# Ramaco Resources, Inc.: Form 10-Q for the period ended Sep 30, 2020

- Company: [Ramaco Resources, Inc.](/companies/metc.md) (CIK 1687187)
- Form: 10-Q
- Filed: 2020-11-03
- Accepted by EDGAR: Nov 3, 2020, 16:03 ET
- Period: 2020-09-30
- Accession: 0001558370-20-012402
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1687187/000155837020012402/metc-20200930x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1687187/000155837020012402/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2020-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2020-07-01 to 2020-09-30 | $39.5m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Revenue | 9 months, 2020-01-01 to 2020-09-30 | $117.8m | us-gaap:RevenueFromContractWithCustomerIncludingAssessedTax |
| Cost of revenue | 3 months, 2020-07-01 to 2020-09-30 | $35.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2020-01-01 to 2020-09-30 | $96.8m | us-gaap:CostOfGoodsAndServicesSold |
| Selling, general and administrative | 3 months, 2020-07-01 to 2020-09-30 | $6.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2020-01-01 to 2020-09-30 | $15.7m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Operating income | 3 months, 2020-07-01 to 2020-09-30 | −$7.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 9 months, 2020-01-01 to 2020-09-30 | −$10.7m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2020-07-01 to 2020-09-30 | $344.0k | us-gaap:InterestExpense |
| Interest expense | 9 months, 2020-01-01 to 2020-09-30 | $915.0k | us-gaap:InterestExpense |
| Income tax | 3 months, 2020-07-01 to 2020-09-30 | −$1.4m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2020-01-01 to 2020-09-30 | −$38.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2020-07-01 to 2020-09-30 | −$4.8m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2020-01-01 to 2020-09-30 | −$162.0k | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2020-07-01 to 2020-09-30 | −$0.11 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2020-01-01 to 2020-09-30 | $0.00 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2020-07-01 to 2020-09-30 | −$0.11 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2020-01-01 to 2020-09-30 | $0.00 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2020-07-01 to 2020-09-30 | 42,647 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2020-01-01 to 2020-09-30 | 42,373 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2020-01-01 to 2020-09-30 | $947.0k | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2020-01-01 to 2020-09-30 | $20.5m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2020-09-30 | $6.4m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2020-09-30 | $54.7m | us-gaap:AssetsCurrent |
| Total assets | at 2020-09-30 | $241.3m | us-gaap:Assets |
| Current liabilities | at 2020-09-30 | $27.1m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2020-09-30 | $68.5m | us-gaap:Liabilities |
| Long-term debt | at 2020-09-30 | $21.0m | us-gaap:LongTermDebtNoncurrent |
| Current portion of debt | at 2020-09-30 | $4.9m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2020-09-30 | $172.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 33,753 characters.

*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 third quarter of 2020 were impacted by the on-going 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 nine 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 lockdowns, restrictions on public gatherings 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 to more than 10% and a significant worldwide economic slowdown. In certain cases, 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 COVID-19 outbreak may significantly worsen in the United States during the upcoming winter months, which may cause federal, state and local governments to reconsider imposing more severe restrictions on business and social activities. In the event governments impose such restrictions, the re-opening of the economy may be further curtailed.

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 10% or almost 200,000 tons.

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. Since the initial outbreak of COVID-19, we have observed a declining demand for and reductions in the spot price of metallurgical coal as business and consumer activity decelerated across the globe. This weakness limited our ability to complete spot sales in the first nine months 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:

- an operational furlough of approximately 182 employees at the Elk Creek mining complex in West Virginia for most of the month of April 2020;
- a one week operational furlough of approximately 157 employees at the Elk Creek mining complex in July 2020;
- the partial closure of our Berwind low volatile development mine complex affecting approximately 44 jobs effective 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 furloughs, 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 September 30, 2020, we had outstanding performance obligations for the remainder of 2020 of approximately 0.6 million tons for contracts with fixed sales prices averaging $88/ton and 0.2 million tons for contracts with index-based pricing mechanisms. Of the 0.6 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 mitigate the impacts of these reductions and preserve the value of these contracts as much as possible, while taking into account the challenges of operating in the midst of a global pandemic.

