Company Quick10K Filing
Ramaco Resources
Price3.78 EPS1
Shares41 P/E6
MCap155 P/FCF6
Net Debt11 EBIT32
TEV166 TEV/EBIT5
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-06
10-Q 2020-03-31 Filed 2020-05-12
10-K 2019-12-31 Filed 2020-02-20
10-Q 2019-09-30 Filed 2019-11-05
10-Q 2019-06-30 Filed 2019-08-13
10-Q 2019-03-31 Filed 2019-05-07
10-K 2018-12-31 Filed 2019-03-19
10-Q 2018-09-30 Filed 2018-11-07
10-Q 2018-06-30 Filed 2018-08-06
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-03-21
10-Q 2017-09-30 Filed 2017-11-08
10-Q 2017-06-30 Filed 2017-08-14
10-Q 2017-03-31 Filed 2017-05-10
10-K 2016-12-31 Filed 2017-03-28
8-K 2020-08-14 Officers, Exhibits
8-K 2020-08-06 Earnings, Regulation FD, Exhibits
8-K 2020-06-26 Shareholder Vote
8-K 2020-05-12
8-K 2020-04-27
8-K 2020-04-15
8-K 2020-02-20
8-K 2019-12-10
8-K 2019-11-05
8-K 2019-09-24
8-K 2019-08-13
8-K 2019-06-25
8-K 2019-05-07
8-K 2019-04-29
8-K 2019-03-19
8-K 2019-02-20
8-K 2018-12-04
8-K 2018-11-07
8-K 2018-11-05
8-K 2018-11-02
8-K 2018-09-11
8-K 2018-08-06
8-K 2018-06-11
8-K 2018-05-15
8-K 2018-03-21
8-K 2018-02-22
8-K 2018-01-19

METC 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Note 1 - Business
Note 2 - Summary of Significant Accounting Policies
Note 3 - Property, Plant and Equipment
Note 4 - Debt
Note 5 - Sba Paycheck Protection Program Loan
Note 6 - Equity
Note 7 - Commitments and Contingencies
Note 8 - Revenue
Note 9 - Income Taxes
Note 10 - Earnings per Share
Note 11 - Related Party Transactions
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 4. Mine Safety Disclosures
Item 6. Exhibits
EX-31.1 metc-20200630ex311f8ec7c.htm
EX-31.2 metc-20200630ex312ec58d9.htm
EX-32.1 metc-20200630ex321ca787f.htm
EX-32.2 metc-20200630ex32251595a.htm
EX-95.1 metc-20200630ex951ba9ac8.htm

Ramaco Resources Earnings 2020-06-30

Balance SheetIncome StatementCash Flow
230184138924602017201820192020
Assets, Equity
705438226-102017201820192020
Rev, G Profit, Net Income
3524132-9-202017201820192020
Ops, Inv, Fin

10-Q 1 metc-20200630x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                 to

Commission File Number: 001-38003

RAMACO RESOURCES, INC.

(Exact name of registrant as specified in its charter)

Delaware

38-4018838

(State or other jurisdiction

(I.R.S. Employer

of incorporation or organization)

Identification No.)

250 West Main Street, Suite 1800

Lexington, Kentucky

40507

(Address of principal executive offices)

(Zip code)

(859) 244-7455

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

    

Trading Symbol(s)

    

Name of each exchange on which registered

Common Stock, $0.01 par value

METC

NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes      No  

As of August 6, 2020, the registrant had 42,621,869 shares of common stock outstanding.



CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (the “Quarterly Report”) includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). All statements, other than statements of historical fact included in this report, regarding our strategy, future operations, financial position, estimated revenue, projected costs, prospects, plans and objectives of management are forward-looking statements. When used in this Quarterly Report, the words “could,” “believe,” “anticipate,” “intend,” “estimate,” “expect,” “project” and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such identifying words. These forward-looking statements are based on management’s current expectations and assumptions about future events and are based on currently available information as to the outcome and timing of future events. When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements described under, but not limited to, the heading “Item 1A. Risk Factors” included in this report and elsewhere in the Annual Report of Ramaco Resources, Inc. (the “Company”) on Form 10-K for the year ended December 31, 2019 (the “Annual Report”) and other filings with the Securities and Exchange Commission (“SEC”).

Forward-looking statements may include statements about:

risks related to the impact of the COVID-19 global pandemic, such as the scope and duration of the outbreak, the health and safety of our employees, government actions and restrictive measures implemented in response, delays and cancellations of customer sales, supply chain disruptions and other impacts to the business, or our ability to execute our business continuity plans;
anticipated production levels, costs, sales volumes and revenue;
timing for completion of major capital projects;
economic conditions in the metallurgical coal and steel industries generally, including any near-term or long-term downturn in these industries as a result of the COVID-19 pandemic and related actions;
expected costs to develop planned and future mining operations, including the costs to construct necessary processing and transport facilities;
estimated quantities or quality of our metallurgical coal reserves;
our ability to obtain additional financing on favorable terms, if required, to complete the acquisition of additional metallurgical coal reserves as currently contemplated or to fund the operations and growth of our business;
maintenance, operating or other expenses or changes in the timing thereof;
financial condition and liquidity of our customers;
competition in coal markets;
the price of metallurgical coal and/or thermal coal;
compliance with stringent domestic and foreign laws and regulations, including environmental, climate change and health and safety regulations, and permitting requirements, as well as changes in the regulatory environment, the adoption of new or revised laws, regulations and permitting requirements;
potential legal proceedings and regulatory inquiries against us;
the impact of weather and natural disasters on demand, production and transportation;
purchases by major customers and our ability to renew sales contracts;
credit and performance risks associated with customers, suppliers, contract miners, co-shippers and trading, banks and other financial counterparties;
geologic, equipment, permitting, site access and operational risks and new technologies related to mining;
transportation availability, performance and costs;
availability, timing of delivery and costs of key supplies, capital equipment or commodities such as diesel fuel, steel, explosives and tires;
timely review and approval of permits, permit renewals, extensions and amendments by regulatory authorities;
our expectations relating to dividend payments and our ability to make such payments; and
other risks identified in this Quarterly Report that are not historical.

3


We caution you that these forward-looking statements are subject to a number of risks, uncertainties and assumptions, which are difficult to predict and many of which are beyond our control, incident to the development, production, gathering and sale of coal. Moreover, we operate in a very competitive and rapidly changing environment and new risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements we make in this Quarterly Report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved or occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results.

All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement and speak only as of the date of this Quarterly Report. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue.

Except as otherwise required by applicable law, we disclaim any duty to update any forward-looking statements, all of which are expressly qualified by the statements in this section, to reflect events or circumstances after the date of this report.

4


PART I - FINANCIAL INFORMATION

Item 1.         Financial Statements

Ramaco Resources, Inc.

