Warrior Met Coal (HCC) Q2 2026 earnings call transcript

Good afternoon, and welcome everyone to WARRIOR's second quarter 2026 earnings conference call. Before we begin, let me remind you that certain statements made during this call, including statements relating to our expected future business and financial performance, may be considered forward-looking statements according to the private securities litigation reformat. Forward-looking statements, by their nature, address matters that are to different degrees uncertain. These uncertainties, which are described in more detail in the company's annual and quarterly reports followed with the SEC, may cause our actual future results to be materially different from those expected in our forward-looking statements. We do not undertake to update our forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by law.

For more information regarding forward-looking statements, please refer to the company's press releases and SEC filings. We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures, and our second quarter press release furnished to the SEC on Form 8K, which is also posted on our website. Additionally, we will be filing our Form 10Q for the quarter ended June 30, 2026 with the SEC this afternoon. You can find additional information regarding the company on our website at www. warriormetcole. com, which also includes a second quarter supplemental slide deck that was posted this afternoon.

Today on the call with me are Mr. Walt Scheller, Chief Executive Officer, and Mr. Dale Boyles, Chief Financial Officer. After our formal remarks, we'll be happy to answer any questions.

With that, I will now turn the call over to Walt.

Thanks, Brian. Hello, everyone, and thank you for taking the time to join us today to discuss our second quarter 2026 results. I'll start by providing an overview of the quarter before they'll review our results in additional detail. The second quarter marked a key inflection point as we clearly realized the incremental earnings and cash flow contributions of Blue Creek. We believe there's even more value to be realized as we work towards Blue Creek's full potential.

This inflection point was characterized by significant margin expansion and generation of more than $103 million of free cash flow, which came as a result of record sales volumes, improved pricing, and a lower cost profile. These results brought free cash flow to a positive $11 million at the midpoint of the year. Now with Blue Creek operational and our development spending complete, we've entered into the next phase of WARRIORS growth, which is focused on three cash flow generation, balance sheet strength, and stockholder returns over the long term. Looking at our markets more broadly, the second quarter of 2026 was characterized by the pockets of normalization of supply conditions following the rather related disruptions observed earlier in the year.

Despite these fluctuations, steel fundamentals remained relatively unchanged. The tragic mining incident in China in late May briefly tightened sentiment around domestic coke and coal availability and resulted in additional safety inspections and higher domestic coke and coal and coke prices. The impact of this sentiment shift was material and was clearly observed with the reopening of the arbitrage between the China CFR and Australian FOB indices, which had remained predominantly closed for over a year.

Demand from India continued to be resilient, but weak steel margins, subdued Chinese buying activity, and the continued pressure from Chinese steel exports prevented the broader market from developing stronger momentum.

In Europe, we continue to see the expected benefits of protectionist measures materializing, but the recovery remains uneven and is not strong enough to offset weakness in other regions. Freight rates and their corresponding demurrage rates remained materially above their recent averages, and as a result, had a negative impact on our average net selling price.

The World Steel Association reported recently the global pig iron production decline during the first six months of 2026 by 1.9%, as compared to the same period last year. India continued to show growth with a 2.7% increase year over year, while China remained the primary source of weakness as the country continues to grapple with soft internal demand and weak steel margins.

This regional split remains consistent with the broader market narrative, with resilient demand in India and parts of Asia, offset by continued softness in China and an uneven recovery across developed markets. Our primary index, the PLV FOB Australia, remains well above the levels observed during most of 2025 and was relatively stable for the second quarter of 2026 as compared to the first quarter. The index price averaged $216 per ton and was 29% or $49 per ton higher than the second quarter of 2025. For the main secondary indices, the Australian LVHCC index and the CFR India LVHCC index prices increased in the second quarter of this year compared to the second quarter of last year to an average of $170 and $191 per short ton, respectively.

The Australian LDHCC index price was $40 per ton or 30% higher than the second quarter of last year. In the CFR India, LDHCC index price was $46 per ton or 32% higher than the second quarter of 2025. As a result, the relativity of the Australian LVHCC index price to the Australian POV index price increased from 78% for the second quarter 2025 to 79% for the second quarter 2026. In contrast to the Australian LVHCC and CFR India index prices, the average US East Coast HVA index price decreased $11 per ton, or 7%, in the second quarter this year from the second quarter of last year and averaged $143 per short ton. As a result, the relativity decreased from 92% for the second quarter of 2025 to 66% for the second quarter of 2026.

We continue to see a meaningful discount to the POV price each of the last five consecutive quarters in the Atlantic Basin to the point where it has temporarily become more profitable to sell into the Pacific Basin despite the higher freight rates. Although we don't expect this to continue once the U. S. East Coast HVA relativities return to normal levels.