### Results of Operations

*(In thousands)*

| ​ ​ ​ Consolidated statement of operations data ​ | ​ ​ ​ ​ | ​ ​ Three months ended September 30, 2020 ​ ​ ​ ​ ​ | ​ ​ ​ | ​ ​ 2019 ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ | ​ ​ Nine months ended September 30, 2020 ​ ​ ​ ​ ​ | ​ ​ ​ | ​ ​ 2019 ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ |
| --- | --- | ---: | --- | --- | --- | --- | --- | --- | --- |
| Revenue | ​ | $39,459 | ​ | $61,380 | ​ | $117,769 | ​ | $184,601 | ​ |
| Costs and expenses | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Cost of sales (exclusive of items shown separately below) | ​ | 35,689 |  | ​ 44,983 |  | ​ 96,758 |  | ​ 129,208 |  |
| Asset retirement obligation accretion | ​ | ​ 128 |  | ​ 128 |  | ​ 428 |  | ​ 383 |  |
| Depreciation and amortization | ​ | 5,258 | ​ | ​ 5,353 | ​ | ​ 15,601 | ​ | ​ 14,291 | ​ |
| Selling, general and administrative | ​ | 5,966 | ​ | ​ 4,464 | ​ | ​ 15,723 | ​ | ​ 13,127 | ​ |
| Total costs and expenses | ​ | 47,041 | ​ | ​ 54,928 | ​ | ​ 128,510 | ​ | ​ 157,009 | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Operating income (loss) | ​ | (7,582) |  | ​ 6,452 |  | ​ (10,741) |  | ​ 27,592 |  |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Other income | ​ | 1,743 | ​ | ​ 573 | ​ | ​ 11,456 | ​ | ​ 1,063 | ​ |
| Interest expense, net | ​ | (344) | ​ | ​ (342) | ​ | ​ (915) | ​ | ​ (951) | ​ |
| Income (loss) before tax | ​ | ​ (6,183) | ​ | ​ 6,683 | ​ | ​ (200) | ​ | ​ 27,704 | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Income tax expense (benefit) | ​ | (1,407) |  | ​ 1,133 |  | ​ (38) |  | ​ 4,658 |  |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Net income (loss) | ​ | $(4,776) | ​ | $5,550 | ​ | $(162) | ​ | $23,046 | ​ |
| ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ |
| Adjusted EBITDA | ​ | $637 | ​ | $13,610 | ​ | $19,863 | ​ | $46,387 | ​ |

We reported a net loss of $4.8 million and Adjusted EBITDA of $0.6 million in the third quarter of 2020, which were each significantly lower than that for the third quarter of 2019. We experienced both lower realized pricing and volumes in the 2020 period as compared with that for 2019.

### Three Months Ended September 30, 2020 Compared to Three Months Ended September 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:

*(In thousands)*

| ​ ​ Company Produced | ​ ​ | ​ ​ Three months ended September 30, 2020 ​ | ​ | ​ ​ 2019 ​ | ​ | ​ ​ Increase (Decrease) ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Coal sales revenue | ​ | $39,459 | ​ | $59,083 | ​ | $(19,624) |
| Tons sold | ​ | 430 | ​ | 510 | ​ | (80) |
| Purchased from Third Parties | ​ |  | ​ |  | ​ |  |
| Coal sales revenue | ​ | $— | ​ | $2,297 | ​ | $(2,297) |
| Tons sold | ​ | — | ​ | 17 | ​ | (17) |

Coal sales revenue in the third quarter of 2020 was $39.5 million, 36% lower than in the third quarter of 2019 principally due to lower sales volumes and lower realized pricing in the third quarter of 2020. Force majeure and material adverse change notices from two customers have reduced our sales volumes during 2020. During the three months ended September 30, 2020, almost 90,000 tons expected to be shipped to North American customers were sold into the lower priced spot market.

Revenue per ton sold (FOB mine) declined 30% from $112/ton in the third quarter of 2019 to $78/ton in the third quarter of 2020. We sold 430 thousand tons of coal in the third quarter of 2020, a 18% 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 have made no such purchases in 2020 as smaller producers exited local markets.

*Cost of sales.* Our cost of sales totaled $35.7 million for the three months ended September 30, 2020 as compared with $45.0 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 third quarter of 2020 was $69, compared with $81 in the third quarter of 2019. Improvement in our cash cost per ton sold in the 2020 period is principally due to reduced mining at our Berwind complex and generally more favorable mining conditions at our Elk Creek complex.