Unaudited Condensed Consolidated Balance Sheets

In thousands, except share and per share amounts

    

June 30, 2020

    

December 31, 2019

    

Assets

  

 

  

Current assets:

  

 

  

Cash and cash equivalents

$

9,759

$

5,532

Accounts receivable

 

15,801

 

19,256

Inventories

 

25,455

 

15,261

Prepaid expenses and other

 

3,160

 

4,274

Total current assets

 

54,175

 

44,323

Property, plant and equipment – net

 

183,145

 

178,202

Advanced coal royalties

 

3,832

 

3,271

Other

 

949

 

1,017

Total Assets

$

242,101

$

226,813

Liabilities and Stockholders' Equity

Liabilities

Current liabilities

Accounts payable

$

8,236

$

10,663

Accrued expenses

 

12,752

 

11,740

Deferred income

1,139

Asset retirement obligations

 

702

 

19

Current portion of long-term debt

 

4,914

 

3,333

Other

94

656

Total current liabilities

 

27,837

 

26,411

Asset retirement obligations

 

14,220

 

14,586

Long-term debt, net

 

15,901

 

9,614

Deferred tax liability

 

6,635

 

5,265

Other long-term liabilities

975

854

Total liabilities

 

65,568

56,730

Commitments and contingencies

 

 

Stockholders' Equity

Preferred stock, $0.01 par value, 50,000,000 shares authorized, none issued and outstanding

 

 

Common stock, $0.01 par value, 260,000,000 shares authorized, 42,621,869 and 40,933,831 shares issued and outstanding, respectively

 

426

 

410

Additional paid-in capital

 

156,777

 

154,957

Retained earnings

 

19,330

 

14,716

Total stockholders' equity

 

176,533

 

170,083

Total Liabilities and Stockholders' Equity

$

242,101

$

226,813

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

5


Ramaco Resources, Inc.

Unaudited Condensed Consolidated Statements of Operations

Three months ended June 30, 

Six months ended June 30, 

In thousands, except per share amounts

    

2020

    

2019

    

2020

    

2019

Revenue

 

$

36,374

 

$

65,761

 

$

78,310

 

$

123,221

Costs and expenses

Cost of sales (exclusive of items shown separately below)

 

30,134

 

43,219

 

61,069

 

84,225

Asset retirement obligation accretion

 

159

 

128

 

300

 

256

Depreciation and amortization

 

5,341

 

4,822

 

10,343

 

8,938

Selling, general and administrative

 

5,039

 

4,703

 

9,756

 

8,664

Total costs and expenses

 

40,673

 

52,872

 

81,468

 

102,083

Operating income (loss)

 

(4,299)

 

12,889

 

(3,158)

 

21,138

Other income

 

8,504

 

194

 

9,714

 

492

Interest expense, net

 

(293)

 

(302)

 

(572)

 

(609)

Income before tax

 

3,912

 

12,781

 

5,984

 

21,021

Income tax expense

 

1,260

 

2,168

 

1,370

 

3,525

Net income

$

2,652

$

10,613

$

4,614

$

17,496

Earnings per common share

Basic

$

0.06

$

0.26

$

0.11

$

0.43

Diluted

$

0.06

$

0.26

$

0.11

$

0.43

Basic weighted average shares outstanding

 

42,704

 

40,869

 

42,232

 

40,737

Diluted weighted average shares outstanding

 

42,704

 

40,965

 

42,232

 

40,810

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6


Ramaco Resources, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

Additional

Retained

Total 

 

Common

 

Paid-

 

Earnings

 

Stockholders'

In thousands

    

Stock

    

in Capital

    

(Deficit)

    

Equity

Balance at January 1, 2020

$

410

$

154,957

$

14,716

$

170,083

Stock-based compensation

 

17

 

906

 

 

923

Net income

 

 

 

1,962

 

1,962

Balance at March 31, 2020

427

155,863

16,678

172,968

Restricted stock surrendered for withholding taxes payable

(1)

(192)

(193)

Stock-based compensation

 

 

1,106

 

 

1,106

Net income

 

 

 

2,652

 

2,652

Balance at June 30, 2020

$

426

$

156,777

$

19,330

$

176,533

Balance at January 1, 2019

$

401

$

150,926

$

(10,218)

$

141,109

Stock-based compensation

 

7

 

887

 

 

894

Net income

 

 

 

6,883

 

6,883

Balance at March 31, 2019

408

151,813

(3,335)

148,886

Stock-based compensation

 

1

 

1,059

 

 

1,060

Net income

 

 

 

10,613

 

10,613

Balance at June 30, 2019

$

409

$

152,872

$

7,278

$

160,559

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

7


Ramaco Resources, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

Six months ended June 30, 

In thousands

    

2020

    

2019

Cash flows from operating activities

 

  

 

  

Net income

$

4,614

$

17,496

Adjustments to reconcile net income to net cash from operating activities:

Accretion of asset retirement obligations

 

300

 

256

Depreciation and amortization

 

10,343

 

8,938

Amortization of debt issuance costs

 

29

 

28

Stock-based compensation

 

2,029

 

1,954

Other income - PPP Loan

(7,305)

Deferred income taxes

 

1,370

 

3,429

Changes in operating assets and liabilities:

Accounts receivable

 

3,455

 

(15,370)

Prepaid expenses and other current assets

 

1,229

 

1,467

Inventories

 

(10,194)

 

(2,408)

Other assets and liabilities

 

(372)

 

67

Accounts payable

 

323

 

(4,121)

Accrued expenses

 

1,012

 

1,295

Net cash from operating activities

 

6,833

 

13,031

Cash flow from investing activities:

Purchases of property, plant and equipment

 

(18,019)

 

(19,737)

Cash flows from financing activities

Proceeds from PPP Loan

8,444

Proceeds from borrowings

 

29,443

 

44,300

Repayment of borrowings

 

(21,604)

 

(38,800)

Repayments of financed insurance payable

(562)

(287)

Restricted stock surrendered for withholding taxes payable

(193)

Net cash from financing activities

 

15,528

 

5,213

Net change in cash and cash equivalents and restricted cash

 

4,342

 

(1,493)

Cash and cash equivalents and restricted cash, beginning of period

 

6,865

 

7,380

Cash and cash equivalents and restricted cash, end of period

$

11,207

$

5,887

Supplemental cash flow information:

Cash paid for interest

$

532

$

568

Cash paid for taxes

 

 

Non-cash investing and financing activities:

Capital expenditures included in accounts payable and accrued expenses

 

152

 

5,373

Additional asset retirement obligations incurred

 

17

 

137

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8


Ramaco Resources, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1—BUSINESS

Ramaco Resources, Inc. (the “Company,” “we,” “us” or “our,”) is a Delaware corporation formed in October 2016. Our principal corporate offices are located in Lexington, Kentucky. We are an operator and developer of high-quality, low-cost metallurgical coal in southern West Virginia, southwestern Virginia, and southwestern Pennsylvania.

Response to the Coronavirus Disease 2019 (COVID-19) Pandemic on Our Business— The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption during the first six months of 2020. In response to the COVID-19 pandemic, governments worldwide have placed significant restrictions on both domestic and international travel and have taken action to restrict the movement of people and suspend some business operations, ranging from targeted restrictions to full national lockdowns. These lockdown and stay-at-home measures, coupled with the spread and impact of the COVID-19 pandemic, resulted in an increase in the U.S. unemployment rate in May of this year to 13%. Recently, states that had begun taking steps to reopen their economies experienced a subsequent surge in cases of COVID-19, causing these states to cease such reopening measures in some cases and reinstitute restrictions in others.

The Company has been adversely affected by the deterioration and increased uncertainty in the macroeconomic outlook as a result of the impact of COVID-19. Two customers have notified us that their contractual obligations for the purchase of metallurgical coal from us will be delayed or curtailed because of COVID-19. These delays or curtailments are expected to reduce our total contracted sales volumes for 2020 by up to 12%.