We achieved a gross price realization of 66% for the second quarter this year compared to 80% in the second quarter of 2025.

Our lower gross price realizations were driven by a combination of factors. First, our average main pricing indices for the PLV and LVHCC in the Pacific Basin have increased year-over-year for the second quarter, while the East Coast High Vol A Index decreased in the Atlantic Basin.

Second, freight rates to Asia, primarily India, were about $13 per ton, or 37%, higher in the second quarter of 2026 than last year's second quarter and reduced our gross price realization.

Third, gross price realizations were lower due to a 21% higher mix of high-volved products sold in the second quarter of this year. As production from Blue Creek continues to increase, we expect our sales volume mix to become more weighted toward high-ball-A products and the Pacific Basin destinations over time. This shift, along with the abnormally depressed second-tier relativities, is expected to naturally lower our gross price realizations. Despite this we expect the increased weighing toward high products to drive margin expansion through the impact of the low profile of Blue Creek on lowering our task cost of sales Turning back to our financial results, for the fourth consecutive quarter, WARRIOR achieved record-high quarterly sales volume in the second quarter of 3.7 million short tons, compared to 2.2 million in the same quarter of 2025.

This represents a 65% increase primarily due to the additional sales volume from the Blue Creek mine. Our second quarter sales volume mix was 66% of high ball A and 34% of premium low ball. Our sales by geography for the second quarter break down as follows. 50% into Asia, 35% into Europe, and 14% into South America.

Our spot volume was 13% for the second quarter of 2026. Sales volumes into the Pacific Basin were 50% this quarter compared to 52% in the second quarter of 2025. Production volume in the second quarter of 2026 was 3.3 million short tons compared to 2.3 million in the same quarter of last year, representing a 45% increase. This increase reflects a significant contribution of Blue Creek.

Our coal inventory levels decreased to 1.4 million short tons at the end of June this year, compared to 1.9 million tons at the end of March 2026. We expect to continue driving our excess inventory downwards over the remainder of the year to maximize sales volume, profitability, and free cash flow. I will now ask Dale to address our second quarter results in greater detail.

Thanks, Walt. We were pleased with our financial results for the second quarter of 2026, especially with our free cash flow generation. As Walt mentioned, the second quarter marked a key inflection point for our business. With the Blue Creek construction capex behind us, and by using working capital to drive the higher sales and production volumes out of Blue Creek, we were able to generate significant free cash flow. WARRIOR recorded net income of $87 million, or $1.65 per diluted share, in the second quarter of this year, compared to net income of $6 million, or $0.11 per diluted share, in the same quarter of 2025. We reported adjusted EBITDA of $157 million compared to $54 million in the same quarter of 2025, an increase of 193%.

Our adjusted EBITDA margin improved to 31% in the second quarter of 2026 compared to 18% in the same quarter of last year. On a per ton basis, our adjusted EBITDA margin improved by 78% to $43 per short ton for the second quarter of 2026, compared to $24 in the last year's second quarter. The primary drivers of these improvements were a 65% increase in sales volumes, a 6% increase in average net selling prices, and a 9% reduction in cash costs, reflecting the increasing contribution from our new Blue Creek mine.

Total revenues were $510 million compared to $298 million in the same quarter of last year. The total increase of $212 million was primarily due to the impact of higher sales volumes of $186 million and the impact of an increase in average gross selling prices of $73 million.

This was partially offset by the impact of a 21% higher mix of high-volved A ton sold, which had an impact on revenues of $40 million. In addition, demurrage and other charges were $9 million higher compared to last year's second quarter. This resulted in an average net selling price of $138 per short ton in the second quarter of 2026, compared to $130 in the second quarter of last year. Cash cost of sales were $338 million, or 67% of mining revenues in the second quarter of this year, compared to $225 million, or 78% of mining revenues in the second quarter of last year. Of the $113 million net increase in cash cost of sales, there was a $145 million increase in cost, which were attributed to the 65% increase in sales volumes, and slightly higher variable transportation and loyalty costs on higher average steelmaking coal price indices.

These higher costs were offset partially by $32 million of lower costs that were driven by the leverage of low-cost Blue Creek tons sold and the benefit from the 45X production credit.

We have seen smaller amounts of inflation on various materials and supplies, as we have previously discussed. However, it has not been aggregated to a material amount at this point in the year. The cash cost of sales per short time FOB port was approximately $93 compared to $101 in the same quarter last year. The 9% decrease was primarily related to the factors that I just mentioned on the dollar basis.

Cash margins per short time increased 57% to $45 in the second quarter from $29 in the same quarter of last year. While we have a higher mix of high-vol A product at lower US East Coast index prices than in previous periods, Blue Creek has created margin expansion with its inherently lower cost structure.

