Warrior Met Coal Reports Fourth Quarter and Full-Year 2019 Results

Warrior Met Coal, Inc. (NYSE:HCC) (“Warrior” or the “Company”) today announced results for the fourth quarter and full-year 2019 and the commencement of the development of its world class Blue Creek project. Warrior is the leading dedicated U.S. based producer and exporter of high quality metallurgical (“met”) coal for the global steel industry.

Warrior reported fourth quarter 2019 net income of $20.8 million, or $0.41 per diluted share, compared to net income of $374.2 million, or $7.11 per diluted share, in the fourth quarter of 2018. Adjusted net income per share for the fourth quarter of 2019 was $0.23 per diluted share compared to $2.38 per diluted share in the fourth quarter of 2018. The Company reported Adjusted EBITDA of $39.0 million in the fourth quarter of 2019, compared to Adjusted EBITDA of $161.6 million in the fourth quarter of 2018.

“We met or exceeded all guidance metrics and performed well operationally in the fourth quarter, in line with our expectations for a declining price environment,” commented Walt Scheller, CEO of Warrior. “Moreover, we are taking advantage of this pullback in pricing by focusing on investing in our operations through strategic capital expenditures that improve our efficiency and position us to outperform the market when prices improve. We know our greatest assets are our large scale and low-cost operations, our premium and highly desirable coals, our variable cost structure, our balance sheet flexibility, and we will continue to leverage these strengths.”

Warrior reported full year 2019 net income of $301.7 million and adjusted net income of $284.0 million, or net income of $5.86 per diluted share and adjusted net income of $5.52 per diluted share, compared to net income of $696.8 million and adjusted net income of $459.0 million, or net income of $13.17 per diluted share and adjusted net income of $8.67 per diluted share, in 2018. The Company reported Adjusted EBITDA of $478.7 million for the full year 2019 compared to $601.0 million in 2018.

The Company also announced the commencement of the development of its Blue Creek mine, a strategic growth project that it expects will deliver significant future returns to shareholders. “We expect Blue Creek to significantly enhance Warrior’s already existing world class hard coking coal portfolio of assets and to continue to demonstrate our highly focused business strategy as a premium pure-play met coal producer,” Scheller said. Warrior has issued a separate news release and presentation providing more detail on the development of its world class Blue Creek growth project, both of which can be found on its website at www.warriormetcoal.com.

Operating Results

The Company produced 1.8 million short tons of met coal in the fourth quarter of 2019 compared to 1.9 million short tons in the fourth quarter of 2018. For the full year of 2019, the Company produced a record 8.5 million short tons, or a 9.5% increase over 2018, which exceeded its guidance and expectations. This record achievement was even more notable because of a record low safety incident rate at the mines in 2019. Sales volume in the fourth quarter of 2019 was 1.7 million short tons compared to 2.0 million short tons in the fourth quarter of 2018. Sales volumes for the full year 2019 reached a new record high for the Company of 8.0 million short tons and was 4.5% higher than 2018. Inventory levels rose to 749 thousand short tons at the end of December 31, 2019 from the end of the third quarter of 2019.

Additional Financial Results

Total revenues were $204.9 million for the fourth quarter of 2019, including $198.0 million in mining revenues, which consisted of met coal sales of 1.7 million short tons at an average net selling price of $119.67 per short ton, net of demurrage and other charges. This compares to total revenues of $360.4 million in the fourth quarter of 2018. During the quarter, global met coal markets continued to weaken in response to slowing steel demand and other macroeconomic issues in the global economy, which contributed to a three-year low in met coal prices. The average net selling price of the Company's met coal declined from $177.50 per short ton in the fourth quarter of 2018 to $119.67 per short ton in the fourth quarter of 2019. Despite a pullback in met coal prices, the Company sold its met coal at 97% of the quarterly Australian premium low-volatility hard coking coal (“HCC”) Platts Premium LV FOB Australian Index (the "Platts Index”) price.

Cash cost of sales (including mining, transportation and royalty costs) for the fourth quarter of 2019 were $141.9 million, or 71.7% of mining revenues, compared to $182.6 million, or 52.2% of mining revenues in the same period of 2018. Cash cost of sales (free-on-board port) per short ton decreased to $85.74 in the fourth quarter of 2019 from $92.64 in the fourth quarter of 2018, reflecting Warrior's low and variable cost structure and focus on cost control during periods of depressed met coal prices. The full year cash cost of sales per short ton was $89.95, a three-year record low.

Selling, general and administrative expenses for the fourth quarter of 2019 were $8.0 million, or 3.9% of total revenues. Depreciation and depletion costs for the fourth quarter of 2019 were $23.7 million, or 11.6% of total revenues. Warrior incurred interest expense, net of $6.5 million during the fourth quarter of 2019.

Income tax benefit was $3.2 million in the fourth quarter of 2019 and represents the recognition of $6.7 million additional alternative minimum tax credits, general business credits and net operating losses (“NOLs”) available to the Company in connection with a settlement agreement between Walter Energy, Inc. and the Internal Revenue Service. The Company did not have income tax expense in the fourth quarter of 2018 and reversed the full valuation allowance previously recorded against its deferred income tax assets. The Company expects to continue to utilize its NOLs and pay no cash taxes for the next several years, contingent upon met coal pricing and overall company performance.

