Englewood, CO – August 3, 2017 – Westmoreland Coal Company (Nasdaq:WLB) today reported financial results for the second quarter 2017 and updated its guidance.
Second Quarter Highlights
- Revenues of $323.0 million from 11.0 million tons sold
- Net loss applicable to common shareholders of $50.4 million, or $2.69 per share
- Adjusted EBITDA of $32.6 million
Six Month Highlights
- Revenues of $662.8 million from 23.3 million tons sold
- Net loss applicable to common shareholders of $87.2 million, or $4.68 per share
- Adjusted EBITDA of $120.8 million, including approximately $46 million incremental from the Capital Power payment
- Cash flow provided by operating activities of $10.2 million
- Free cash flow of $47.5 million, which also includes the accelerated Capital Power payment
Kevin Paprzycki, Westmoreland’s Chief Executive Officer, said, “This quarter, we executed across all of our strategic initiatives to drive long-term value creation. Specifically, we have formalized an agreement to sell ROVA, our coal-fired generating station, secured multiple contract extensions which will add volume and cash flow over multiple years, and continued making progress toward optimizing our capital structure. Our disciplined approach toward capitalizing on near-term catalysts will help further strengthen our business and enhance shareholder value.”
“That said, results for the second quarter and first half came in below our expectations as unfavorable sales volume mix and higher costs at Coal Valley weighed on our performance. We continue to expect stronger results in the back half, following last year’s pattern, but we have lowered our full year guidance to reflect the first half results, pricing adjustments for contract extensions, as well as our updated demand projections for the remainder of 2017.”
Westmoreland’s safety metrics are below.
|Six Months Ended June 30, 2017|
|U.S. Surface Operations||1.44||1.28|
|U.S National Surface Average||1.47||1.02|
|U.S. Underground Operations||1.61||1.21|
|U.S. National Underground Average||4.79||3.44|
Consolidated and Segment Results
During the second quarter of 2017, consolidated adjusted EBITDA declined 28.5% compared with the same period in 2016. This decline was driven in part by declines in the Coal – Canada segment resulting from increased equipment maintenance and costs to develop the pit at the Coal Valley mine due to a delay in the sale of this facility. Compared with the same period in 2016, second quarter 2017 revenues were also impacted by the 2016 expiration of the Jewett and Beulah coal supply contracts in the Coal – U.S. segment, which were partially offset by additional reclamation revenue at the Jewett mine. In addition, seasonal outages at our customers’ plants and the timing of weather-related demand drove lower adjusted EBITDA as we sold fewer tons to high-margin customers. Adjusted EBITDA was favorably impacted by cost-savings initiatives across the company, particularly in the Coal – WMLP segment.
Consolidated adjusted EBITDA for the first six months of 2017 was $120.8 million, inclusive of the impact of the $52.5 million early repayment from Capital Power. Adjusted EBITDA for the first six months was influenced by the many of the same factors as the three month period: the contract expirations at Jewett and Beulah, operational challenges at Coal Valley, weather-related demand and volume mix issues, offset by cost reductions, increased volume from San Juan, and Jewett reclamation revenue. In addition, the first half of 2017 was impacted by increased costs associated with unexpected dragline maintenance as well as lower revenue and increased costs resulting from record precipitation at the Westmoreland Resource Partners LP’s (“WMLP”) Kemmerer mine, each of which occurred in the first quarter.
Cash Flow and Liquidity
Westmoreland’s free cash flow through June 30, 2017 was $47.5 million. Free cash flow is the net of cash flow provided by operations of $10.2 million, less capital expenditures of $13.1 million, plus net cash collected for the loan and lease receivables of $50.5 million. Included in cash flow provided by operations was cash used for interest expense of $48.9 million and for asset retirement obligations of $20.8 million, plus positive working capital of $10.5 million.
At June 30, 2017, cash and cash equivalents on hand totaled $57.6 million, a $2.5 million decrease from year end. The decrease was comprised of free cash flow generation of $47.5 million; net debt reductions, including capital lease payments, of $44.3 million; a $3.6 million reserve acquisition and other non-operating cash uses of $2.6 million.
Gross debt plus capital lease obligations at quarter end totaled $1.1 billion, of which $325.5 million resides at WMLP and $782.4 million resides at Westmoreland Coal Company. There was $27.0 million available to draw, net of letters of credit, on Westmoreland’s revolving credit facility. An additional $15.0 million was available to WMLP through its revolving credit facility, which is not available to Westmoreland Coal Company for borrowings. No amounts had been drawn on either revolving credit facility as of June 30, 2017.
Earlier today, Westmoreland announced the sale of the Roanoke Valley Power Facility (“ROVA”) for $5 million. Westmoreland continues to anticipate the return of approximately $10 million of cash collateral this year for the related ROVA power contracts.
Regarding the revised outlook, Paprzycki commented “We revised the midpoint of our adjusted EBITDA guidance by $35 million. Nearly one-third of this is from contract extensions where we granted price concessions in exchange for extended contract length. These extensions, including the recently announce Kemmerer contract, will increase our total cash flow and EBITDA over multiple years. Another one third of the change to guidance stems from the weather patterns’ effect on our sales volume and mix across our operations. The remainder of the change is from operational issues, in particular the dragline outage we experienced in the first half and higher costs at Coal Valley.”