We are not able to estimate the impact of customer delays or curtailments of their contractual obligations or our ability to secure additional sales in spot markets. We have observed a declining demand for and reductions in the spot price of metallurgical coal as business and consumer activity decelerates across the globe. This weakness limited our ability to complete spot sales in the first and second quarters of 2020, leading to an increase in our inventories.

In response, we have taken certain actions to limit our production and reduce capital expenditures. These actions have included:

a two week operational furlough of 203 employees at the Elk Creek mining complex in West Virginia in April 2020;
temporary reductions in the salaries of certain executives, including our named executive officers, by 30% beginning April 1, 2020, and deferral of the payment of cash bonuses for 2019 performance for these individuals;
the partial closure of our Berwind low volatile development mine complex affecting approximately 44 jobs in July 2020; and
a reduction or deferral of non-essential capital expenditures to adapt to the current market conditions.

 

To date we have not had significant issues with any of our critical suppliers, but we continue to communicate with them and closely monitor their developments to ensure we have access to the goods and services required to maintain our operations.

The Company borrowed an additional $13.2 million under two promissory notes to further improve our liquidity, as further discussed in Notes 4 and 5. Securing this funding was key to limiting the employee furlough period in April 2020, retaining a greater number of employees and maintaining payroll.

We continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, suppliers, and stakeholders, or as required by federal, state, or local authorities. Additional measures we may take could include extensions of operational furloughs and temporary salary reductions for certain executives, staffing reductions and idling or realignment of additional mines as

9


conditions might dictate. It is not clear what the potential effects any such alterations or modifications may have on our business. The impact on our results in future periods could be much more significant and cannot currently be quantified.

NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation—These interim financial statements are unaudited and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Certain disclosures have been condensed or omitted from these financial statements. Accordingly, they do not include all the information and notes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete consolidated financial statements, and should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of normal recurring adjustments, necessary to fairly present the financial position as of, and the results of operations for, all periods presented. In preparing the accompanying financial statements, management has made certain estimates and assumptions that affect reported amounts in the condensed consolidated financial statements and disclosures of contingencies. Actual results may differ from those estimates. The results for interim periods are not necessarily indicative of annual results. Certain reclassifications have been made to the prior period’s consolidated financial statements and related footnotes to conform them to the current period presentation. Intercompany balances and transactions between consolidated entities are eliminated.

Cash and Cash Equivalents—We classify all highly-liquid instruments with an original maturity of three months or less to be cash equivalents. Restricted cash balances were $1.4 million at June 30, 2020 and $1.3 million at December 31, 2019, consisted of funds held in escrow for potential future workers’ compensation claims and were classified in other current assets in the consolidated balance sheets.

Self-Insurance—We are self-insured for certain losses relating to workers’ compensation claims. We purchase insurance coverage to reduce our exposure to significant levels of these claims. Self-insured losses are accrued based upon estimates of the aggregate liability for uninsured claims incurred as of the balance sheet date using current and historical claims experience and certain actuarial assumptions. At June 30, 2020, the estimated aggregate liability for uninsured claims totaled $1.2 million. Of this, $0.9 million is included in other long-term liabilities within the consolidated balance sheets. At December 31, 2019, the estimated aggregate liability for uninsured claims totaled $1.0 million including $0.7 included in other long-term liabilities. These estimates are subject to uncertainty due to a variety of factors, including extended lag times in the reporting and resolution of claims, and trends or changes in claim settlement patterns, insurance industry practices and legal interpretations. As a result, actual costs could differ significantly from the estimated amounts. Adjustments to estimated liabilities are recorded in the period in which the change in estimate occurs.

Deferred Income—We account for the SBA Paycheck Protection Program Loan (“PPP Loan”) as an in-substance government grant because we expect to meet the PPP Loan eligibility criteria and have concluded that the loan represents, in substance, a grant that is expected to be forgiven. Proceeds from the PPP Loan have been initially recognized as a deferred income liability. Subsequently, we reduce this liability and recognize income on a systematic basis over the period in which the related costs for which the PPP Loan is intended are incurred. PPP Loan income is presented as other income within the consolidated statements of operations.

Financial Instruments—Our financial assets and liabilities consist of cash, accounts receivable, accounts payable and notes payable. The fair values of these instruments approximate their carrying amounts at each reporting date.

Nonrecurring fair value measurements include asset retirement obligations, the estimated fair value of which is calculated as the present value of estimated cash flows related to its reclamation liabilities using Level 3 inputs. The significant inputs used to calculate such liabilities include estimates of costs to be incurred, our credit adjusted discount rate, inflation rates and estimated date of reclamation.

10


Concentrations—During the three months ended June 30, 2020, sales to four customers accounted for approximately 26%, 16%, 16% and 15% of our total revenue, respectively, aggregating approximately 73% of our total revenue. During the six months ended June 30, 2020, sales to two customers accounted for approximately 33% and 17% of our total revenue, respectively, aggregating approximately 50% of our total revenue. The balance due from these two customers at June 30, 2020 was approximately 45% of total accounts receivable. During the three and six months ended June 30, 2019, sales to four customers accounted for approximately 55% of total revenue in each period.

Recent Accounting Pronouncements—In June 2016, the FASB issued ASU 2016-13, Financial Instruments—Credit Losses, which replaces the existing incurred loss impairment model with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. We adopted this standard effective January 1, 2020. The adoption of this ASU did not have a material impact on our consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-15, Internal-Use Software, which addresses the accounting for implementation costs associated with a hosted service. The standard provides that implementation costs be evaluated for capitalization using the same criteria as that used for internal-use software development costs, with amortization expense being recorded in the same income statement expense line as the hosted service costs and over the expected term of the hosting arrangement. We adopted this standard as of January 1, 2020 on a prospective basis. The adoption of this ASU did not have a material impact on our consolidated financial statements.

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes, which enhances and simplifies various aspects of the income tax accounting guidance, including requirements such as tax basis step-up in goodwill obtained in a transaction that is not a business combination, ownership changes in investments, and interim-period accounting for enacted changes in tax law. The standard will be effective for us in the first quarter of our fiscal year 2021. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

NOTE 3—PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

(In thousands)

    

June 30, 2020

    

December 31, 2019

Plant and equipment

$

154,337

$

142,773

Construction in process

 

6,650

 

11,986

Capitalized mine development cost

 

67,831

 

58,773

Less: accumulated depreciation and amortization

 

(45,673)

 

(35,330)

Total property, plant and equipment, net

$

183,145

$

178,202

Capitalized amounts related to coal reserves at properties where we are not currently engaged in mining operations totaled $14.8 million as of June 30, 2020 and $12.7 million as of December 31, 2019.

Depreciation and amortization included:

Three months ended June 30, 

Six months ended June 30, 

(In thousands)

    

2020

    

2019

    

2020

    

2019

Depreciation of plant and equipment

$

4,240

$

3,416

$

8,415

$

6,436

Amortization of capitalized

mine development costs

 

1,101

 

1,406

 

1,928

 

2,502

Total depreciation and amortization

$

5,341

$

4,822

$

10,343

$

8,938

11


NOTE 4—DEBT

Revolving Credit Facility and Term Loan—On November 2, 2018, we entered into a Credit and Security Agreement (as amended, the “Revolving Credit Facility”) with KeyBank National Association (“KeyBank”). The Revolving Credit Facility was amended on February 20, 2020 and consists of a $10.0 million term loan (the “Term Loan”) and up to $30.0 million revolving line of credit, including $3.0 million letter of credit availability. All personal property assets, including, but not limited to accounts receivable, coal inventory and certain mining equipment are pledged to secure the Revolving Credit Facility.

