WARRIOR MET COAL, INC. 10-Q

ITEM 1. FINANCIAL STATEMENTS 3 WARRIOR MET COAL, INC. CONDENSED STATEMENTS OF OPERATIONS (in thousands, except per-share amounts) (Unaudited) For the three months ended March 31, 2023 2022 Revenues: Sales $ 500,491 $ 382,433 Other revenues 9,183 ( 3,781 ) Total revenues 509,674 378,652 Costs and expenses: Cost of sales (exclusive of items shown separately below) 232,630 135,341 Cost of other revenues (exclusive of items shown separately below) 11,438 7,040 Depreciation and depletion 37,213 25,797 Selling, general and administrative 14,516 13,929 Business interruption 4,217 6,688 Idle mine — 3,008 Total costs and expenses 300,014 191,803 Operating income 209,660 186,849 Interest income (expense), net 1,460 ( 7,822 ) Other income 221 675 Income before income tax expense 211,341 179,702 Income tax expense 29,064 33,453 Net income $ 182,277 $ 146,249 Basic and diluted net income per share: Net income per share—basic $ 3.52 $ 2.84 Net income per share—diluted $ 3.51 $ 2.83 Weighted average number of shares outstanding—basic 51,842 51,532 Weighted average number of shares outstanding—diluted 51,956 51,634 Dividends per share: $ 0.95 $ 0.06 The accompanying notes are an integral part of these condensed financial statements. 4 WARRIOR MET COAL, INC. CONDENSED BALANCE SHEETS (in thousands, except share and per-share data) March 31, 2023 (Unaudited) December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 862,548 $ 829,480 Short-term investments 8,697 8,608 Trade accounts receivable 208,629 151,826 Inventories, net 129,406 154,039 Prepaid expenses and other receivables 34,296 29,156 Total current assets 1,243,576 1,173,109 Mineral interests, net 86,692 88,636 Property, plant and equipment, net 793,866 738,947 Deferred income taxes 7,090 7,572 Other long-term assets 19,765 19,831 Total assets $ 2,150,989 $ 2,028,095 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 29,746 $ 39,026 Accrued expenses 62,928 77,435 Asset retirement obligations 3,927 3,900 Short-term financing lease liabilities 26,535 24,089 Other current liabilities 4,584 $ 8,674 Total current liabilities 127,720 153,124 Long-term debt 295,051 302,588 Asset retirement obligations 66,126 64,581 Long-term financing lease liabilities 4,026 9,002 Deferred income taxes 51,959 23,378 Other long-term liabilities 27,816 27,907 Total liabilities 572,698 580,580 Stockholders’ Equity: Common stock, $ 0.01 par value, ( 140,000,000 shares authorized as of March 31, 2023 and December 31, 2022; 54,210,727 issued and 51,988,886 outstanding as of March 31, 2023; 53,875,409 issued and 51,653,568 outstanding as of December 31, 2022) 539 539 Treasury stock, at cost ( 2,221,841 shares as of March 31, 2023 and December 31, 2022) ( 50,576 ) ( 50,576 ) Additional paid in capital 268,471 269,956 Retained earnings 1,359,857 1,227,596 Total stockholders’ equity 1,578,291 1,447,515 Total liabilities and stockholders’ equity $ 2,150,989 $ 2,028,095 The accompanying notes are an integral part of these condensed financial statements. 5 WARRIOR MET COAL, INC. CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands) (Unaudited) For the three months ended March 31, 2023 2022 Common Stock Balance, beginning of period $ 539 $ 537 Issuance of shares — — Balance, end of period 539 537 Preferred Stock Balance, beginning of period — — Balance, end of period — — Treasury Stock Balance, beginning of period ( 50,576 ) ( 50,576 ) Balance, end of period ( 50,576 ) ( 50,576 ) Additional Paid in Capital Balance, beginning of period 269,956 256,059 Stock based compensation expense 7,713 7,218 Other ( 9,198 ) ( 3,716 ) Balance, end of period 268,471 259,561 Retained Earnings Balance, beginning of period 1,227,596 665,963 Net income 182,277 146,249 Dividends paid ( 50,016 ) ( 3,126 ) Balance, end of period 1,359,857 809,086 Total Stockholders' Equity $ 1,578,291 $ 1,018,608 The accompanying notes are an integral part of these condensed financial statements. 6 WARRIOR MET COAL, INC. CONDENSED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) For the three months ended March 31, 2023 2022 OPERATING ACTIVITIES Net income $ 182,277 $ 146,249 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and depletion 37,213 25,797 Deferred income tax expense 29,064 33,382 Stock based compensation expense 7,702 7,218 Amortization of debt issuance costs and debt discount, net 713 522 Accretion of asset retirement obligations 906 867 Mark-to-market (gain) loss on gas hedges ( 500 ) 11,681 Changes in operating assets and liabilities: Trade accounts receivable ( 56,804 ) ( 138,328 ) Inventories 17,406 ( 39,446 ) Prepaid expenses and other receivables ( 3,140 ) 7,148 Accounts payable ( 8,463 ) 13,090 Accrued expenses and other current liabilities ( 18,032 ) ( 1,500 ) Other 4,592 3,461 Net cash provided by operating activities 192,934 70,141 INVESTING ACTIVITIES Purchase of property, plant and equipment ( 68,179 ) ( 10,528 ) Deferred mine development costs ( 14,458 ) ( 9,893 ) Acquisitions, net of cash acquired ( 2,381 ) 2,533 Net cash used in investing activities ( 85,018 ) ( 17,888 ) FINANCING ACTIVITIES Dividends paid ( 50,016 ) ( 3,126 ) Extinguishment of debt ( 8,000 ) — Principal repayments of finance lease obligations ( 7,634 ) ( 7,203 ) Other ( 9,198 ) ( 3,716 ) Net cash used in financing activities ( 74,848 ) ( 14,045 ) Net increase in cash and cash equivalents 33,068 38,208 Cash and cash equivalents at beginning of period 829,480 $ 395,839 Cash and cash equivalents at end of period $ 862,548 $ 434,047 The accompanying notes are an integral part of these condensed financial statements. 