CNX Coal Resources LP Announces Results for the Second Quarter 2017
PITTSBURGH, July 31, 2017 /PRNewswire/ -- CNX Coal Resources LP (NYSE: CNXC) today reported financial and operating results for the quarter ended June 30, 2017.
Second Quarter 2017 Results
Highlights of the CNXC second quarter 2017 results include:
-- Cash distribution of $0.5125 per limited partner unit
-- Net income of $11.5 million
-- Adjusted EBITDA(1) improves 50% to $25.0 million, compared to the
year-ago period
-- Distribution coverage ratio(1 )of 1.0x
-- Leverage ratio(1) improves to 1.9x compared to 2.5x on December 31, 2016
-- Coal sales improve 10% to 1.7 million tons, compared to the year-ago
period
-- Average revenue per ton increases by 10%, compared to the year-ago
period
Management Comments
"The second quarter of 2017 was a very strong operational quarter despite soft demand in most of our markets compared to the first quarter. This was the third consecutive quarter in which the Pennsylvania Mining Complex (PAMC) produced above a 27 million ton (6.75 million tons for CNXC's 25% undivided interest) annualized run rate. The quarter once again demonstrated our ability to deliver solid results under changing market conditions." said Jimmy Brock, Chief Executive Officer of CNX Coal Resources GP LLC (the "General Partner"). "The second quarter results continue our track record of delivering strong operational and sales performance, year-over-year earnings growth, significant cash generation and continued debt reduction, despite an inconsistent industry backdrop. With the second quarter results, we have achieved a leverage ratio below 2.0x, a key financial goal that we laid out in December 2016 for year-end 2017."
Sales & Marketing
CNXC had another solid sales quarter, delivering 1.7 million tons of coal to 42 different end users. During the quarter, we contracted additional tons for 2018, bringing our total contracted position to 68% of expected sales volumes for 2018 based on the midpoint of 2017 sales guidance. With over two-thirds of our 2018 volume contracted, we are very well-positioned heading into the upcoming utility contracting season, enabling us to be selective in constructing our portfolio to drive a higher weighted average realization and capture strategic customer plants. We continue to proactively work with customers to keep our coal competitive in the market place.
The CNXC marketing team was also successful in contracting significant volumes of coal for the 2019-2021 period. These new sales commitments are for volumes beyond the normal course of renewing or extending our existing contracts. While much has been discussed about the shrinking duration of utility contracts, our marketing team demonstrated our ability to enter into longer term (3+ years out) commitments with the right partners. Approximately 30% of the PAMC's 2019 planned production is now sold. We have built a solid base upon which to construct our future sales book.
As stated in previous releases, PAMC continues to grow its market share in traditional and non-traditional markets. During the second quarter, CNXC expanded its sales portfolio by adding three new international thermal customers and one new domestic metallurgical customer. These new avenues are a culmination of the strategic marketing efforts of our team and improvements in the sulfur content of coal produced by PAMC.
In the international markets, we have taken advantage of more than 50% year-over-year improvement in spot thermal coal prices during the second quarter to maintain strong export volumes and substantially improve our export realizations relative to the year-ago quarter.
For the remainder of 2017, as mines and railroads return from their annual maintenance shutdown periods, we expect demand for our production to increase in the domestic markets. It is also noteworthy that the U.S. Energy Information Administration's (EIA) latest inventory report indicated a weaker-than-expected stockpile build at coal-fired power plants, which is a positive development for coal producers. Power plant coal inventories ended the month of May at approximately 165 million tons, the lowest May inventory level since 2014 and approximately 28 million tons improved from May 2016 levels. With summer weather now upon most of the nation, we expect that power demand should increase coal and gas consumption, which will continue to draw down stockpiles and potentially improve pricing dynamics for coal. Looking forward, EIA is projecting that the Henry Hub spot natural gas price will average $3.10/mmBtu in 2017 and grow to $3.40/mmBtu in 2018. Our coal-fired customer plants are expected to dispatch well at these natural gas prices.
Operations Summary
Our operations team continues to deliver strong production volumes. For the second quarter, CNXC produced 1.7 million tons of coal, compared to 1.5 million tons in the year-ago quarter. More importantly, our productivity, as defined by tons per employee-hour, increased by 7% compared to the year-ago quarter. We sold 1.7 million tons of coal during the second quarter of 2017 compared to 1.5 million tons during the year-ago period. Our average realized price improved by 10% compared to the year-ago period, as the pricing on export shipments improved significantly. Export shipments accounted for approximately 31% of our total sales volume.