The Revolving Credit Facility has a maturity date of December 31, 2023 and bears interest based on LIBOR + 2.0% or Base Rate + 1.5%. Base Rate is the highest of (i) KeyBank’s prime rate, (ii) Federal Funds Effective Rate + 0.5%, or (iii) LIBOR + 2.0%. Advances under the Revolving Credit Facility are made initially as base rate loans, but may be converted to LIBOR rate loans at certain times at our discretion. As of June 30, 2020, $8.0 million was outstanding on the Revolving Credit Facility and we had remaining availability of $22.0 million.

The Term Loan is secured under a Master Security Agreement with a pledge of certain underground and surface mining equipment, bears interest at LIBOR + 5.15% and is required to be repaid in monthly installments of $278 thousand including accrued interest. The outstanding principal balance of the Term Loan was $8.3 million at June 30, 2020. 

The Revolving Credit Facility contains usual and customary covenants including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as financial covenants. As of June 30, 2020, we were in compliance with all debt covenants.

Equipment Financing Loan—On April 16, 2020, we entered into an equipment loan with Key Equipment Finance, a division of KeyBank, as lender, in the principal amount of approximately $4.7 million for the financing of existing underground and surface equipment (the “Equipment Financing Loan”). The loan bears interest at 7.45% per annum and is payable in 36 monthly installments of $147 thousand. There is a 3% premium for prepayment of the loan within the first 12 months. This premium declines by 1% during each successive 12-month period. The outstanding principal balance of the Equipment Financing Loan was $4.5 million at June 30, 2020. 

NOTE 5—SBA PAYCHECK PROTECTION PROGRAM LOAN

On April 20, 2020, we received proceeds from the PPP Loan in the amount of approximately $8.4 million from KeyBank, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The purpose of the PPP is to encourage the continued employment of workers. Based upon receipt of this funding, we elected to recall our furloughed workers at our Elk Creek complex. We are using all proceeds from the PPP Loan to retain employees, maintain payroll and make lease, interest and utility payments.

The PPP Loan matures on April 16, 2022 and bears interest at a rate of 1% per annum. Beginning November 17, 2020, we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 17, 2022 the principal amount outstanding on the PPP Loan as of October 17, 2020. The PPP Loan is evidenced by a promissory note dated April 17, 2020, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

 All or a portion of the PPP Loan and accrued interest thereon may be forgiven by the U.S. Small Business Administration (“SBA”) upon documentation of expenditures in accordance with the SBA requirements and application by the Company. Under the CARES Act and subsequently enacted Paycheck Protection Flexibility Act of 2020, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during either the eight week period or 24-week period beginning on the date of loan funding. For purposes of the PPP Loan, payroll costs exclude cash compensation of an individual employee in excess of $100 thousand, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is

12


reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100 thousand or less annually are reduced by more than 25%.

During the period from loan funding through June 30, 2020, we used the PPP Loan proceeds for eligible payroll expenses, lease, interest and utility payments totaling approximately $7.3 million. We anticipate that this amount will be forgiven from the PPP Loan principal, together with accrued interest thereon. Accordingly, we have recognized this amount as other income in the consolidated statement of operations for the three months ended June 30, 2020.

The PPP Loan, net of the amount recognized in other income, is presented as deferred income within the consolidated balance sheet and totaled approximately $1.1 million as of June 30, 2020. We anticipate that we will incur eligible expenditures during 2020 exceeding this remaining amount of deferred income resulting in full forgiveness of the PPP Loan and accrued interest thereon.

NOTE 6—EQUITY

Stock-Based Compensation—We have a stock-based compensation plan under which stock options, restricted stock, performance shares and other stock-based awards may be granted. At June 30, 2020, 3.3 million shares were available under the current plan for future awards.

Options for the purchase of a total of 937,424 shares of our common stock for $5.34 per share were granted to two executives on August 31, 2016. The options have a ten-year term from the grant date and are fully vested. The options remain outstanding and unexercised and were not in-the-money at June 30, 2020.

We grant shares of restricted stock to certain senior executives, key employees and directors. The shares vest over up to four years from the date of grant. During the vesting period, the participants have voting rights and may receive dividends, but the shares may not be sold, assigned, transferred, pledged or otherwise encumbered. Additionally, granted but unvested shares are forfeited upon termination of employment, unless an employee enters into another written arrangement. The fair value of the restricted shares on the date of the grant is amortized ratably over the service period. Compensation expense related to these awards totaled $1.1 million and $2.0 million for the three and six months ended June 30, 2020, respectively. As of June 30, 2020, there was $7.8 million of total unrecognized compensation cost related to unvested restricted stock to be recognized over a weighted-average period of 2.4 years.

The following table summarizes restricted awards outstanding, as well as activity for the period:

    

    

Weighted

 

Average Grant

Shares

 

Date Fair Value

Outstanding at December 31, 2019

 

1,628,241

$

6.32

Granted

 

1,763,172

 

3.04

Vested

 

(419,844)

 

6.17

Forfeited

 

 

Outstanding at June 30, 2020

 

2,971,569

$

4.40

NOTE 7—COMMITMENTS AND CONTINGENCIES

Surety Bonds—As of June 30, 2020, we had total reclamation bonding requirements of $15.1 million which were supported by surety bonds. Additionally, we had $0.3 million of surety bonds that secured performance obligations.

Contingent Transportation Purchase Commitments—We secure the ability to transport coal through rail contracts and export terminal services contracts that are sometimes funded through take-or-pay arrangements. As of June 30, 2020, contingent liabilities under these take-or-pay arrangements expiring March 31, 2021 totaled $4.1 million. The level of these take or pay liabilities will be reduced at a per ton rate as such rail and export terminal services are utilized against the required minimum tonnage amounts over the contracts term stipulated in such rail and export terminal contracts.

13


Litigation—From time to time, the Company may be subject to various litigation and other claims in the normal course of business. No amounts have been accrued in the consolidated financial statements with respect to any matters.

On November 5, 2018, one of three raw coal storage silos that fed our Elk Creek plant experienced a partial structural failure. A temporary conveying system completed in late-November 2018 restored approximately 80% of the plant capacity. We completed a permanent belt workaround and reactivated the two remaining silos, which restored the preparation plant to its full processing capacity in mid-2019. Our insurance carrier, Federal Insurance Company, disputed our claim for coverage based on certain exclusions to the applicable policy and therefore on August 21, 2019 we filed suit against Federal Insurance Company and Chubb INA Holdings, Inc. in Logan County Circuit Court in West Virginia seeking a declaratory judgment that the partial silo collapse was an insurable event and to require coverage under our policy.  Defendants removed the case to the United States District Court for the Southern District of West Virginia, and upon removal, we substituted ACE American Insurance Company as a defendant in place of Chubb INA Holdings, Inc.  Currently, the case is in the discovery phase and is scheduled for trial beginning December 8, 2020, in Charleston, WV.

