, indicated that we would not extend our contracts with them beyond what we have for this year. We anticipated that prices would not improve, which is why we decided to sell our products early in the year and are now essentially sold out. We feel confident about our choice to sell at the beginning of the year, even though it was not the ideal price, as it proved to be a wise decision based on current conditions. Beyond this, it's tough to predict how prices will evolve. We are maintaining ongoing discussions with Cliffs regarding our contract at Haverhill, and those talks continue despite the challenging market environment.

Okay. Got it. I guess I would say, even against that backdrop your EBITDA per ton in the Domestic Coke segment of $55 was well above the $48 high end of your full year guidance. So any thoughts there?

Yes. Nate, I mean on that kind of you saw that like kind of in Q1 last year, we had some spot blast coke sales, which we had very minimal of that this year. So that impacted on a profitability margin basis. That drove our EBITDA per ton for coke higher. But if you look at full year, I think we're going to go back to kind of what our guidance range is. So there's a little bit of timing factor that is getting played in and you're going to see the impact of those lower-margin blast coke sales come into the later half of the year.

Okay. Got it. And Shantanu just kind of going back to your answer to an earlier question. The production from Haverhill 200,000 tons in the quarter, well below your normal rates, behind the full year guidance, which is a little over one million tons. Was that kind of a timing thing too? Did I understand that correctly? Maybe just confirm.

Yes, that was planned like kind of when we went out with the guidance in early this year, given what Katherine mentioned about challenges in the spot coke market, and what we are seeing out ahead what the pricing and the demand market environment looks like, that was planned that we will have a lower production in Q1 for Haverhill. And that's kind of built into our 4 million tons approximately sales number for our Domestic Coke.

Okay. great. I’ll leave it there. Appreciate the time and best of luck.

Thank you.

Thank you all again for joining us this morning and for your continued interest in SunCoke. We're well positioned to navigate the challenging market conditions and create value for shareholders. Let's continue to work safely today and every day.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.