Our total cost of coal sold increased to $59.0 million during the second quarter, compared to $53.2 million during the year-ago quarter, driven primarily by higher coal sales volume. The average cost of coal sold(1) in the quarter increased by 1.0% to $34.79 per ton, compared to $34.46 per ton in the year-ago quarter. Our average cash margin per ton sold(1) improved by 23.9% compared to the year-ago quarter due to a higher average realized price.
Three Months Ended
June 30, 2017 June 30, 2016
------------- -------------
Coal Production million tons 1.7 1.5
Coal Sales million tons 1.7 1.5
Average Revenue
Per Ton per ton $44.75 $40.61
Average Cost of
Coal Sold per ton $34.79 $34.46
Average Cash
Margin Per Ton
Sold per ton $15.67 $12.65
Note: The Partnership has recast the above table to retrospectively reflect the additional 5% ownership of PAMC completed September 30, 2016 as if the additional ownership interest was owned for all periods presented.
Quarterly Distribution
During the second quarter of 2017, CNXC generated net cash provided by operating activities of $23.1 million and distributable cash flow(1) of $11.6 million, yielding a distribution coverage ratio of 1.0x(1). Our distribution coverage ratio calculation is based on the estimated maintenance capital expenditure of $9.0 million, while our actual cash maintenance capital expenditure for the second quarter was $3.4 million. Based on our current outlook for the coal markets and distributable cash flow generated during the quarter, the Board of Directors of the general partner, has elected to pay a cash distribution of $0.5125 per unit to all limited partner unitholders and the holder of the general partner interest. The Board of Directors has also approved a cash distribution of approximately $0.4678 per unit to the holder of the convertible Class A Preferred Units. As previously announced on July 27, 2017, the distribution to all unitholders of the Partnership will be made on August 15, 2017 to such holders of record at the close of business on August 7, 2017.
Guidance and Outlook
Based on our current contracted position, production plans and outlook for the coal markets, we are maintaining our sales volume and Adjusted EBITDA outlook for 2017:
-- Coal sales of 6.4-6.9 million tons
-- Adjusted EBITDA(2 )of $95-$115 million
-- Maintenance capital expenditures of $30-$34 million
Second Quarter Earnings Conference Call
A conference call and webcast, during which management will discuss the second quarter of 2017 financial and operational results, is scheduled for July 31, 2017 at 5:00 PM EDT. Prepared remarks by members of management will be followed by a question and answer session. Interested parties may listen via webcast on the Events page of our website, www.cnxlp.com. An archive of the webcast will be available for 30 days after the event.
Participant dial in (toll
free) 1-855-656-0928
Participant international dial
in 1-412-902-4112
(1 )"Adjusted EBITDA", "Distribution coverage ratio", "Distributable cash flow", "Average cost of coal sold", "Average cash margin per ton sold" and "Leverage ratio" are non-GAAP financial measures, which are reconciled to GAAP financial measures under the caption "Reconciliation of Non-GAAP Financial Measures".
(2 )CNXC is unable to provide a reconciliation of Adjusted EBITDA guidance to Net Income, the most comparable financial measure calculated in accordance with GAAP, due to the unknown effect, timing and potential significance of certain income statement items.
About CNX Coal Resources LP
CNX Coal Resources is a growth-oriented master limited partnership formed by CONSOL Energy Inc. (NYSE: CNX) to manage and further develop all of CONSOL's active coal operations in Pennsylvania. Its assets include a 25% undivided interest in, and operational control over, CONSOL's Pennsylvania mining complex, which consists of three underground mines and related infrastructure. More information is available on our website www.cnxlp.com.
Contacts:
Investor:
Mitesh Thakkar, (724) 485-3133
miteshthakkar@cnxlp.com
Media:
Zach Smith, (724) 485-4017
zacherysmith@cnxlp.com
Reconciliation of Non-GAAP Financial Measures
We evaluate our cost of coal sold on a cost per ton basis. Our cost of coal sold per ton represents our costs of coal sold divided by the tons of coal we sell. We define cost of coal sold as operating and other production costs related to produced tons sold, along with changes in coal inventory, both in volumes and carrying values. The cost of coal sold per ton includes items such as direct operating costs, royalty and production taxes, direct administration, and depreciation, depletion and amortization costs. Our costs exclude any indirect costs such as general and administrative costs and other costs not directly attributable to the production of coal. The GAAP measure most directly comparable to cost of coal sold is total costs.
We define average cash margin per ton as average coal revenue per ton, net of average cost of coal sold per ton, less depreciation, depletion and amortization.