NOTE 8—REVENUE

Our revenue is derived from contracts for the sale of coal which is recognized at the point in time control is transferred to our customer. Generally, domestic sales contracts have terms of about one year and the pricing is typically fixed. Export sales have spot or term contracts and pricing can either be by fixed-price or a price derived against index-based pricing mechanisms. Sales completed with delivery to an export terminal are reported as export revenue. Disaggregated information about our revenue is presented below:

Three months ended June 30, 

Six months ended June 30, 

(In thousands)

    

2020

    

2019

2020

    

2019

Coal Sales

 

  

 

  

  

 

  

Domestic revenues

$

20,686

$

39,544

$

51,218

$

76,116

Export revenues

 

15,688

 

26,217

 

27,092

 

47,105

Total revenues

$

36,374

$

65,761

$

78,310

$

123,221

As of June 30, 2020, we had outstanding performance obligations for the remainder of 2020 of approximately 0.8 million tons for contracts with fixed sales prices averaging $93/ton and 0.1 million tons for contracts with index-based pricing mechanisms. Of the 0.8 million tons, 0.2 million at $91/ton may not ship in 2020 due to material adverse change and force majeure notices we have received to date. We intend to work with our customers in order to preserve the value of these contracts, while taking into account the challenges of operating in the midst of a global pandemic. We cannot be certain whether additional volumes may be delayed or curtailed due to COVID-19.

NOTE 9—INCOME TAXES

Income tax provisions for interim quarterly periods are generally based on an estimated annual effective income tax rate calculated separately from the effect of significant, infrequent or unusual items related specifically to interim periods. We used a discrete effective tax rate to calculate taxes for the three and six months ended June 30, 2020 since small changes in estimated income would result in significant changes in the estimated annual effective income tax rate.

During the three months ended June 30, 2020, we recognized $0.4 million of tax expense for the excess of book expense over the tax deduction for vested restricted stock awards. The effective tax rate for the three and six months ended June 30, 2020, excluding this discrete item, was 21% and 16%, respectively. Our effective tax rate for the three and six months ended June 30, 2019 was 17% each period. The primary difference from the federal statutory rate of 21% is related to state taxes, permanent differences for non-deductible expenses and the difference in depletion expense under U.S. GAAP and federal income tax purposes.

14


NOTE 10—EARNINGS PER SHARE

The following is the computation of basic and diluted EPS:

    

Three months ended June 30, 

Six months ended June 30, 

(In thousands, except per share amounts)

    

2020

    

2019

    

2020

    

2019

Numerator

 

  

 

  

  

 

  

Net income

$

2,652

$

10,613

$

4,614

$

17,496

Denominator

Weighted average shares used to compute basic EPS

 

42,704

 

40,869

 

42,232

 

40,737

Dilutive effect of share-based awards

 

 

96

 

 

73

Weighted average shares used to compute diluted EPS

 

42,704

 

40,965

 

42,232

 

40,810

Earnings per share

Basic

$

0.06

$

0.26

$

0.11

$

0.43

Diluted

$

0.06

$

0.26

$

0.11

$

0.43

Diluted EPS in each of the three and six months ended June 30, 2020 excludes 937,424 options to purchase our common stock because their effect would be anti-dilutive.

NOTE 11—RELATED PARTY TRANSACTIONS

Much of the coal reserves and surface rights that we control were acquired through a series of mineral leases and surface rights agreements with Ramaco Coal, LLC, a related party. Production royalty payables totaling $0.3 million and $0.5 million at June 30, 2020 and December 31, 2019, respectively, were included in accounts payable in the consolidated balance sheets. Royalties paid to Ramaco Coal, LLC in the three and six months ended June 30, 2020 totaled $1.1 million and $2.3 million, respectively. In the three and six month ended June 30, 2019, royalties paid to Ramaco Coal, LLC totaled $1.5 million and $5.3 million, respectively.

* * * * *

15


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report, as well as the financial statements and related notes appearing elsewhere in this Quarterly Report. The following discussion contains forward-looking statements that reflect our future plans, estimates, beliefs and expected performance. The forward-looking statements are dependent upon events, risks and uncertainties that may be outside our control. We caution you that our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences are discussed elsewhere in this Quarterly Report, particularly in the “Cautionary Note Regarding Forward-Looking Statements” and in our Annual Report under the heading “Item 1A. Risk Factors,” all of which are difficult to predict. In light of these risks, uncertainties and assumptions, the forward-looking events discussed may not occur. We do not undertake any obligation to publicly update any forward-looking statements except as otherwise required by applicable law.

Overview

Our primary source of revenue is the sale of metallurgical coal. As of December 31, 2019, we had a 265-million-ton reserve base of high-quality metallurgical coal and a development portfolio including four primary properties. We are currently mining in four underground mines, one surface mine and with one highwall miner at our two complexes. Our plan is to complete development of our existing properties and grow production to more than 4-4.5 million clean tons of metallurgical coal, subject to market conditions, permitting and additional capital deployment. We may make acquisitions of reserves or infrastructure that continue our focus on advantaged geology and lower costs.

The overall outlook of the metallurgical coal business is dependent on a variety of factors such as pricing, regulatory uncertainties and global economic conditions. Coal consumption and production in the U.S. have been driven in recent periods by several market dynamics and trends, such as the global economy, a strong U.S. dollar and accelerating production cuts.

Our results for the second quarter of 2020 were impacted by the severe global economic slowdown stemming from the novel coronavirus disease 2019 (“COVID-19”) outbreak. The global spread of COVID-19 has created significant volatility, uncertainty and economic disruption during the first six months of 2020. In response to the COVID-19 pandemic, governments worldwide have placed significant restrictions on both domestic and international travel and have taken action to restrict the movement of people and suspend some business operations, ranging from targeted restrictions to full national lockdowns. These lockdown and stay-at-home measures, coupled with the spread and impact of the COVID-19 pandemic, resulted in an increase in the U.S. unemployment rate in May of this year to 13%. Recently, states that had begun taking steps to reopen their economies experienced a subsequent surge in cases of COVID-19, causing these states to cease such reopening measures in some cases and reinstitute restrictions in others.

The Company has been adversely affected by the deterioration and increased uncertainty in the macroeconomic outlook as a result of the impact of COVID-19. Two customers have notified us that their contractual obligations for the purchase of metallurgical coal from us will be delayed or curtailed because of COVID-19. These delays or curtailments are expected to reduce our total contracted sales volumes for 2020 by up to 12%.

We are not able to estimate the impact of customer delays or curtailments of their contractual obligations or our ability to secure additional sales in spot markets. We have observed a declining demand for and reductions in the spot price of metallurgical coal as business and consumer activity decelerates across the globe. This weakness limited our ability to complete spot sales in the first and second quarters of 2020, leading to an increase in our inventories.

In response, we have taken certain actions to limit our production and reduce capital expenditures. These actions have included:

a two week operational furlough of 203 employees at the Elk Creek mining complex in West Virginia in April 2020;

16


temporary reductions in the salaries of certain executives, including our named executive officers, by 30% beginning April 1, 2020, and deferral of the payment of cash bonuses for 2019 performance for these individuals;
the partial closure of our Berwind low volatile development mine complex affecting approximately 44 jobs in July 2020; and
a reduction or deferral of non-essential capital expenditures to adapt to the current market conditions.

To date we have not had significant issues with any of our critical suppliers, but we continue to communicate with them and closely monitor their developments to ensure we have access to the goods and services required to maintain our operations.

The Company borrowed an additional $13.2 million under two promissory notes to further improve our liquidity. Securing this funding was key to limiting the employee furlough period in April 2020, retaining a greater number of employees and maintaining payroll.