7 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) Note 1. Business and Basis of Presentation Description of the Business Warrior Met Coal, Inc. (the "Company") is a U.S.-based environmentally and socially minded supplier to the global steel industry. The Company 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. The Company 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 the Company produces from the Blue Creek coal seam contains very low sulfur, has strong coking properties and is of a similar quality to coal referred to as premium HCC produced in Australia. The Company also generates ancillary revenues from the sale of natural gas extracted as a byproduct from the underground coal mines and royalty revenues from leased properties. Basis of Presentation The accompanying financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the financial statements not misleading. For further information, refer to the financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report"). Operating results for the three months ended March 31, 2023 are not necessarily indicative of the final results that may be expected for the year ended December 31, 2023. The balance sheet at December 31, 2022 has been derived from the audited financial statements for the year ended December 31, 2022 included in the 2022 Annual Report. Collective Bargaining Agreement The Company's Collective Bargaining Agreement ("CBA") with the labor union representing certain of the Company's hourly employees expired on April 1, 2021 and the labor union initiated a strike after an agreement on a new contract was not reached. As a result of the strike, the Company initially idled Mine No. 4 and scaled back operations at Mine No. 7. In the first quarter of 2022, the Company restarted operations at Mine No. 4. Due to the reduced operations at Mine No. 4 and Mine No. 7, the Company incurred idle mine expenses of $ 3.0 million for the three months ended March 31, 2022. The Company incurred no idle mine expenses for the three months ended March 31, 2023. These expenses are reported separately in the Condensed Statements of Operations and represent expenses incurred, such as electricity, insurance and maintenance labor. The Company incurred business interruption expenses of approximately $ 4.2 million for the three months ended March 31, 2023 and $ 6.7 million for the three months ended March 31, 2022, which represent non-recurring expenses that are directly attributable to the labor strike for incremental safety and security, labor negotiations and other expenses. These expenses are also presented separately in the Condensed Statements of Operations. On February 16, 2023, the labor union representing certain of the Company's hourly employees announced that they were ending the strike and made an unconditional offer to return to work. The Company is currently working to complete the onboarding process with the eligible employees that wish to return to work and continues to engage in good faith negotiations with the labor union representing certain of our hourly employees to reach an agreement on a new contract. Acquisitions On March 1, 2022, the Company acquired the remaining 50 % interest in Black Warrior Methane ("BWM") and Black Warrior Transmission ("BWT") for $ 0.3 million. The purchase consideration has been allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. The acquisition is not deemed to be material to the condensed financial statements. On March 31, 2023, the Company acquired the remaining ownership interest in gas wells owned by an independent third party for $ 2.4 million. The purchase consideration has been preliminarily allocated to the assets acquired and liabilities assumed based upon their estimated fair values at the date of acquisition. A full and detailed valuation of the assets and liabilities is being completed. Accordingly, the allocation is preliminary and may change as additional information becomes available and is assessed by the Company. The final allocation of the consideration transferred may include adjustments to the 8 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) fair value estimates of identifiable assets and liabilities after a full