We define adjusted EBITDA as (i) net income (loss) before net interest expense, depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as long-term incentive awards including phantom units under the CNX Coal Resources LP 2015 Long-Term Incentive Plan ("Unit Based Compensation"). The GAAP measure most directly comparable to adjusted EBITDA is net income.
We define distributable cash flow as (i) net income (loss) before net interest expense, depreciation, depletion and amortization, as adjusted for (ii) certain non-cash items, such as Unit Based Compensation, less net cash interest paid and estimated maintenance capital expenditures, which is defined as those forecasted average capital expenditures required to maintain, over the long-term, the operating capacity of our capital assets. These estimated capital expenditures do not reflect the actual cash capital expenditures incurred in the period presented. Distributable cash flow will not reflect changes in working capital balances. The GAAP measures most directly comparable to distributable cash flow are net income and net cash provided by operating activities.
We define leverage ratio as the ratio of net debt to last twelve month (LTM) earnings before interest expense, depreciation, depletion and amortization, adjusted for certain non-cash items, such as long-term incentive awards, amortization of debt issuance and capitalized interest.
The following table presents a reconciliation of cost of coal sold to total costs, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated (in thousands).
Three Months Ended June 30,
2017 2016
---- ----
Total Costs $70,998 $63,310
Freight Expense (4,441) (2,797)
Selling, General and
Administrative
Expenses (3,652) (1,969)
Interest Expense (2,396) (2,076)
Other Costs (Non-
Production) (934) (2,564)
Depreciation,
Depletion and
Amortization (Non-
Production) (550) (749)
---- ----
Cost of Coal Sold $59,025 $53,155
======= =======
The following table presents a reconciliation of average cash margin per ton for each of the periods indicated (in thousands, except per ton information).
Three Months Ended June 30,
2017 2016
---- ----
Total Coal Revenue $75,927 $62,640
Operating and Other
Costs 50,232 46,046
Depreciation, Depletion
and Amortization 10,277 10,422
Less: Other Costs (Non-
Production) (934) (2,564)
Less: Depreciation,
Depletion and
Amortization (Non-
Production) (550) (749)
---- ----
Total Cost of Coal Sold $59,025 $53,155
------- -------
Total Tons Sold 1,697 1,543
Average Revenue Per Ton
Sold $44.75 $40.61
Average Cost Per Ton
Sold 34.79 34.46
----- -----
Average Margin Per Ton
Sold 9.96 6.15
Add: Total Depreciation,
Depletion and
Amortization Costs Per
Ton Sold 5.71 6.50
---- ----
Average Cash Margin Per
Ton Sold $15.67 $12.65
====== ======
The following table presents a reconciliation of adjusted EBITDA to net income, the most directly comparable GAAP financial measure, on a historical basis for each of the periods indicated. The table also presents a reconciliation of distributable cash flow to net income and operating cash flows, the most directly comparable GAAP financial measures, on a historical basis for each of the periods indicated (in thousands).
Three Months Ended June 30,
2017 2016
---- ----
Net Income $11,474 $3,907
Plus:
Interest Expense 2,396 2,076
Depreciation, Depletion
and Amortization 10,277 10,422
Unit Based Compensation 841 307
--- ---
Adjusted EBITDA $24,988 $16,712
------- -------
Less:
Cash Interest 2,539 1,789
PA Mining Acquisition
Adjusted EBITDA - 3,368
Distributions to
Preferred Units 1,851 -
Estimated Maintenance
Capital Expenditures 8,976 6,752
----- -----
Distributable Cash Flow $11,622 $4,803
======= ======
Net Cash Provided by
Operating Activities $23,092 $21,320
Plus:
Interest Expense 2,396 2,076
Other, Including Working
Capital (500) (6,684)
------
Adjusted EBITDA $24,988 $16,712
------- -------
Less:
Cash Interest 2,539 1,789
PA Mining Acquisition
Adjusted EBITDA - 3,368
Distributions to
Preferred Units 1,851 -
Estimated Maintenance
Capital Expenditures 8,976 6,752
----- -----
Distributable Cash Flow $11,622 $4,803
------- ------
Distributions $12,228 $12,144
------- -------
Distribution Coverage 1.0 0.4
--- ---
Note: The above table reflects the additional 5% ownership of PAMC completed September 30, 2016 as if the additional ownership interest was owned for all periods presented.
The following table presents a reconciliation of leverage ratio (in thousands, except per ton information).