*Asset retirement obligation accretion.* Asset retirement obligation accretion was $0.1 million in each of the three-month periods ended September 30, 2020 and 2019.

*Depreciation and amortization.* Depreciation and amortization expense was about the same in each of the three-month periods ended September 30, 2020 and 2019.

*Selling, general and administrative.* Selling, general and administrative expenses were $6.0 million for the three months ended September 30, 2020 as compared with $4.5 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 $1.7 million for the third quarter of 2020, as compared with $0.6 million for the third quarter of 2019. We recognized $1.1 million of other income for the three months ended September 30, 2020 for the remaining amount of the PPP Loan, which we expect will be fully forgiven based on our usage of loan proceeds for eligible payroll expenses, lease, interest and utility payments.

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 expired in the third quarter of 2020.

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

*Income tax expense.* The effective tax rate for the three months ended September 30, 2020 was approximately 23%. The effective tax rate for the three months ended September 30, 2019 was approximately 17%.

Cash taxes paid for 2020 are expected to be less than $20 thousand.

### Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 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:

*(In thousands)*

| ​ ​ Company Produced | ​ ​ | ​ ​ Nine months ended September 30, 2020 ​ | ​ | ​ ​ 2019 ​ | ​ | ​ ​ Increase (Decrease) ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Coal sales revenue | ​ | $117,769 | ​ | $174,299 | ​ | $(56,530) |
| Tons sold | ​ | 1,208 | ​ | 1,452 | ​ | (244) |
| Purchased from Third Parties | ​ |  | ​ |  | ​ |  |
| Coal sales revenue | ​ | $— | ​ | $10,302 | ​ | $(10,302) |
| Tons sold | ​ | — | ​ | 78 | ​ | (78) |

Coal sales revenue in the nine months ended September 30, 2020 was $117.8 million, 36% lower than in the same period of 2019 principally due to lower sales volumes and lower realized pricing. Force majeure and material adverse change notices from two customers have reduced our sales volumes during 2020 by about 10% or almost 200,000 tons. Most of these volumes will be sold into the spot market during 2020 albeit at lower realized prices.

Revenue per ton sold (FOB mine) declined 22% from $111/ton in the nine months ended September 30, 2019 to $87/ton in the nine months ended September 30, 2020. We sold 1.2 million tons of coal in the first nine months of 2020, a 21% 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 $96.8 million for the nine months ended September 30, 2020 as compared with $129.2 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 nine months of 2020 was $70, compared with $75 in the first nine months of 2019.

*Asset retirement obligation accretion.* Asset retirement obligation accretion was $0.4 million in each of the nine-month periods ended September 30, 2020 and 2019.

*Depreciation and amortization.* Depreciation and amortization expense for the first nine months of 2020 was $15.6 million as compared with $14.3 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 $15.7 million for the nine months ended September 30, 2020 as compared with $13.1 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. The increase is also due in part to the expansion of our internal sales team during 2020, as well as higher legal fees.

*Other income*. Other income was $11.4 million for the nine months ended September 30, 2020, as compared with $1.1 million for the same period of 2019. We recognized $8.4 million of other income during 2020 for the anticipated full forgiveness of the PPP Loan based on our usage of loan proceeds for eligible payroll expenses, lease, interest and utility payments.

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 expired in the third quarter of 2020.

*Interest expense, net.* Interest expense, net was $0.9 million and $1.0 million for each of the nine months ended September 30, 2020 and September 30, 2019, respectively.

*Income tax expense.* During the nine months ended September 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 nine months ended September 30, 2020 was approximately 19%. The effective tax rate for the nine months ended September 30, 2019 was approximately 17%.

Cash taxes paid for 2020 are expected to be less than $20 thousand.

### Liquidity and Capital Resources

At September 30, 2020, we had $6.4 million of cash and cash equivalents and $14.3 million available under our existing credit agreements for future borrowings.

