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CONSOL Energy Inc., First Quarter 2023 Results

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   |    Tuesday,May 16,2023

CONSOL Energy Inc., announced first quarter 2023 results.

Highlights

  • GAAP net income of $230.4 million;
  • Quarterly adjusted EBITDA 1 of $346.3 million; Total revenue and other income of $688.6 million;
  • Net cash provided by operating activities of $248.5 million; Quarterly free cash flow1 of $220.8 million;
  • Debt repayments of $98.4 million during 1Q23, including $50.0 million of Second Lien Notes and $40.0
  • million of Term Loan B;
  • 47% of 1Q23 free cash flow 1 returned to shareholders via stock repurchase and dividends; Repurchased 1.2 million shares of CEIX common stock at a weighted average price of $55.60 per share; Announced dividend of $1.10/share, based on 1Q23 results, payable on May 23, 2023;
  • Increasing the planned shareholder return allocation to approximately 75% of quarterly free cash flow 1
  • beginning in 2Q23 with the intention of pivoting toward share buybacks moving forward;
  • Increasing the previously authorized repurchase program to an aggregate amount of up to $1 billion; Pennsylvania Mining Complex (PAMC) coal shipments improve to 6.7 million tons;
  • 56% of 1Q23 recurring revenues 1 derived from sales to non-power generation markets;
  • PAMC contracted position improved to near-fully contracted in 2023 and 14.7 million tons in 2024; and CONSOL Marine Terminal (CMT) record quarterly throughput volume of 4.6 million tons.
CONSOL Energy Inc. reported financial and operating results for the period ended March 31, 2023.

Jimmy Brock, Chief Executive Officer of CONSOL Energy Inc, said:"During the first quarter of 2023, we delivered a very strong performance, producing more than 7.1 million tons and generating over $220 million in free cash flow1. Due to this strong free cash flow1 generation, we were able to retire nearly $100 million of our outstanding debt, while returning $104 million of cash to our shareholders. The majority of our shareholder returns in the quarter were deployed towards repurchasing our common stock at what we believe to be very attractive prices. As such, we are pleased to announce that we are increasing our planned capital allocation percentage for shareholder returns to approximately 75% of quarterly free cash flows1 with the intention of pivoting the program toward share repurchases and away from dividends moving forward. Due to the diversified global end-use markets for our high-quality PAMC product, we were able to opportunistically contract an additional 13.5 million tons of new export market business during the first quarter for delivery through 2026 at attractive prices, despite mild domestic winter weather and softening domestic natural gas prices. Furthermore, our CONSOL Marine Terminal shipped a record quarterly throughput volume of 4.6 million tons in 1Q23. We have also been working on ways to debottleneck the terminal in order to achieve a higher maximum capacity than the current stated capacity of 15 million tons."

"On the safety front, our Bailey Preparation Plant, Itmann Preparation Plant and CONSOL Marine Terminal each had ZERO employee recordable incidents during the first quarter of 2023. Our 1Q23 total recordable incident rate at the Pennsylvania Mining Complex continued to track significantly below the national average for underground bituminous coal mines."

Pennsylvania Mining Complex Review and Outlook

PAMC Sales and Marketing

Our sales team sold 6.7 million tons of PAMC coal during the first quarter of 2023, generating realized coal revenue1 of $563.3 million for the PAMC segment and an average realized coal revenue per ton sold1 of $84.32. This compares to 6.5 million tons sold, generating total coal revenue of $473.0 million, at an average realized coal revenue per ton sold1 of $59.60 in the year-ago period, after adjusting for the effect of settlements of commodity derivatives. The improvement in the average realized coal revenue per ton sold1 is due to the continued strong demand for our product and the significant improvement in the global commodity markets versus the prior-year period.

On the marketing front, mild winter weather led to softening demand for domestic electricity generation, which contributed to reduced domestic natural gas prices. Henry Hub natural gas spot prices averaged $2.64/mmBtu in 1Q23, the lowest quarterly level since the fourth quarter of 2020. Additionally, PJM West day-ahead power prices averaged $33.13/MWh in the quarter, a quarter-over-quarter decline of 52% compared to 4Q22. Accordingly, domestic coal burn was significantly reduced during the quarter, and the U.S Energy Information Administration estimates that coal stockpiles at domestic utilities increased by 22% during 1Q23. Despite this, we successfully pivoted away from the domestic market and into stronger export markets during the quarter, due to the high-quality characteristics of our product that allow us to sell into many different end-use markets globally. As such, 66% of our PAMC realized coal revenue1 came from export sales in 1Q23.

Furthermore, during 1Q23, we strengthened our forward contract book at the PAMC, opportunistically securing an additional

13.5 million tons, all of which are in the export market, for delivery through 2026. We are near-fully contracted for 2023 and have 14.7 million tons contracted for 2024.

Operations Summary

 

During the first quarter of 2023, we ran all five longwalls at the Pennsylvania Mining Complex and produced 7.0 million tons,

compared to 6.4 million tons in the year-ago quarter. Following the recent restart of the fifth longwall in the fourth quarter of 2022, 1Q23 marked the first quarter since 1Q21 in which the PAMC had all five longwalls fully operational and reached the 7.0 million ton production mark.