Twelve Months
Ended
June 30, 2017
-------------
Net Income $43,668
Plus:
Interest Expense 9,518
Depreciation, Depletion and Amortization 42,053
Unit Based Compensation 2,277
Capitalized Interest 264
Amortization of Debt Issuance Costs (898)
----
EBITDA Per Revolving Credit Agreement $96,882
Borrowings on Revolving Credit Facility $190,000
Capitalized Leases 198
---
Total Debt 190,198
Less:
Cash on Hand 6,608
-----
Net Debt Per Revolving Credit Agreement $183,590
Leverage Ratio (Net Debt/EBITDA) 1.9
---
Cautionary Statements
Various statements in this release, including those that express a belief, expectation or intention, may be considered forward-looking statements under federal securities laws including Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act") that involve risks and uncertainties that could cause actual results to differ materially from projected results. Accordingly, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. When we use the words "believe," "intend," "expect," "may," "should," "anticipate," "could," "estimate," "plan," "predict," "project," or their negatives, or other similar expressions, the statements which include those words are usually forward-looking statements. When we describe strategy that involves risks or uncertainties, we are making forward-looking statements. The forward-looking statements in this press release speak only as of the date of this press release; we disclaim any obligation to update these statements. We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control. These risks, contingencies and uncertainties relate to, among other matters, the following: generation of sufficient distributable cash flow to support the payment of minimum quarterly distributions; changes in coal prices or the costs of mining or transporting coal; uncertainty in estimating economically recoverable coal reserves and replacement of reserves; our ability to develop our existing coal reserves and successfully execute our mining plans; changes in general economic conditions, both domestically and globally; competitive conditions within the coal industry; changes in the consumption patterns of coal-fired power plants and steelmakers and other factors affecting the demand for coal by coal-fired power plants and steelmakers; the availability and price of coal to the consumer compared to the price of alternative and competing fuels; competition from the same and alternative energy sources; energy efficiency and technology trends; our ability to successfully implement our business plan; the price and availability of debt and equity financing; operating hazards and other risks incidental to coal mining; major equipment failures and difficulties in obtaining equipment, parts and raw materials; availability, reliability and costs of transporting coal; adverse or abnormal geologic conditions, which may be unforeseen; natural disasters, weather-related delays, casualty losses and other matters beyond our control; interest rates; labor availability, relations and other workforce factors; defaults by our sponsor under our operating agreement and employee services agreement; changes in availability and cost of capital; changes in our tax status; delays in the receipt of, failure to receive or revocation of necessary governmental permits; defects in title or loss of any leasehold interests with respect to our properties; the effect of existing and future laws and government regulations, including the enforcement and interpretation of environmental laws thereof; the effect of new or expanded greenhouse gas regulations; the effects of litigation; and other factors discussed in our 2016 Form 10-K under "Risk Factors," as updated by any subsequent Form 10-Qs, which are on file at the Securities and Exchange Commission.
CNX COAL RESOURCES LP
EARNINGS SUMMARY
(Dollars in thousands)
(unaudited)
For the Three Months Ended,
June 30,
2017 2016 Variance
---- ---- --------
Revenue:
Coal Revenue $75,927 $62,640 $13,287
Freight Revenue 4,441 2,797 1,644
Other Income 2,104 1,780 324
----- -----
Total Revenue and Other
Income 82,472 67,217 15,255
Cost of Coal Sold:
Operating Costs 49,298 43,482 5,816
Depreciation, Depletion
and Amortization 9,727 9,673 54
----- ----- ---
Total Cost of Coal Sold 59,025 53,155 5,870
Other Costs:
Other Costs 934 2,564 (1,630)
Depreciation, Depletion
and Amortization 550 749 (199)
--- --- ----
Total Other Costs 1,484 3,313 (1,829)
Freight Expense 4,441 2,797 1,644
Selling, General and
Administrative Expenses 3,652 1,969 1,683
Interest Expense 2,396 2,076 320
----- ----- ---
Total Costs 70,998 63,310 7,688
Net Income $11,474 $3,907 $7,567
======= ====== ======
Limited Partner Units
Outstanding -Basic 23,329,702 23,222,134 108
Limited Partner Units
Outstanding -Diluted 23,470,050 23,301,391 169
Net Income Allocable to
Limited Partner Units $9,431 $2,556 $6,875
Net Income per Limited
Partner Unit $0.40 $0.11 $0.29
Adjusted EBITDA $24,988 $16,712 $8,276
======= ======= ======
Distributable Cash Flow $11,622 $4,803 $6,819
======= ====== ======
Note: The Partnership has recast its consolidated financial statements to retrospectively reflect the additional 5% ownership of PAMC completed on September 30, 2016 as if the additional ownership interest was owned for all periods presented.