#### Significant sources and uses of cash during the first nine months of 2020

Sources of cash:

- Cash flows from operating activities were $1.0 million. This included a negative impact from the primary components of our working capital (receivables, inventories and accounts payable) of a net $9.6 million, primarily associated with a build-up of inventories.
- We made net borrowings of $20.7 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 $20.5 million principally for development of the Berwind mine and for infrastructure at our Elk Creek mining complex.

At September 30, 2020, we also had $1.5 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 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 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 September 30, 2020, $14.3 million was outstanding on the Revolving Credit Facility and we had remaining availability of $14.3 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 $7.5 million at September 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 September 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 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 $4.1 million at September 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 PPP of 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. Pursuant to the subsequently enacted *Paycheck Protection Flexibility Act of 2020*, we are permitted to defer required monthly payments of principal and interest until such time as an approval or denial of foregiveness is received from the SBA.

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 SBA upon documentation of expenditures in accordance with the SBA requirements and proper application by the Company. Under the CARES Act and *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 could be 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 September 30, 2020, we used the PPP Loan proceeds for eligible payroll expenses, lease, interest and utility payments totaling approximately $8.4 million. We anticipate that the full amount of the PPP Loan principal, together with accrued interest thereon, will be forgiven. Accordingly, we have recognized $1.1 million and $7.3 million as other income in the consolidated statement of operations for the three and nine months ended September 30, 2020, respectively.

### Off-Balance Sheet Arrangements

As of September 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.

*(In thousands)*

| ​ ​ Reconciliation of Net Income (Loss) to Adjusted EBITDA | ​ ​ | ​ ​ Three months ended September 30, 2020 ​ | ​ | ​ ​ 2019 ​ | ​ ​ ​ | ​ ​ Nine months ended September 30, 2020 ​ | ​ | ​ ​ 2019 ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Net income (loss) | ​ | $(4,776) | ​ | $5,550 | ​ | $(162) | ​ | $23,046 |
| Depreciation and amortization | ​ | 5,258 | ​ | 5,353 | ​ | 15,601 | ​ | 14,291 |
| Interest expense, net | ​ | 344 | ​ | 342 | ​ | 915 | ​ | 951 |
| Income taxes | ​ | (1,407) | ​ | 1,133 | ​ | (38) | ​ | 4,658 |
| EBITDA | ​ | (581) | ​ | 12,378 | ​ | 16,316 | ​ | 42,946 |
| Stock-based compensation | ​ | 1,090 | ​ | 1,104 | ​ | 3,119 | ​ | 3,058 |
| Accretion of asset retirement obligation | ​ | 128 | ​ | 128 | ​ | 428 | ​ | 383 |
| Adjusted EBITDA | ​ | $637 | ​ | $13,610 | ​ | $19,863 | ​ | $46,387 |

#### 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.

*(In thousands, except per ton amounts)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three months ended September 30, 2020 Company Produced ​ ​ | ​ ​ ​ | ​ ​ Purchased Coal ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total ​ ​ | ​ ​ ​ ​ | ​ ​ Three months ended September 30, 2019 Company Produced ​ ​ | ​ ​ ​ | ​ ​ Purchased Coal ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $39,459 | ​ | $— | ​ | $39,459 | ​ | $59,083 | ​ | $2,297 | ​ | $61,380 |
| Less: Adjustments to reconcile to Non-GAAP revenue (FOB mine) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Transportation costs | ​ | (6,049) | ​ | — | ​ | (6,049) | ​ | (2,384) | ​ | (52) | ​ | (2,436) |
| Non-GAAP revenue (FOB mine) | ​ | $33,410 | ​ | $— | ​ | $33,410 | ​ | $56,699 | ​ | $2,245 | ​ | $58,944 |
| Tons sold | ​ | 430 | ​ | — | ​ | 430 | ​ | 510 | ​ | 17 | ​ | 527 |
| Revenue per ton sold (FOB mine) | ​ | $78 | ​ | $— | ​ | $78 | ​ | $111 | ​ | $131 | ​ | $112 |