Cash Flow and Liquidity

The Company generated positive cash flows from operating activities in the fourth quarter of 2019 of $24.5 million, despite a low met coal pricing environment, compared to $130.8 million in the fourth quarter of 2018. Capital expenditures and mine development costs for the fourth quarter of 2019 were $33.9 million. Free cash flow was negatively impacted during the quarter by the change in net working capital. Cash flows used in financing activities for the fourth quarter of 2019 were $6.8 million, primarily due to principal repayments of capital lease obligations of $4.2 million, and the payment of dividends of $2.6 million. The Company generated $532.8 million of cash flows from operating activities for the full year 2019 compared to $559.4 million in 2018. Capital expenditures and mine development costs for the full year 2019 were $130.7 million. Cash flows used in financing activities for the full year 2019 were $411.6 million primarily due to the payment of dividends of $240.4 million and the retirement of debt of $140.3 million.

Net working capital, excluding cash, for the fourth quarter of 2019 increased by $26.6 million from the third quarter of 2019, primarily reflecting an increase in inventory due to lower sales volume and a decrease in accrued expenses and accounts payable primarily due to lower interest payments on the Senior Secured Notes. Net working capital, excluding cash, for the full year 2019 decreased by $30.2 million from the prior year, primarily reflecting a decrease in trade accounts receivable and increase in inventories due to lower sales volume in the fourth quarter of 2019.

The Company’s available liquidity as of December 31, 2019 was $309.5 million, consisting of cash and cash equivalents of $193.4 million and available liquidity under its Amended and Restated Asset-Based Revolving Credit Agreement (the "ABL Facility") of $116.1 million, net of outstanding letters of credit of $8.9 million.

Capital Allocation

During 2019, the Company capitalized on the strength of global HCC markets and customer demand by generating $402.1 million of free cash flow. The Company further strengthened its already strong balance sheet by reducing its debt by $140.3 million. It also distributed capital returns of $253.0 million to stockholders through dividends and stock repurchases. In addition, the Company announced an additional stock repurchase program of $70.0 million after it fully exhausted its previous stock repurchase program of $40.0 million.

On February 14, 2020, the board of directors declared a regular quarterly cash dividend of $0.05 per share, totaling approximately $2.6 million, which will be paid on March 2, 2020 to stockholders of record as of the close of business on February 25, 2020.

Any future special dividends or stock repurchases from excess cash flows will be at the discretion of the board of directors and subject to consideration of several factors including business and market conditions, future financial performance and other strategic investment opportunities. The Company will also seek to optimize its capital structure to improve returns to stockholders while allowing flexibility for the Company to pursue very selective strategic growth opportunities that can provide compelling stockholder returns.

Company Outlook

The Company's outlook for 2020 is subject to many risks that may impact performance, such as market conditions in the steel and met coal industries and overall global economic and competitive conditions, all as more fully described under Forward-Looking Statements. The Company's guidance for the full year 2020 is outlined below.

Key factors that may affect outlook include:

• Four planned longwall moves (1 per quarter)
• HCC index pricing
• Exclusion of other non-recurring costs

The Company’s guidance for its capital expenditures consists of sustaining capital spending of approximately $75 - $85 million, including regulatory and gas requirements, and discretionary capital spending of $50 - $60 million for various operational improvements, 4 North portal construction and the development of the Blue Creek project for which the Company has budgeted $25.0 million for 2020.

The Company does not provide reconciliations of its outlook for cash cost of sales (free-on-board port) to cost of sales in reliance on the unreasonable efforts exception provided for under Item 10(e)(1)(i)(B) of Regulation S-K. The Company is unable, without unreasonable efforts, to forecast certain items required to develop the meaningful comparable Generally Accepted Accounting Principles ("GAAP") cost of sales. These items typically include non-cash asset retirement obligation accretion expenses, mine idling expenses and other non-recurring indirect mining expenses that are difficult to predict in advance in order to include a GAAP estimate.

Environmental, Social and Governance Sustainability

The Company recently announced the release of its inaugural corporate environmental, social and governance sustainability report, which is located at www.warriormetcoal.com. The report was prepared in accordance with the Global Reporting Initiative (GRI) standards core option. The Company is committed to transparency and open conversations surrounding environmental, social and governance topics. Although Warrior's underground metallurgical (met) coal operations have a minimal environment impact compared to surface-mined thermal coal, the Company strives to be an environmental steward by focusing on preservation of the environment, monitoring energy use, reducing greenhouse gas (GHG) emissions and effective land reclamation.

Use of Non-GAAP Financial Measures

This release contains the use of certain non-GAAP financial measures. These non-GAAP financial measures are provided as supplemental information for financial measures prepared in accordance with GAAP. Management believes that these non-GAAP financial measures provide additional insights into the performance of the Company, and they reflect how management analyzes Company performance and compares that performance against other companies. These non-GAAP financial measures may not be comparable to other similarly titled measures used by other entities. The definition of these non-GAAP financial measures and a reconciliation of non-GAAP to GAAP financial measures is provided in the financial tables section of this release.