Westmoreland’s 2017 guidance was revised as follows:
|Guidance Summary||Original 2017 Guidance||Revised 2017 Guidance|
|Coal tons sold||40 – 50 million tons||40 – 50 million tons|
|Adjusted EBITDA||$280 – $310 million||$250 – $270 million|
|Free cash flow||$115 – $140 million||$90 – $115 million|
|Capital expenditures||$40 – $50 million||$40 – $50 million|
|Cash interest||approximately $95 million||approximately $95 million|
Adjusted EBITDA and free cash flow include the $52.5 million early repayment of loan and lease receivables related to the Genesee mine, of which approximately $40 million is incremental to 2017 compared to 2016 results.
Westmoreland presents certain non-GAAP financial measures, including adjusted EBITDA and free cash flow, that management believes provide meaningful supplemental information and provide meaningful comparability to prior periods. Reconciliations of non-GAAP to GAAP measures are presented in the accompanying tables.
Westmoreland Coal Company will host its earnings conference call on August 3, 2017, at 10:00 a.m. Eastern Time.
Participants may join the call using the numbers below:
- Toll Free: 1-844-WCC-COAL (844-922-2625)
- International: 1-201-689-8584
- Webcast: www.westmoreland.com/investors/investor-webcasts
A replay of the teleconference will be available until August 17, 2017 and can be accessed using the information below:
- Replay: 1-877-481-4010 or 1-919-882-2331
- Replay ID: 15919
- Webcast: www.westmoreland.com/investors/investor-webcasts
About Westmoreland Coal Company
Westmoreland Coal Company is the oldest independent coal company in the United States. Westmoreland’s coal operations include surface coal mines in the United States and Canada, underground coal mines in Ohio and New Mexico, a char production facility, and a 50% interest in an activated carbon plant. Westmoreland also owns the general partner of and a majority interest in Westmoreland Resource Partners, LP, a publicly-traded coal master limited partnership (NYSE:WMLP). For more information, visit www.westmoreland.com.
For further information please contact:
Gary Kohn, Chief Financial Officer
Cautionary Note Regarding Forward-Looking Statements
Forward-looking statements are based on Westmoreland’s current expectations and assumptions regarding its business, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. Actual results may differ materially from those contemplated by the forward-looking statements. Westmoreland cautions you against relying on any of these forward-looking statements. They are statements neither of historical fact nor guarantees or assurances of future performance. Possible events or factors that could cause actual results or performance to differ materially from those anticipated in our forward-looking statements include, but are not limited to the following:
- our ability to consummate the sale of the ROVA and Coal Valley facilities on reasonable terms or at all;
- our relationships with, and other conditions affecting, our customers, including how power prices affect our customers’ decision to run their plants;
- seasonal variations and inclement weather, which may cause fluctuations in our operating results, profitability, cash flow and working capital needs related to our operating segments;
- our substantial level of indebtedness and our ability to adhere to financial covenants related to our borrowing arrangements;
- existing and future legislation and regulation affecting both our coal mining operations and our customers’ coal usage, governmental policies and taxes, including those aimed at reducing emissions of elements such as mercury, sulfur dioxides, nitrogen oxides, particulate matter or greenhouse gases,
- the effect of the Environmental Protection Agency’s and Canadian and provincial governments’ inquiries and regulations on the operations of the power plants to which we provide coal;
- Alberta’s Climate Leadership Plan to phase out coal-fired electricity generation by 2030;
- our ability to manage the San Juan entities;
- the effect of legal and administrative proceedings, settlements, investigations and claims, including any related to citations and orders issued by regulatory authorities, and the availability of related insurance coverage;
- changes in our post-retirement medical benefit and pension obligations and the impact of the recently enacted healthcare legislation on our employee health benefit costs;
- inaccuracies in our estimates of our coal reserves;
- our potential inability to expand or continue current coal operations due to limitations in obtaining bonding capacity for new mining permits, and/or increases in our mining costs as a result of increased bonding expenses;
- the effect of prolonged maintenance or unplanned outages at our operations or those of our major power generating customers;
- the inability to control costs, recognize favorable tax credits and/or receive adequate train traffic at our open market mine operations;
- the ability or inability of our power hedging arrangements to generate cash;
- competition within our industry and with producers of competing energy sources;
- the availability and costs of key supplies or commodities, such as diesel fuel, steel and explosives;
- potential title defects or loss of leasehold interests in our properties, which could result in unanticipated costs or an inability to mine the properties;
- and other risks, uncertainties and assumptions described in our periodic filings with the Securities and Exchange Commission, including in “Risk Factors” in our most recent Annual Report on Form 10-K and subsequent filings.
Any forward-looking statements made by Westmoreland in this news release speak only as of the date on which it was made. Westmoreland undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future developments or otherwise, except as may be required by law.