*(In thousands, except per ton amounts)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Nine months ended September 30, 2020 Company Produced ​ ​ | ​ ​ | ​ ​ Purchased Coal ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total ​ ​ | ​ ​ ​ | ​ ​ Nine months ended September 30, 2019 Company Produced ​ ​ | ​ ​ | ​ ​ Purchased Coal ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Revenue | ​ | $117,769 | ​ | $— | ​ | $117,769 | ​ | $174,299 | ​ | $10,302 | ​ | $184,601 |
| Less: Adjustments to reconcile to Non-GAAP revenue (FOB mine) | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Transportation costs | ​ | (12,611) | ​ | — | ​ | (12,611) | ​ | (14,098) | ​ | (424) | ​ | (14,522) |
| Non-GAAP revenue (FOB mine) | ​ | $105,158 | ​ | $— | ​ | $105,158 | ​ | $160,201 | ​ | $9,878 | ​ | $170,079 |
| Tons sold | ​ | 1,208 | ​ | — | ​ | 1,208 | ​ | 1,452 | ​ | 78 | ​ | 1,530 |
| Revenue per ton sold (FOB mine) | ​ | $87 | ​ | $— | ​ | $87 | ​ | $110 | ​ | $127 | ​ | $111 |

#### 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.

*(In thousands, except per ton amounts)*

| ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ Three months ended September 30, 2020 Company Produced ​ ​ | ​ ​ ​ | ​ ​ Purchased Coal ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total ​ ​ | ​ ​ ​ ​ | ​ ​ Three months ended September 30, 2019 Company Produced ​ ​ | ​ ​ ​ | ​ ​ Purchased Coal ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Cost of sales | ​ | $35,689 | ​ | $— | ​ | $35,689 | ​ | $42,996 | ​ | $1,987 | ​ | $44,983 |
| Less: Adjustments to reconcile to Non-GAAP cash cost of sales | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Transportation costs | ​ | (5,936) | ​ | — | ​ | (5,936) | ​ | (2,384) | ​ | (52) | ​ | (2,436) |
| Non-GAAP cash cost of sales | ​ | $29,753 | ​ | $— | ​ | $29,753 | ​ | $40,612 | ​ | $1,935 | ​ | $42,547 |
| Tons sold | ​ | 430 | ​ | — | ​ | 430 | ​ | 510 | ​ | 17 | ​ | 527 |
| Cash cost per ton sold | ​ | $69 | ​ | $— | ​ | $69 | ​ | $80 | ​ | $113 | ​ | $81 |

*(In thousands, except per ton amounts)*

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Nine months ended September 30, 2020 Company Produced ​ ​ | ​ ​ | ​ ​ Purchased Coal ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total ​ ​ | ​ ​ ​ | ​ ​ Nine months ended September 30, 2019 Company Produced ​ ​ | ​ ​ | ​ ​ Purchased Coal ​ ​ | ​ ​ ​ | ​ ​ ​ ​ Total ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Cost of sales | ​ | $96,758 | ​ | $— | ​ | $96,758 | ​ | $119,911 | ​ | $9,297 | ​ | $129,208 |
| Less: Adjustments to reconcile to Non-GAAP cash cost of sales | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |
| Transportation costs | ​ | (12,338) | ​ | — | ​ | (12,338) | ​ | (14,031) | ​ | (424) | ​ | (14,455) |
| Non-GAAP cash cost of sales | ​ | $84,420 | ​ | $— | ​ | $84,420 | ​ | $105,880 | ​ | $8,873 | ​ | $114,753 |
| Tons sold | ​ | 1,208 | ​ | — | ​ | 1,208 | ​ | 1,452 | ​ | 78 | ​ | 1,530 |
| Cash cost per ton sold | ​ | $70 | ​ | $— | ​ | $70 | ​ | $73 | ​ | $114 | ​ | $75 |

## Market risk

As filed, 217 characters.

Quantitative and qualitative disclosures about market risk are included in Item 7A, “Quantitative and Qualitative Disclosures about Market Risk,” of our Annual Report on Form 10-K for the year ended December 31, 2019.

## Controls and procedures

As filed, 1,949 characters.

### Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this quarterly report. Our disclosure controls and procedures are designed to provide reasonable assurance that the information required to be disclosed by us in reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this quarterly report, at the reasonable assurance level.

### Changes in Internal Control over Financial Reporting

We regularly review our system of internal control over financial reporting and make changes to our processes and systems to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include such activities as implementing new, more efficient systems, consolidating activities and migrating processes.

There were no significant changes in our system of internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) during the quarter ended September 30, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 6,771 characters.