Our second quarter 2026 SG&A expenses were $10 million and were $2 million lower than the same quarter of 2025. This decrease was due to funds received from the old Walter Energy bankruptcy proceedings of $2 million during this year's second quarter.

Appreciation and depletion expenses were $58 million in the second quarter, which was 35% higher than the second quarter of 2025, primarily due to the additional assets placed in the service at Blue Creek and the higher sales volume in the second quarter of 2026. We recorded income tax expense of approximately $4 million on pre-tax income of $91 million in the second quarter of 2026. Our effective income tax rate varied from the statutory federal income tax rate of 21%, primarily due to tax benefits recognized for depletion expense and a foreign-derived intangible income deduction, resulting in an effective income tax rate of 4%.

Now let's turn to cash flows. Cash flows from operating activities were $132 million in the second quarter of 2026 and were $95 million higher than the previous year's second quarter, driven by the growth in revenue. Working capital increased by $14 million, primarily due to higher supplies inventory, higher prepaid expenses, lower accrued expenses, partially offset by favorable collections of accounts receivable.

Free cash flow was $103 million, due to $132 million of cash provided by operations, combined with cash used for capital expenditures of $29 million. This second quarter result brought free cash flow to a positive $11 million for the first half of 2026, which was slightly better than we expected.

The inflection point in our free cash flow generation marks a significant turning point from strategic investment to future stockholder returns.

We were pleased that we increased our cash and total liquidity while delivering higher profitability. In the last year, the total available liquidity at the end of the second quarter was $453 million and consisted of cash and cash equivalents of $302 million, short-term investments of $10 million, and $141 million available under our ABL facility. Given the significant increase in adjusted EBITDA from the first quarter of 2026, I want to highlight the primary drivers of this change.

First, our sales volumes were 22% higher in the second quarter, possibly impacted by an increase in tons sold from Blue Creek.

Second, the increase of Blue Creek tons sold had a positive impact on cash costs per ton, which were $3 lower in the second quarter, primarily attributed to Blue Creek's inherently low-cost structure.

Third, our average net selling price decreased in the second quarter by about $12 per ton, or 8%. This was primarily due to a 5 higher mix of high vol A volume sold 11 more volume sold into the Atlantic basin on lower U the capital attention for that particular issue in New York City Now we will analyze the market under the important data for trade and its access to a single resource building on the calendar We have been pleased with the continued positive reception of the year of $14 million in the second quarter. This resulted in operating cash flows of $132 million, which was $144 million higher than the first quarter of 2026. We were pleased to see the positive factors significantly outweighed the negative factors.

Finally, let me turn to our current outlook and guidance for the full year 2026 as detailed in our earnings release. We have been pleased with the continued positive reception of the Blue Creek trial volumes and the adoption by our customers, which has surpassed our high expectations. As a result, the company is raising its sales and production volume guidance by a half million tons. This will increase Blue Creek sales volume to 5 million short tons for the full year, of which 90% is already under contract. As we noted in our first quarter earnings call, we continue to see inflationary cost pressures on a wide variety of materials and supplies, such as steel roof supports, shear bits, and diesel fuel.

Individually, each of these items is not material to our cost structure. However, the aggregation of broader inflation could become larger. While we have not been materially impacted by inflation so far this year, we believe the remainder of the year could see an increase of a few dollars per ton. I will now turn it back to Walfer's final comments.

Thanks, Dale. WARRIOR continued its strong performance in the second quarter. Our financial and operational results were better than expected, impacted in part by premium quality steelmaking coal prices being higher for a longer period of time. This strong first half of 2026 supports our revised full-year outlook and guidance.

Looking forward, we expect the market to remain sensitive to short-term supply disruptions, regional trade flows, and still market conditions. While the premium segment remains relatively tighter than the broader stillmaking coal market, we do not believe that current steel fundamentals are strong enough to support a sustained return to the price momentum observed earlier in the year. We also expect to see improvements in the supply of Australian premium coals.

We'll continue to monitor developments in China very closely, as any further actions from the government can easily sway the markets in either direction.

From a pricing perspective, we expect the PLB to remain above the depressed levels observed for most of 2025, but below the supply-driven highs experienced during the first half of 2026. The most likely outcome, in our view, is a lower range-bound market with periods of volatility driven by weather, logistics, geopolitical developments, and regional buying patterns. We also continue to expect that second-tier indices will remain at depressed levels relative to the PLV, as observed for the past several quarters.

This expectation could put pressure on our net selling prices, profitability, and free cash flow generation in the second half of the year as compared to the first half.

We've been pleased with the reception of the product coming out of our new mine as demonstrated by the successful trials and adoption by our customers. As a result, we've been able to gain market share, mostly with strategic customers that recognize our differentiated value proposition. This positive reception from our customers led to the increase in our four-year guidance volumes, as Dale described earlier.