We continue to actively monitor the situation and may take further actions altering our business operations that we determine are in the best interests of our employees, customers, suppliers, and stakeholders, or as required by federal, state, or local authorities. Additional measures we may take could include extensions of operational furloughs and temporary salary reductions for certain executives, staffing reductions and idling or realignment of additional mines as conditions might dictate. It is not clear what the potential effects any such alterations or modifications may have on our business. The impact on our results in future periods could be much more significant and cannot currently be quantified.

As of June 30, 2020, we had outstanding performance obligations for the remainder of 2020 of approximately 0.8 million tons for contracts with fixed sales prices averaging $93/ton and 0.1 million tons for contracts with index-based pricing mechanisms. Of the 0.8 million tons, 0.2 million at $91/ton may not ship in 2020 due to the material adverse change and force majeure notices we have received to date. We intend to work with our customers in order to preserve the value of these contracts, while taking into account the challenges of both sides of operating in the middle of a global pandemic.

17


Results of Operations

Three months ended June 30, 

Six months ended June 30, 

(In thousands)

    

2020

    

2019

    

2020

    

2019

    

Consolidated statement of operations data

 

  

 

  

  

 

  

Revenue

$

36,374

$

65,761

$

78,310

$

123,221

Costs and expenses

Cost of sales (exclusive of items shown separately below)

 

30,134

 

43,219

 

61,069

 

84,225

 

Asset retirement obligation accretion

159

 

128

 

300

 

256

 

Depreciation and amortization

 

5,341

4,822

10,343

8,938

Selling, general and administrative

 

5,039

4,703

9,756

8,664

Total costs and expenses

 

40,673

52,872

81,468

102,083

Operating income (loss)

 

(4,299)

 

12,889

 

(3,158)

 

21,138

 

Other income

 

8,504

194

9,714

492

Interest expense, net

 

(293)

(302)

(572)

(609)

Income before tax

3,912

12,781

5,984

21,021

Income tax expense

 

1,260

 

2,168

 

1,370

 

3,525

 

Net income

$

2,652

$

10,613

$

4,614

$

17,496

Adjusted EBITDA

$

10,811

$

19,093

$

19,228

$

32,778

Net income was $2.7 million and Adjusted EBITDA was $10.8 million in the second quarter of 2020, which were respectively 75% and 43% lower than that for the second quarter of 2019. We experienced both lower realized pricing and volumes in the 2020 period as compared with that for 2019. Negotiations for contracted volumes with North American steel producers for 2020 were substantially completed in the fall of last year. At that time, there was significant weakness in both customer demand and pricing for metallurgical coal which impacted our reported revenues for the first six months of 2020. Continued weakness in demand for metallurgical coal has limited spot market activity in 2020 as business and consumer activity decelerates across the globe.

Three Months Ended June 30, 2020 Compared to Three Months Ended June 30, 2019

Revenue. Our revenue includes sales to customers of Company produced coal and coal purchased from third parties. We include amounts billed by us for transportation to our customers within revenue and transportation costs incurred within cost of sales. Coal sales information is summarized as follows:

Three months ended June 30, 

(In thousands)

    

2020

    

2019

    

Increase (Decrease)

Company Produced

 

  

 

  

 

  

Coal sales revenue

$

36,374

$

62,516

$

(26,142)

Tons sold

 

362

 

499

 

(137)

Purchased from Third Parties

 

  

 

  

 

  

Coal sales revenue

$

$

3,245

$

(3,245)

Tons sold

 

 

26

 

(26)

Coal sales revenue in the second quarter of 2020 was $36.4 million, 42% lower than in the second quarter of 2019 principally due to lower sales volumes and lower realized pricing. Revenue per ton sold (FOB mine) declined 22% from $116/ton in the second quarter of 2019 to $91/ton in the second quarter of 2020. We sold 362 thousand tons of metallurgical coal in the second quarter of 2020, a 31% decrease as compared with the same period of 2019.

18


The lower sales volumes and realized pricing in 2020 are due to reduced overall demand for metallurgical coal worldwide. The spot sales market has been affected by reduced economic activity attributable to the COVID-19 pandemic. We previously purchased coal volumes from third-parties for resale. We have made no such purchases in 2020 as smaller producers exited local markets. 

Cost of sales. Our cost of sales totaled $30.1 million for the three months ended June 30, 2020 as compared with $43.2 million for the same period in 2019. This decrease was driven by lower sales volumes. The cash cost per ton sold (FOB mine) for the second quarter of 2020 was $74, compared with $73 in the second quarter of 2019.

Asset retirement obligation accretion. Asset retirement obligation accretion was about the same in each of the three-month periods ended June 30, 2020 and 2019.

Depreciation and amortization. Depreciation and amortization expense for the second quarter of 2020 was $5.3 million as compared with $4.8 million for the second quarter of 2019. Increased depreciation and amortization expense resulted from our expanded mining operations over the past year.

Selling, general and administrative. Selling, general and administrative expenses were $5.0 million for the three months ended June 30, 2020 as compared with $4.7 million for the same period in 2019. The increase is due in part to the expansion of our internal sales team during 2020, as well as higher legal fees.

Other income. Other income was $8.5 million for the second quarter of 2020, as compared with $0.2 million for the second quarter of 2019. We recognized $7.3 million of other income for the three months ended June 30, 2020 for the anticipated forgiveness of the PPP Loan based on our usage of loan proceeds for eligible payroll expenses, lease, interest and utility payments.

The PPP Loan, net of the amount recognized in other income, is presented as deferred income within the consolidated balance sheet and totaled $1.1 million as of June 30, 2020. We anticipate that we will incur eligible expenditures during 2020 exceeding this remaining amount of deferred income resulting in full forgiveness of the PPP Loan and accrued interest thereon

Other income also includes fees for the processing of coal for a third party. We commenced processing of third party coal at our Knox Creek facility in late-fourth quarter of 2019. This processing contract was extended and expires in the third quarter of 2020.

Interest expense, net. Interest expense, net was $0.3 million in each of the three-month periods ended June 30, 2020 and 2019.

Income tax expense. During the three months ended June 30, 2020, we recognized $0.4 million of tax expense for the excess of book expense over the tax deduction for vested restricted stock awards. The effective tax rate for the three months ended June 30, 2020, excluding this discrete item, was 21%. The effective tax rate for the three months ended June 30, 2019 was 17%. The primary difference from the federal statutory rate of 21% is related to state taxes, permanent differences for non-deductible expenses and the difference in depletion expense between U.S. GAAP and federal income tax purposes.

Cash taxes paid for 2020 are expected to be less than $10 thousand.

19


Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenue. Our revenue includes sales to customers of Company produced coal and coal purchased from third parties. We include amounts billed by us for transportation to our customers within revenue and transportation costs incurred within cost of sales. Coal sales information is summarized as follows:

Six months ended June 30, 

(In thousands)

    

2020

    

2019

    

Increase (Decrease)

Company Produced

 

  

 

  

 

  

Coal sales revenue

$

78,310

$

115,216

$

(36,906)

Tons sold

 

778

 

942

 

(164)

Purchased from Third Parties

 

  

 

  

 

  

Coal sales revenue

$

$

8,005

$

(8,005)

Tons sold

 

 

61

 

(61)

Coal sales revenue in the six months ended June 30, 2020 was $78.3 million, 32% lower than in the same period of 2019 principally due to lower sales volumes and lower realized pricing. Revenue per ton sold (FOB mine) declined 17% from $111/ton in the six months ended June 30, 2019 to $92/ton in the six months ended June 30, 2020. We sold 778 thousand tons of metallurgical coal in the first six months of 2020, a 22% decrease as compared with the same period of 2019.