CEIX's operating and other costs during the first quarter of 2023 were $260.6 million, compared to $219.1 million in the year-ago quarter, and CEIX's total coal revenue for the PAMC segment during the first quarter of 2023 was $563.3 million, compared to

$473.0 million in the year-ago quarter. Total realized coal revenue1 in 1Q23 was $563.3 million, compared to $386.7 million in 1Q22. The significant improvement in total realized coal revenue1 was mainly driven by a $24.72 improvement in average realized coal revenue per ton sold1 at the Pennsylvania Mining Complex, as coal prices were stronger during the quarter compared to the prior-year period. Average cash cost of coal sold per ton1 at the PAMC for the first quarter of 2023 was $33.61, compared to $29.91 in the year-ago quarter. The increase was due to ongoing inflationary pressures on supplies, maintenance costs and contractor labor compared to the prior-year period.

For the first quarter of 2023, throughput volume at the CMT was 4.6 million tons, the highest quarterly throughput volume in its history, compared to 3.6 million tons in the year-ago period. Terminal revenues and CMT total costs and expenses were $26.7 million and $9.6 million, respectively, compared to $21.4 million and $10.5 million, respectively, during the year-ago period. Due to the increased throughput tonnage and continued commodity pricing strength, 1Q23 marked the highest quarterly terminal revenue in the history of the CMT. CMT operating cash costs1 were $5.9 million in 1Q23, consistent with the prior-year period.

CONSOL Marine Terminal net income and CONSOL Marine Terminal Adjusted EBITDA1 were $17.8 million and $20.6 million, respectively, in the first quarter of 2023 compared to $11.6 million and $14.5 million, respectively, in the year-ago period.

Itmann Update

Progress on our Itmann project continues, and we remain focused on ramping up to full run-rate production during 2023. As stated on our last earnings release, we believe that we are past the adverse geological conditions that were encountered in late- 2022, and following the section equipment delivery delays we experienced in the second half of 2022, we now have two of our three continuous miner super sections near-fully operational. Long-term construction work is now 75% complete, and the labor market has begun to improve. As such, staffing levels improved throughout 1Q23. The Itmann Mining Complex produced 64 thousand tons of coal during the first quarter of 2023 and sold 108 thousand tons of Itmann and 3rd party coal in aggregate during the quarter. From a marketing standpoint, our Itmann product continues to be well-received, and we remain focused on securing new business with strategic, long-term customers.

Advancing Greenhouse Gas Reduction Efforts

CEIX is pleased to announce that in early-April it entered into an agreement with Environmental Commodities Corporation in an effort to expand the methane destruction program at the PAMC in support of CEIX's phase 1 greenhouse gas reduction goals. As previously announced, CEIX has a target to reduce its scope 1 and 2 greenhouse gas emissions by 50% by year-end 2026, compared to 2019 baseline levels. Furthermore, the CEIX board previously approved ESG-related capital expenditures of $28 million for 2023-2026 which will be utilized, in part, to fund this effort. The project provides the direct benefit of a voluntary reduction in our scope 1 emissions, while providing an opportunity to generate greenhouse gas emissions reduction or offset credits created through compliance and voluntary programs.

Shareholder Returns Update

During the first quarter of 2023, CEIX repurchased 1.2 million shares of its common stock, or approximately 3.5% of its public float, for $67.1 million at a weighted average price of $55.60 per share. As a result, during 1Q23, CEIX allocated approximately 30% of its quarterly free cash flow1 toward share repurchases.

Additionally, at the discretion of the board of directors, CEIX today announced a dividend of $1.10/share, representing approximately 17% of the free cash flow1 generated in the first quarter of 2023. The payment will amount to an aggregate of approximately $37.3 million, payable on May 23, 2023 to all shareholders of record as of May 15, 2023. When combined with the

$67.1 million share repurchase, these in aggregate represent approximately 47% of the free cash flow1 generated in the first quarter.

Moving forward, CEIX announced an update and increase to its enhanced shareholder return program, which will become effective in the second quarter of 2023, that will plan to return approximately 75% of quarterly free cash flow1 to its shareholders. In previous quarters, CEIX was returning cash in the form of dividends and/or share repurchases; however, the management team believes that repurchases of CEIX common stock are more value accretive and intends to pivot away from dividends in favor of share repurchases.

In conjunction with the enhanced shareholder return program, CEIX's Board of Directors has increased its previously authorized repurchase program to an aggregate amount of up to $1 billion from $600 million through December 31, 2024. With this approval, CEIX now has approximately $705 million of availability to repurchase its shares of CEIX common stock and other financial securities.

In addition to the increased shareholder return percentage, CEIX expects to aggressively reduce gross debt with the goal of retiring its Term Loan B and Senior Secured Second Lien Notes in the coming quarters.

Debt Repurchases Update

During the first quarter of 2023, we continued to execute on our stated goal of reducing our total debt levels and made repayments of $50.0 million, $40.0 million and $8.4 million on our Second Lien Notes, Term Loan B and equipment-financed and other debt, respectively. This brings our total debt repayments and repurchases in the quarter to $98.4 million (excluding the premium paid on the Second Lien Notes). These debt repayments in aggregate represent approximately 45% of the free cash flow1 generated during the first quarter of 2023.


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