We believe similar opportunities will continue to present themselves, especially as we approach the contract season later this year. Most importantly, WARRIOR has the tools to continue to drive value creation for our stockholders by continuing to execute our strategy to optimize production, We can control our costs and generate free cash flow. With our high-quality assets and low first quartile cost structure, we're as well-positioned as we've ever been to thrive in a wide range of steel-making coal environments.

With that, we'd like to open the call for questions. Operator?

No, we don't get into that much detail. We just haven't done that.

I think you're going to see kind of a continuation of where we've been year to date. I don't expect a great deal of fluctuation there. I do think with the low vol price coming down, it wouldn't surprise me to see the relativities close back up and see us sitting at where the high vol A price kind of stays a little more steady than the low vol price as it comes down.

That's just speculation on my part.

Yeah, and as far as shifting shipments to one basin to the other, that really depends on customer demand and when they want their shipments, because, as we said, 90% of our volume this year is under contract, and when they want it is when they want it. We can't really dictate that.

Yeah, I think so. Even with prices declining as they have in recent weeks, I do think we're going to start to really see strong cash flow generation, which means, or should mean, you know, higher returns to shareholders. You know, we're going to have to generate that cash first and see where we go from there.

Cash we like to see in a range of $350 million to $400 million, so a total liquidity of around $500 million in total.

The status of the NOLs, well, we utilized all the NOLs on the federal side back in 2023, I believe it is, and all we have now is state NOLs, and we still have $900 million of those approximately. But those are, you know, we don't pay any Alabama tax. I'm not sure we'll be able to use a lot of those NOLs in the future. As far as buybacks, that's, you know, one of the options that we have, one of the levers we have in providing returns to shareholders. And as we get to that point when we're looking at future returns, we'll give that a consideration.

Thanks, Dale.

I just think that high ball A prices are where they are in the Atlantic basin because of the volume of high ball A available. And I think they disconnected from the low ball price And as the low ball price begins to retreat I not sure Again it just speculation on my part I not sure that the high price in the Atlantic Basin will retreat in equal amounts So that what would close the relativities up potentially Okay, so we need to see supply coming out of high-volve, essentially, is the answer, you think, what?

I think that's the final answer, yes.

Thanks, George.

Well, you talked about some inflation, but we're pretty near the bottom end of our range already. So we're 93 year-to-date versus 95 on the bottom. So I don't see that as different. And the higher number is, yes, based on some higher estimates on pricing, over 200 for a PLV. So we baked in some inflation into that number and just provide some cushion for anything that might happen in the second half of the year.

Well, for this year, it was 105 to 115 million is our guide for this year for the existing mines. And that excluded Blue Creek, so you probably need to add another 25 to 30 for that. So you're looking at 130 to 150-ish on a recurring basis.

Probably broad range.

I agree, but not a significant amount. We don't use a lot of diesel, so we don't truck a lot of coal. And what we do truck, we could also ship by rail, so we have optionality there. But we just don't typically use a significant amount of diesel. As I said in my prepared remarks, when you add them all up, you can see a few dollars a ton when it all adds up between steel prices and other chemicals, all kinds of things.

No, no lingering effects. We saw it for a few days. I mean, it's really that time of the year where, between storms and other things, we expect some outages down there, and we just managed to have one down there from an electrical standpoint for a few days. But, no, we don't expect any lingering effects.

Well, I think when we look at our longwall moves, given the number of sets of shields we have, we have done a – we've worked very hard to make sure we continue to have zero-day longwall moves. So I think impact from longwall moves will be minimal, if any, throughout the rest of the year.

Yeah, well, first, you know, we did have higher volumes, okay, so, but Let me see, looking at the change here. The biggest one was 10% more volume went into Europe versus the first quarter. As we said in our prepared remarks, those prices were lower, U. S. East Coast prices, because they were down. When you look at the quarter, so we had less going into Asia of about 10%, but Asia still, those freight rates were much, much higher.

They averaged about almost $10 a ton higher in the second quarter versus the first quarter.

Yeah, it was about $3 a ton, Chris, somewhere around $9.

Yes, $3 a ton. That's correct.

Yes, that's right.

That's correct, and 90% of that is contracted.

All right. Thank you, Chris.

Right now, we're staffed to run four continuous minor units and long wall, which is where we wanted to be. We have some openings. We're still trying to fill jobs, but we're feeling pretty good about where we're staffed right now.

That concludes our call this afternoon. Thank you again for joining us today, and we appreciate your interest in WARRIOR. Thank you. Again, that concludes today's conference. Thank you all for participating. You may now disconnect.