Alpha Metallurgical Resources Inc

Results of Operations

Our results of operations for the years ended December 31, 2023 and 2022 are discussed in these “Results of Operations” presented below.

Year Ended December 31, 2023 Compared to the Year Ended December 31, 2022

Revenues

The following table summarizes information about our revenues during the years ended December 31, 2023 and 2022:

Coal revenues. Coal revenues decreased $636.4 million, or 15.5%, for the year ended December 31, 2023 compared to the prior year period. The decrease was primarily due to a 20.7% reduction in average coal sales realization within our Met segment as pricing moderated from the higher levels experienced during the prior year, partially offset by a 6.9% increase in coal sales volumes. The elevated coal sales pricing environment in the prior year period was driven by increased coal demand, resulting from improved economic activity, coupled with limited supply response. Coal revenues within our All Other category also declined due to the closure of Slabcamp, which was our last remaining thermal mine, in August of 2023. Refer to the “Non-GAAP Coal revenues” section below for further detail on coal revenues for the year ended December 31, 2023 compared to the prior year period.

Cost and Expenses

The following table summarizes information about our costs and expenses during the years ended December 31, 2023 and 2022:

Cost of coal sales. Cost of coal sales increased $70.2 million, or 3.1%, for the year ended December 31, 2023 compared to the prior year period as a result of increased costs due to inflationary pressure and increased levels of coal purchases partially offset by lower royalties, taxes, and freight and handling costs due to the lower coal pricing environment.

Depreciation, depletion and amortization. Depreciation, depletion and amortization increased $29.2 million, or 27.2%, for the year ended December 31, 2023 compared to the prior year period. The increase was primarily due to an increase in capital expenditures.

Amortization of acquired intangibles, net. Amortization of acquired intangibles, net decreased $11.0 million, or 56.3%, for the year ended December 31, 2023 compared to the prior year period. The decrease was primarily driven by accelerated prior period amortization of certain acquired mine permits as a result of an update to the estimated life of the associated mines.

Selling, general and administrative. Selling, general and administrative expenses increased $10.8 million, or 15.0%, for the year ended December 31, 2023 compared to the prior year period. This increase was primarily related to increases of $10.8 million in stock compensation expense and $1.7 million in wages and benefits expense, partially offset by decreases of $2.0 million in professional services fees and $0.7 million in incentive pay.

Mark-to-market adjustment for acquisition-related obligations. The mark-to-market adjustment for acquisition-related obligations was $8.9 million for the year ended December 31, 2022. As the royalty period for our Contingent Revenue Obligation ended on December 31, 2022, there was no mark-to-market adjustment recorded during the year ended December 31, 2023. Refer to Notes 14 and 16 for additional information on the Contingent Revenue Obligation.

Other (income) expense. Other income increased $4.5 million, or 132.4%, for the year ended December 31, 2023 compared to the prior year period, primarily due to an increase in income on sale of assets in the current period.

Total Other Expense, Net

The following table summarizes information about our total other expense, net during the years ended December 31, 2023 and 2022:

Total other expense, net decreased $8.5 million, or 32.5%, for the year ended December 31, 2023 compared to the prior year period, primarily related to decreased interest expense due to a reduction in outstanding debt and increased interest income due to rising interest rates, partially offset by an increase in net periodic benefit costs for pension obligations.

Income Tax Expense

The following table summarizes information about our income tax expense during the years ended December 31, 2023 and 2022:

Income taxes. Income tax expense of $123.5 million was recorded for the year ended December 31, 2023 on income before income taxes of $845.5 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to favorable permanent differences for the percentage depletion allowance and the foreign-derived intangible income deduction.

Income tax expense of $106.2 million was recorded for the year ended December 31, 2022 on income before income taxes of $1,554.8 million. The effective tax rate differs from the federal statutory rate of 21% primarily due to the decrease in the valuation allowance and favorable permanent differences for the percentage depletion allowance and the foreign-derived intangible income deduction. Refer to Note 17 for additional information.