CNX COAL RESOURCES LP
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(unaudited)
ASSETS June 30, December 31,
2017 2016
---- ----
Current Assets:
Cash $6,608 $9,785
Trade Receivables 26,025 23,418
Other Receivables 1,152 515
Inventories 14,007 11,491
Prepaid Expenses 2,680 3,512
----- -----
Total Current Assets 50,472 48,721
Property, Plant and Equipment:
Property, Plant and Equipment 883,343 876,690
Less-Accumulated Depreciation, Depletion and Amortization 462,587 442,178
------- -------
Total Property, Plant and Equipment-Net 420,756 434,512
Other Assets:
Other 19,107 21,063
------ ------
Total Other Assets 19,107 21,063
------ ------
TOTAL ASSETS $490,335 $504,296
======== ========
LIABILITIES AND EQUITY
Current Liabilities:
Accounts Payable $16,003 $18,797
Accounts Payable-Related Party 2,196 1,666
Other Accrued Liabilities 44,403 44,318
------ ------
Total Current Liabilities 62,602 64,781
Long-Term Debt:
Revolver, Net of Debt Issuance and Financing Fees 187,292 197,843
Capital Lease Obligations 109 146
--- ---
Total Long-Term Debt 187,401 197,989
Other Liabilities:
Pneumoconiosis Benefits 2,613 2,057
Workers' Compensation 3,131 3,090
Asset Retirement Obligations 9,320 9,346
Other 437 463
--- ---
Total Other Liabilities 15,501 14,956
------ ------
TOTAL LIABILITIES 265,504 277,726
Partners' Capital:
Class A Preferred Units (3,956,496 Units Outstanding at June 30, 2017 and December 31, 69,151 69,151
2016)
Common Units (11,718,635 Units Outstanding at June 30, 2017; 11,618,456 Units Outstanding 140,607 140,967
at December 31, 2016)
Subordinated Units (11,611,067 Units Outstanding at June 30, 2017 and December 31, 2016) (8,880) (7,631)
General Partner Interest 12,223 12,274
Accumulated Other Comprehensive Income 11,730 11,809
------ ------
Total Partners' Capital 224,831 226,570
------- -------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $490,335 $504,296
======== ========
Note: The Partnership has recast its consolidated financial statements to retrospectively reflect the additional 5% ownership of PAMC completed on September 30, 2016 as if the additional ownership interest was owned for all periods presented.
CNX COAL RESOURCES LP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(unaudited)
Three Months Ended June 30,
2017 2016
---- ----
Cash Flows from Operating Activities:
Net Income $11,474 $3,907
Adjustments to Reconcile Net Income to Net Cash Provided by Operating
Activities:
Depreciation, Depletion and Amortization 10,277 10,422
Gain on Sale of Assets (1,403) (1)
Unit Based Compensation 841 307
Other Adjustments to Net Income 225 229
Changes in Operating Assets:
Accounts and Notes Receivable (882) 1,596
Inventories (1,291) 2,510
Prepaid Expenses 837 1,201
Changes in Other Assets 58 (1,456)
Changes in Operating Liabilities:
Accounts Payable 609 (1,399)
Accounts Payable - Related Party 432 (405)
Other Operating Liabilities 1,944 2,899
Changes in Other Liabilities (29) 1,510
--- -----
Net Cash Provided by Operating Activities 23,092 21,320
------ ------
Cash Flows from Investing Activities:
Capital Expenditures (3,442) (3,276)
Proceeds from Sales of Assets 1,500 -
----- ---
Net Cash Used in Investing Activities (1,942) (3,276)
------ ------
Cash Flows from Financing Activities:
Payments on Miscellaneous Borrowings (26) (24)
Payments on Revolver (7,000) (2,000)
Payments for Unitholder Distributions (14,050) (12,144)
Net Change in Parent Advances - (4,047)
Net Cash Used in Financing Activities (21,076) (18,215)
------- -------
Net Increase (Decrease) in Cash 74 (171)
Cash at Beginning of Period 6,534 9,134
----- -----
Cash at End of Period $6,608 $8,963
====== ======
Note: The Partnership has recast its consolidated financial statements to retrospectively reflect the additional 5% ownership of PAMC completed on September 30, 2016 as if the additional ownership interest was owned for all periods presented.
View original content with multimedia:http://www.prnewswire.com/news-releases/cnx-coal-resources-lp-announces-results-for-the-second-quarter-2017-300496852.html
SOURCE CNX Coal Resources LP