In addition to the other information set forth in this Quarterly Report, you should carefully consider the risk factors and other cautionary statements described under the heading “Item 1A. Risk Factors” included in our Annual Report and the risk factors and other cautionary statements contained in our other SEC filings, which could materially affect our businesses, financial condition or future results.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results. There have been no material changes in our risk factors from those described in our Annual Report other than as described below.

***The impact of the spread of COVID-19 and the measures taken to mitigate it are adversely affecting our business, operations and financial condition.***

The global spread of COVID-19 has created significant volatility, uncertainty, and economic disruption during the first nine 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 lockdowns, restrictions on public gatherings 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 to more than 10% and a significant worldwide economic slowdown. In certain cases, 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 COVID-19 outbreak may significantly worsen in the United States during the upcoming winter months, which may cause federal, state and local governments to reconsider imposing more severe restrictions on business and social activities. In the event governments impose such restrictions, the re-opening of the economy may be further curtailed.

These social and governmental responses have caused a significant slowdown in the global economy and financial markets, and the current and anticipated economic impact of these actions has caused declines in many commodity prices, including a decline in metallurgical coal prices, and significant decline in the demand for steel. The extent of the impact of the COVID-19 pandemic on our business and financial results will continue to depend on numerous evolving factors that we are not able to accurately predict, including the duration and scope of the pandemic, global economic conditions during and after the pandemic, governmental actions that have been taken, or may be taken in the future, in response to the pandemic, and changes in consumer behavior in response to the pandemic, some of which may be more than just temporary.

Like other coal companies, our business is being adversely affected by the COVID-19 pandemic and measures being taken to mitigate its impact. The pandemic has resulted in widespread adverse impacts on our employees, customers, suppliers and other parties with whom we have business relations. Our actions have included:

- an operational furlough of approximately 182 employees at the Elk Creek mining complex in West Virginia for most of the month of April 2020;
- a one week operational furlough of approximately 157 employees at the Elk Creek mining complex in July 2020;
- the partial closure of our Berwind low volatile development mine complex affecting approximately 44 jobs effective in July 2020; and
- a reduction or deferral of non-essential capital expenditures to adapt to the current market conditions.

Two customers have declared a material adverse change or force majeure under their contracts with us and reduced or delayed their planned volumes of purchases of metallurgical coal from us because of COVID-19. These delays or curtailments are expected to affect up to 10% of our total contracted sales volumes for 2020. 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. These actions by customers may result in some disputes and could strain our relations with customers and others. If and to the extent these actions result in material modifications or cancellations of the underlying contracts, or non-renewal of contracts, our business, financial condition, cash flows and results of operations could be materially adversely affected.

While the operations and maintenance of our facilities was not covered by previous stay-at-home and similar orders because they constitute an essential business, we continue to closely monitor developments. As the COVID-19 pandemic and government responses are rapidly evolving, the extent of the impact on domestic coal companies remains unknown. There is considerable uncertainty regarding the extent and duration of governmental and other measures implemented to try to slow the spread of the virus, such as large-scale travel bans and restrictions, border closures, quarantines, stay-at-home orders and business and government shutdowns. Restrictions of this nature have caused, and likely will continue to cause, us, our suppliers and other business counterparties to experience operational delays and delays in the delivery of materials and supplies that are sourced from around the globe, and have caused, and likely will continue to cause, milestones or deadlines relating to various projects to be missed. We have also modified certain business and workforce practices (including those related to employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences) to conform to government restrictions and best practices encouraged by governmental and regulatory authorities. However, the quarantine of personnel or the inability to access our facilities could adversely affect our operations.

We cannot predict the full impact that COVID-19 will have on our business, cash flows, liquidity, financial condition and results of operations at this time, due to numerous uncertainties. The ultimate impacts will depend on future developments, including, among others, the consequences of governmental and other measures designed to slow the spread of the virus, the development of effective treatments, the duration of the outbreak, actions taken by governmental authorities, customers, suppliers and other third parties, workforce availability, and the timing and extent to which normal economic and operating conditions resume.

Filed Nov 3, 2020.
Source: SEC EDGAR, the filing index for accession 0001558370-20-012402. Last ingested by Listed: Nov 3, 2026, 20:51 ET. No prices; not investment advice.