SunCoke Energy, Inc. Q4 FY2024 earnings call

Management Statement and Operational Highlights

• Safety: Ended 2024 with a record-setting total recordable incident rate of 0.5, emphasizing safety as the first priority.
• Financial Achievements: Consolidated adjusted EBITDA was $272.8 million, exceeding the high end of the guidance range, and free cash flow was $96 million, exceeding the high end of the guidance range. Delivered strong financial results driven by Logistics segment performance and a DOL agreement gain.
• Logistics Growth: Grew barge business at Kanawha River Terminal, benefited from API2 price adjustment at Convent Marine Terminal, and signed a new three-year take-or-pay coal handling agreement at KRT.
• Capital Allocation: Returned approximately $38 million to shareholders via a quarterly dividend, increased from $0.10 to $0.12 per share. Ended 2024 with strong liquidity of approximately $540 million.
• Project Updates: Delays in the U.S. Steel Nippon transaction impacted the GPI project, but the company remains focused on its development despite external delays.

Segment Performance

• Domestic Coke: Delivered full year adjusted EBITDA of $234.7 million within the revised guidance range. Operated at full capacity but was impacted by lower coke deals on long-term take-or-pay contracts.
• Logistics: Adjusted EBITDA increased by $6.1 million year-over-year, driven by higher volumes at domestic logistics terminals and API2 price adjustment benefit at Convent Marine Terminal. Full year 2024 adjusted EBITDA was $50.4 million.
• Brazil Coke: Including Brazil, coke operations delivered adjusted EBITDA of $244.6 million.
• Corporate and Other: Expenses were lower by $10.2 million year-over-year, mainly due to the 1x gain on the elimination of the majority of legacy black lung liabilities.

Guidance

• Consolidated adjusted EBITDA expected to be between $210 million and $225 million in 2025.
• Domestic coke adjusted EBITDA expected to be lower by $43 million to $50 million, primarily due to lower margins at Granite City and Haverhill.
• Brazil coke adjusted EBITDA expected to be essentially flat year-over-year.
• Logistics adjusted EBITDA expected to be flat to lower by $5 million in 2025.
• Corporate and other expenses expected to be lower by $3 million to $5 million.
• CapEx expected to be around $65 million in 2025, lower than normal run rate.

Risks

• Delays in the U.S. Steel Nippon transaction continuing to impact the GPI project.
• Challenging market conditions potentially leading to lower margins, especially if the Haverhill contract is not renewed.
• Fluctuations in coal and coke spot market prices affecting profitability.

Question and Answer Q: On the really the longer term outlook for your fleet and maybe more specifically in the event of a non-renewal at Haverhill, how should we think about utilization at that asset in the outer years and your willingness to be incrementally exposed to spot?

A: Katherine Gates discusses adaptability to market changes, stating the company is in constant dialogue with customers and can adapt to changing conditions by selling into foundry or spot markets.

Q: You're still anticipating strong free cash flow this year, CapEx is moving down. How should we think about potential orders of magnitude from a debt pay down perspective? And what could this mean further down the road for increased shareholder returns?

A: Shantanu Agrawal mentions no plan for debt buybacks currently, and Katherine Gates highlights focus on profitable growth opportunities like the GPI project and disciplined capital allocation to reward shareholders.

Q: Met coal prices have been under pressure for some time and I was wondering if you could just remind us when the bulk of your contracting occurs throughout a typical calendar year. And do these prices impact the way that you approach procurement?

A: Shantanu Agrawal explains long-term take-or-pay contracts are finalized September-November, and coal prices are pass-through in contracts, with spot sales factoring in market conditions.

Q: You mentioned API2 price adjustment has now been replaced by an FOB New Orleans price adjustment at CMT. Can we get some additional thoughts there, maybe what was the driver behind that change and is there any way we can track that index?

A: Mark Marinko states the customer requested the change as API2 wasn't reflective of their market, and Shantanu Agrawal mentions the index is published daily by Platts with no price benefit built into 2025 guidance.

Q: Coming back to the Granite City GPI project. Clearly, the acquisition, U.S. Steel by Nippon was blocked, although I think they're maybe a couple more months left on that agreement and so some turmoil possible with litigation, et cetera. How has that impacted your conversations with U.S. Steel if the deal does end up not coming to fruition, could that speed up a decision on the GPI project?

A: Katherine Gates states the project fundamentals remain strong, and the company would work with any party on the project regardless of U.S. Steel deal outcomes.