The lower sales volumes and realized pricing in 2020 are due to reduced overall demand for metallurgical coal worldwide. The spot sales market has been affected by reduced economic activity attributable to the COVID-19 pandemic. We previously purchased coal volumes from third-parties for resale. We made no such purchases in the 2020 period as smaller producers exited local markets. 

Cost of sales. Our cost of sales totaled $61.1 million for the six months ended June 30, 2020 as compared with $84.2 million for the same period in 2019. This decrease was primarily driven by lower sales volumes. The cash cost per ton sold (FOB mine) for the first six months of 2020 was $70, compared with $72 in the first six months of 2019.

Asset retirement obligation accretion. Asset retirement obligation accretion was $0.3 million in each of the six-month periods ended June 30, 2020 and 2019.

Depreciation and amortization. Depreciation and amortization expense for the first six months of 2020 was $10.3 million as compared with $8.9 million for the same period of 2019. Increased depreciation and amortization expense resulted from our expanded mining operations over the past year.

Selling, general and administrative. Selling, general and administrative expenses were $9.8 million for the six months ended June 30, 2020 as compared with $8.7 million for the same period in 2019. We recognized $0.5 million in 2020 for obligations under take-or-pay arrangements with an export terminal that was unused.

Other income. Other income was $9.7 million for the six months ended June 30, 2020, as compared with $0.5 million for the same period of 2019. We recognized $7.3 million of other income during 2020 for the anticipated forgiveness of the PPP Loan based on our usage of loan proceeds for eligible payroll expenses, lease, interest and utility payments.

The PPP Loan, net of the amount recognized in other income, is presented as deferred income within the consolidated balance sheets and totaled $1.1 million as of June 30, 2020. We anticipate that we will incur eligible expenditures during 2020 exceeding this remaining amount of deferred income resulting in full forgiveness of the PPP Loan and accrued interest thereon.

20


Other income also includes fees for the processing of coal for a third party. We commenced processing of third party coal at our Knox Creek facility in late-fourth quarter of 2019. This processing contract was extended and expires in the third quarter of 2020.

Interest expense, net. Interest expense, net was $0.6 million in each of the six-month periods ended June 30, 2020 and 2019.

Income tax expense. During the six months ended June 30, 2020, we recognized $0.4 million of tax expense for the excess of book expense over the tax deduction for vested restricted stock awards. The effective tax rate for the six months ended June 30, 2020, excluding this discrete item, was 16%. The effective tax rate for the six months ended June 30, 2019 was 17%. The primary difference from the federal statutory rate of 21% is related to state taxes, permanent differences for non-deductible expenses and the difference in depletion expense between U.S. GAAP and federal income tax purposes.

Cash taxes paid for 2020 are expected to be less than $10 thousand.

Liquidity and Capital Resources

At June 30, 2020, we had $9.8 million of cash and cash equivalents and $22.0 million available under our existing credit agreements for future borrowings.

Significant sources and uses of cash during the first six months of 2020

Sources of cash:

Cash flows from operating activities were $6.8 million. This included a negative impact from the primary components of our working capital (receivables, inventories and accounts payable) of a net $4.5 million, primarily associated with a build-up of inventories.
We made net borrowings of $16.3 million principally to increase our cash position during the highly volatile and uncertain period caused by the COVID-19 pandemic and to fund capital expenditures.

Uses of cash:

Capital expenditures were $18.0 million principally for development of the Berwind mine and for infrastructure at our Elk Creek mining complex.

At June 30, 2020, we also had $1.4 million of restricted cash balances, classified in other current assets in the consolidated balance sheets, for potential future workers’ compensation claims.

Future sources and uses of cash

Our primary use of cash includes capital expenditures for mine development and for ongoing operating expenses. We expect to fund our capital and liquidity requirements with cash on hand, anticipated cash flows from operations and borrowings discussed in more detail below. We believe that current cash on hand, cash flow from operations and available liquidity under our existing credit agreements will be sufficient to meet our capital expenditure and operating plans.

Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on our future results, we believe the recent actions we have taken position us well to manage our business through this crisis. We are taking further actions to manage our cash flow and improve our liquidity, including review and consideration of opportunities

21


and strategies for further capital expenditure reductions and deferrals, additional operating expense reductions and consideration of alternative non-dilutive financing sources in addition to our existing credit facilities.

Additional factors that could adversely impact our future liquidity and ability to carry out our capital expenditure program include:

Timely delivery of our product by rail and other transportation carriers;
Timely payment of accounts receivable by our customers;
Cost overruns in our purchases of equipment needed to complete our mine development plans;
Delays in completion of development of our various mines which would reduce the coal we would have available to sell and our cash flow from operations; and
Adverse changes in the metallurgical coal markets that would reduce the expected cash flow from operations.

If future cash flows are insufficient to meet our liquidity needs or capital requirements, we may reduce our expected level of capital expenditures and/or fund a portion of our capital expenditures through the issuance of debt or equity securities, the entry into debt arrangements or from other sources, such as asset sales.

Indebtedness

Revolving Credit Facility and Term LoanOn November 2, 2018, we entered into a Credit and Security Agreement (as amended, the “Revolving Credit Facility”) with KeyBank National Association (“KeyBank”). The Revolving Credit Facility was amended on February 20, 2020 and consists of a $10.0 million term loan (the “Term Loan”) and up to $30.0 million revolving line of credit, including $3.0 million letter of credit availability. All personal property assets, including, but not limited to accounts receivable, coal inventory and certain mining equipment are pledged to secure the Revolving Credit Facility.

The Revolving Credit Facility has a maturity date of December 31, 2023 and bears interest based on LIBOR + 2.0% or Base Rate + 1.5%. Base Rate is the highest of (i) KeyBank’s prime rate, (ii) Federal Funds Effective Rate + 0.5%, or (iii) LIBOR + 2.0%. Advances under the Revolving Credit Facility are made initially as base rate loans, but may be converted to LIBOR rate loans at certain times at our discretion. As of June 30, 2020, $8.0 million was outstanding on the Revolving Credit Facility and we had remaining availability of $22.0 million.

The Term Loan is secured under a Master Security Agreement with a pledge of certain underground and surface mining equipment, bears interest at LIBOR + 5.15% and is required to be repaid in monthly installments of $278 thousand including accrued interest. The outstanding principal balance of the Term Loan was $8.3 million at June 30, 2020.

The Revolving Credit Facility contains usual and customary covenants including limitations on liens, additional indebtedness, investments, restricted payments, asset sales, mergers, affiliate transactions and other customary limitations, as well as financial covenants. As of June 30, 2020, we were in compliance with all debt covenants.

Equipment Financing LoanOn April 16, 2020, we entered into an equipment loan with Key Equipment Finance, a division of KeyBank, as lender, in the principal amount of approximately $4.7 million for the financing of existing underground and surface equipment. The equipment loan bears interest at 7.45% per annum and is payable in 36 monthly installments of $147 thousand. There is a 3% premium for prepayment of the note within the first 12 months. This premium declines by 1% during each successive 12-month period. The outstanding principal balance of the Equipment Financing Loan was $4.5 million at June 30, 2020. 