Conference Call

The Company will hold a conference call to discuss its fourth quarter 2019 results today, February 19, 2020, at 4:30 p.m. ET. To listen to the event live or access an archived recording, please visit http://investors.warriormetcoal.com/. Analysts and investors who would like to participate in the conference call should dial 1-844-340-9047 (domestic) or 1-412-858-5206 (international) 10 minutes prior to the start time and reference the Warrior Met Coal conference call. Telephone playback will also be available from 6:30 p.m. ET February 19, 2020 until 6:30 p.m. ET on February 28, 2020. The replay will be available by calling: 1-877-344-7529 (domestic) or 1-412-317-0088 (international) and entering passcode 10137511.

About Warrior

Warrior is a U.S.-based, environmentally and socially minded supplier to the global steel industry. It is dedicated entirely to mining non-thermal met coal used as a critical component of steel production by metal manufacturers in Europe, South America and Asia. Warrior is a large-scale, low-cost producer and exporter of premium met coal, also known as hard-coking coal (HCC), operating highly-efficient longwall operations in its underground mines based in Alabama. The HCC that Warrior produces from the Blue Creek, Alabama, coal seam contains very low sulfur, has strong coking properties and is of a similar quality to coal referred to as the premium HCC produced in Australia. The premium nature of Warrior’s HCC makes it ideally suited as a base feed coal for steel makers and results in price realizations near the Platts Index price. For more information, please visit www.warriormetcoal.com.

Forward-Looking Statements

This press release contains, and the Company’s officers and representatives may from time to time make, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended. All statements, other than statements of historical facts, included in this press release that address activities, events or developments that the Company expects, believes or anticipates will or may occur in the future are forward-looking statements, including statements regarding 2020 guidance, sales and production growth, ability to maintain cost structure, demand, the future direction of prices, expected capital expenditures, future effective income tax rates and payment of cash taxes, if any or the Company's purchases of shares of its common stock pursuant to the stock repurchase program or otherwise. The words “believe,” “expect,” “anticipate,” “plan,” “intend,” “estimate,” “project,” “target,” “foresee,” “should,” “would,” “could,” “potential,” or “outlook,” “guidance” or other similar expressions are intended to identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements represent management’s good faith expectations, projections, guidance or beliefs concerning future events, and it is possible that the results described in this press release will not be achieved. These forward-looking statements are subject to risks, uncertainties and other factors, many of which are outside of the Company’s control, that could cause actual results to differ materially from the results discussed in the forward-looking statements, including, without limitation, fluctuations or changes in the pricing or demand for the Company’s coal (or met coal generally) by the global steel industry; federal and state tax legislation; changes in interpretation or assumptions and/or updated regulatory guidance regarding the Tax Cuts and Jobs Act of 2017; legislation and regulations relating to the Clean Air Act and other environmental initiatives; regulatory requirements associated with federal, state and local regulatory agencies, and such agencies’ authority to order temporary or permanent closure of the Company’s mines; operational, logistical, geological, permit, license, labor and weather-related factors, including equipment, permitting, site access, operational risks and new technologies related to mining; the timing and impact of planned longwall moves; the Company’s obligations surrounding reclamation and mine closure; inaccuracies in the Company’s estimates of its met coal reserves; any projections or estimates regarding Blue Creek, including the expected returns from this project, if any, and the ability of Blue Creek to enhance the Company's portfolio of assets, the Company's expectations regarding its future tax rate as well as its ability to effectively utilize its NOLs to reduce or eliminate its cash taxes; the Company's ability to develop Blue Creek; the Company’s ability to develop or acquire met coal reserves in an economically feasible manner; significant cost increases and fluctuations, and delay in the delivery of raw materials, mining equipment and purchased components; competition and foreign currency fluctuations; fluctuations in the amount of cash the Company generates from operations, including cash necessary to pay any special or quarterly dividend or the timing and amount of any stock repurchases the Company makes under its stock repurchase program; the Company’s ability to comply with covenants in its ABL Facility or indenture relating to its senior secured notes; integration of businesses that the Company may acquire in the future; adequate liquidity and the cost, availability and access to capital and financial markets; failure to obtain or renew surety bonds on acceptable terms, which could affect the Company’s ability to secure reclamation and coal lease obligations; costs associated with litigation, including claims not yet asserted; and other factors described in the Company’s Form 10-K for the year ended December 31, 2019 and other reports filed from time to time with the Securities and Exchange Commission (the “SEC”), which could cause the Company’s actual results to differ materially from those contained in any forward-looking statement. The Company’s filings with the SEC are available on its website at www.warriormetcoal.com and on the SEC's website at www.sec.gov.

Any forward-looking statement speaks only as of the date on which it is made, and, except as required by law, the Company does not undertake any obligation to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. New factors emerge from time to time, and it is not possible for the Company to predict all such factors.

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