Non-GAAP Financial Measures

The discussion below contains “non-GAAP financial measures.” These are financial measures that either exclude or include amounts that are not excluded or included in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP” or “GAAP”). Specifically, we make use of the non-GAAP financial measures “Adjusted EBITDA,” “non-GAAP coal revenues,” “non-GAAP cost of coal sales,” and “non-GAAP coal margin.” We use Adjusted EBITDA to measure the operating performance of our segments and allocate resources to the segments. Adjusted EBITDA does not purport to be an alternative to net income (loss) as a measure of operating performance or any other measure of operating results, financial performance, or liquidity presented in accordance with GAAP. Moreover, this measure is not calculated identically by all companies and therefore may not be comparable to similarly titled measures used by other companies. Adjusted EBITDA is presented because management believes it is a useful indicator of the financial performance of our coal operations. We use non-GAAP coal revenues to present coal revenues generated, excluding freight and handling fulfillment revenues. Non-GAAP coal sales realization per ton for our operations is calculated as non-GAAP coal revenues divided by tons sold. We use non-GAAP cost of coal sales to adjust cost of coal sales to remove freight and handling costs, depreciation, depletion and amortization - production (excluding the depreciation, depletion and amortization related to selling, general and administrative functions), accretion on asset retirement obligations, amortization of acquired intangibles, net, and idled and closed mine costs. Non-GAAP cost of coal sales per ton for our operations is calculated as non-GAAP cost of coal sales divided by tons sold. Non-GAAP coal margin per ton for our coal operations is calculated as non-GAAP coal sales realization per ton for our coal operations less non-GAAP cost of coal sales per ton for our coal operations. The presentation of these measures should not be considered in isolation, or as a substitute for analysis of our results as reported under GAAP.

Management uses non-GAAP financial measures to supplement GAAP results to provide a more complete understanding of the factors and trends affecting the business than GAAP results alone. The definition of these non-GAAP measures may be changed periodically by management to adjust for significant items important to an understanding of operating trends and to adjust for items that may not reflect the trend of future results by excluding transactions that are not indicative of our core operating performance. Furthermore, analogous measures are used by industry analysts to evaluate the Company’s operating performance. Because not all companies use identical calculations, the presentations of these measures may not be comparable to other similarly titled measures of other companies and can differ significantly from company to company depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which companies operate, capital investments and other factors.

Included below are reconciliations of non-GAAP financial measures to GAAP financial measures.

The following tables summarize certain financial information relating to our coal operations for the years ended December 31, 2023 and 2022:

Non-GAAP Coal revenues. Met segment operations non-GAAP coal revenues decreased $521.6 million, or 14.9%, for the year ended December 31, 2023 compared to the prior year period. The decrease was primarily due to a $46.05, or 20.4%, reduction in average non-GAAP coal sales realization as prices moderated from the higher levels experienced during the prior year period, partially offset by a 6.9% increase in Met coal sales volumes. The elevated coal sales pricing environment in the prior year period was driven by increased coal demand, resulting from improved economic activity, coupled with limited supply response.

All Other category non-GAAP coal revenues decreased $24.7 million, or 33.2%, for the year ended December 31, 2023 compared to the prior year period primarily due to a decline in coal sales volumes with the closure of Slabcamp, which was our last remaining thermal mine, in August of 2023.

Non-GAAP cost of coal sales. Met segment operations non-GAAP cost of coal sales increased $172.3 million, or 10.3%, for the year ended December 31, 2023 compared to the prior year period. The increase was primarily driven by a 6.9% increase in Met coal sales volumes combined with a 3.2% increase in average non-GAAP cost of coal sales per ton. The increase in average non-GAAP cost of coal sales per ton was primarily driven by inflationary pressures and increased levels of coal purchases, partially offset by lower royalties and taxes as a result of a lower coal pricing environment.

All Other category non-GAAP cost of coal sales decreased $10.5 million, or 19.7%, for the year ended December 31, 2023 compared to the prior year period primarily due to the closure of Slabcamp, which was our last remaining thermal mine, in August of 2023.

Adjusted EBITDA

The following tables present a reconciliation of net income (loss) to Adjusted EBITDA for the years ended December 31, 2023 and 2022:

The following table summarizes Adjusted EBITDA for our Met segment operations and All Other category:

Met segment operations. Adjusted EBITDA decreased $688.8 million, or 38.8%, for the year ended December 31, 2023 compared to the prior year period. The decrease in Adjusted EBITDA was primarily driven by decreased coal margin and lower non-GAAP coal sales realization per ton in the current period.

All Other category. Adjusted EBITDA decreased $18.7 million, or 51.8%, for the year ended December 31, 2023 compared to the prior year period. The decrease in Adjusted EBITDA was primarily driven by a decrease in tons sold and decreased coal margin, partially offset by higher non-GAAP coal sales realization per ton in the current period.