SBA Paycheck Protection Program Loan On April 20, 2020, we received proceeds from a PPP Loan in the amount of approximately $8.4 million from KeyBank, as lender, pursuant to the Paycheck Protection Program (“PPP”) of the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The purpose of the PPP is to encourage the continued employment of workers. Based upon receipt of this funding, we elected to recall our furloughed workers at

22


our Elk Creek complex. We are using all proceeds from the PPP Loan to retain employees, maintain payroll and make lease, interest and utility payments.

The PPP Loan matures on April 16, 2022 and bears interest at a rate of 1% per annum. Beginning November 17, 2020, we are required to pay the lender equal monthly payments of principal and interest as required to fully amortize by April 17, 2022 the principal amount outstanding on the PPP Loan as of October 17, 2020. The PPP Loan is evidenced by a promissory note dated April 17, 2020, which contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. The PPP Loan may be prepaid by the Company at any time prior to maturity with no prepayment penalties.

All or a portion of the PPP Loan and accrued interest thereon may be forgiven by the U.S. Small Business Administration (“SBA”) upon documentation of expenditures in accordance with the SBA requirements and application by the Company. Under the CARES Act and subsequently enacted Paycheck Protection Flexibility Act of 2020, loan forgiveness is available for the sum of documented payroll costs, covered rent payments, covered mortgage interest and covered utilities during either the eight week period or 24-week period beginning on the date of loan funding. For purposes of the PPP Loan, payroll costs exclude cash compensation of an individual employee in excess of $100 thousand, prorated annually. Not more than 40% of the forgiven amount may be for non-payroll costs. Forgiveness is reduced if full-time headcount declines, or if salaries and wages for employees with salaries of $100 thousand or less annually are reduced by more than 25%.

During the period from loan funding through June 30, 2020, we used the PPP Loan proceeds for eligible payroll expenses, lease, interest and utility payments totaling approximately $7.3 million. We anticipate that this amount will be forgiven from the PPP Loan principal, together with accrued interest thereon. Accordingly, we have recognized this amount as other income in the consolidated statement of operations for the three months ended June 30, 2020.

The PPP Loan, net of the amount recognized in other income, is presented as deferred income within the consolidated balance sheet and totaled approximately $1.1 million as of June 30, 2020. We anticipate that we will incur eligible expenditures during 2020 exceeding this remaining amount of deferred income resulting in full forgiveness of the PPP Loan and accrued interest thereon.

Off-Balance Sheet Arrangements

As of June 30, 2020, we had no material off-balance sheet arrangements.

Non-GAAP Financial Measures

Adjusted EBITDA

Adjusted EBITDA is used as a supplemental non-GAAP financial measure by management and external users of our financial statements, such as industry analysts, investors, lenders and rating agencies. We believe Adjusted EBITDA is useful because it allows us to more effectively evaluate our operating performance.

We define Adjusted EBITDA as net income plus net interest expense, stock-based compensation, depreciation and amortization expenses and any transaction related costs. A reconciliation of net income to Adjusted EBITDA is included below. Adjusted EBITDA is not intended to serve as an alternative to U.S. GAAP measures of performance and may not be comparable to similarly-titled measures presented by other companies.

23


Three months ended June 30, 

Six months ended June 30, 

(In thousands)

    

2020

    

2019

    

2020

    

2019

Reconciliation of Net Income to Adjusted EBITDA

 

  

 

  

  

 

  

Net income

$

2,652

$

10,613

$

4,614

$

17,496

Depreciation and amortization

 

5,341

 

4,822

 

10,343

 

8,938

Interest expense, net

 

293

 

302

 

572

 

609

Income taxes

 

1,260

 

2,168

 

1,370

 

3,525

EBITDA

 

9,546

 

17,905

 

16,899

 

30,568

Stock-based compensation

 

1,106

 

1,060

 

2,029

 

1,954

Accretion of asset retirement obligation

 

159

 

128

 

300

 

256

Adjusted EBITDA

$

10,811

$

19,093

$

19,228

$

32,778

Non-GAAP revenue per ton

Non-GAAP revenue per ton (FOB mine) is calculated as coal sales revenue less transportation costs, divided by tons sold. We believe revenue per ton (FOB mine) provides useful information to investors as it enables investors to compare revenue per ton we generate against similar measures made by other publicly-traded coal companies and more effectively monitor changes in coal prices from period to period excluding the impact of transportation costs which are beyond our control. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Revenue per ton sold (FOB mine) is not a measure of financial performance in accordance with U.S. GAAP and therefore should not be considered as an alternative to revenue under U.S. GAAP.

Three months ended June 30, 2020

Three months ended June 30, 2019

Company

Purchased

Company

Purchased

(In thousands, except per ton amounts)

    

Produced

    

Coal

    

Total

    

Produced

    

Coal

    

Total

Revenue

$

36,374

$

$

36,374

$

62,516

$

3,245

$

65,761

Less: Adjustments to reconcile to Non-GAAP revenue (FOB mine)

Transportation costs

 

(3,454)

 

 

(3,454)

 

(4,695)

 

(42)

 

(4,737)

Non-GAAP revenue (FOB mine)

$

32,920

$

$

32,920

$

57,821

$

3,203

$

61,024

Tons sold

 

362

 

 

362

 

499

 

26

 

525

Revenue per ton sold (FOB mine)

$

91

$

$

91

$

116

$

124

$

116

Six months ended June 30, 2020

Six months ended June 30, 2019

    

Company

    

Purchased

    

    

Company

    

Purchased

    

(In thousands, except per ton amounts)

 

Produced

 

Coal

Total

 

Produced

 

Coal

Total

Revenue

$

78,310

$

$

78,310

$

115,216

$

8,005

$

123,221

Less: Adjustments to reconcile to Non-GAAP revenue (FOB mine)

Transportation costs

 

(6,560)

 

 

(6,560)

 

(11,715)

 

(372)

 

(12,087)

Non-GAAP revenue (FOB mine)

$

71,750

$

$

71,750

$

103,501

$

7,633

$

111,134

Tons sold

 

778

 

 

778

 

942

 

61

 

1,003

Revenue per ton sold (FOB mine)

$

92

$

$

92

$

110

$

126

$

111

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Non-GAAP cash cost per ton sold

Non-GAAP cash cost per ton sold is calculated as cash cost of sales less transportation costs, divided by tons sold. We believe cash cost per ton sold provides useful information to investors as it enables investors to compare our cash cost per ton against similar measures made by other publicly-traded coal companies and more effectively monitor changes in coal cost from period to period excluding the impact of transportation costs which are beyond our control. The adjustments made to arrive at these measures are significant in understanding and assessing our financial condition. Cash cost per ton sold is not a measure of financial performance in accordance with U.S. GAAP and therefore should not be considered as an alternative to cost of sales under U.S. GAAP.

Three months ended June 30, 2020

Three months ended June 30, 2019

Company

Purchased

Company

Purchased

(In thousands, except per ton amounts)

    

Produced

    

Coal

    

Total

    

Produced

    

Coal

    

Total

Cost of sales

$

30,134

$

$

30,134

$

40,003

$

3,216

$

43,219

Less: Adjustments to reconcile to Non-GAAP cash cost of sales

Transportation costs

 

(3,181)

 

 

(3,181)

 

(4,694)

 

(43)

 

(4,737)

Non-GAAP cash cost of sales

$

26,953

$

$

26,953

$

35,309

$

3,173

$

38,482

Tons sold

 

362

 

 

362

 

499

 

26

 

525

Cash cost per ton sold

$

74

$

$

74

$

71

$

123

$

73