review has been completed. The acquisition is not deemed to be material to the condensed financial statements. Note 2. Summary of Significant Accounting Policies The Company's significant accounting policies are consistent with those disclosed in Note 2 to its audited financial statements included in the 2022 Annual Report. Cash and Cash Equivalents Cash and cash equivalents include short-term deposits and highly liquid investments that have original maturities of three months or less when purchased and are stated at cost, which approximates fair value. Short-Term Investments Instruments with maturities greater than three months, but less than twelve months, are included in short-term investments. The Company also purchases fixed income securities and certificates of deposits with varying maturities that are classified as available for sale and are carried at fair value. Securities classified as held to maturity are those securities that management has the intent and ability to hold to maturity. As of March 31, 2023 and December 31, 2022, short-term investments consisted of $ 8.7 million in cash and fixed income securities. The short-term investments are posted as collateral for the self-insured black lung related claims asserted by or on behalf of former employees of Walter Energy, Inc. ("Walter Energy") and its subsidiaries, which were assumed by the Company and relate to periods prior to March 31, 2016. Revenue Recognition Revenue is recognized when performance obligations under the terms of a contract with the Company's customers are satisfied; for all contracts this occurs when control of the promised goods has been transferred to its customers. For coal shipments to domestic customers via rail, control is transferred when the railcar is loaded. For coal shipments to international customers via ocean vessel, control is transferred when the vessel is loaded at the Port of Mobile, Alabama. For natural gas sales, control is transferred when the gas has been transferred to the pipeline. Revenue is disaggregated between coal sales within the Company's mining segment and natural gas sales which is included in all other revenues, as disclosed in Note 13. Since February 2017, the Company has had an arrangement with XCoal Energy & Resources ("XCoal") to serve as XCoal's strategic partner for exports of low-volatility HCC. Under this arrangement, XCoal takes title to and markets coal that the Company would historically have sold on the spot market, in an amount of the greater of (i) 10 % of the Company's total production during the applicable term of the arrangement or (ii) 250,000 metric tons. During the three months ended March 31, 2023 and 2022, XCoal accounted for approximately $ 30.9 million, or 6.1 % of total sales, and $ 83.5 million, or 21.6 % of total sales, respectively. Trade Accounts Receivable and Allowance for Credit Losses Trade accounts receivable represent customer obligations that are derived from revenue recognized from contracts with customers. Credit is extended based on an evaluation of the individual customer's financial condition. The Company maintains trade credit insurance on the majority of its customers and the geographic regions of coal shipments to these customers. In some instances, the Company requires letters of credit, cash collateral or prepayments from its customers on or before shipment to mitigate the risk of loss. These efforts have consistently resulted in the Company recognizing no historical credit losses. The Company also has never had to have a claim against its trade credit insurance policy. In order to estimate the allowance for credit losses on trade accounts receivable, the Company utilizes an aging approach in which potential impairment is calculated based on how long a receivable has been outstanding (e.g., current, 1-31 days, 31-60 days, etc.). The Company calculates an expected credit loss rate based on the Company’s historical credit loss rate, the risk characteristics of our customers, and the current met coal and steel market environments. As of March 31, 2023 and December 31, 2022, the estimated allowance for credit losses was immaterial and did not have a material impact on the Company's financial statements. 9 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) New Accounting Pronouncements There were no new accounting standards that had a material impact on the Company's condensed financial statements during the three months ended March 31, 2023, and there were no other new accounting standards that were issued but not yet effective as of March 31, 2023 and that the Company expects to have a material impact on its condensed financial statements. Note 3. Inventories, net Inventories, net are summarized as follows (in thousands): March 31, 2023 December 31, 2022 Coal $ 82,909 $ 109,822 Raw materials, parts, supplies and other, net 46,497 44,217 Total inventories, net $ 129,406 $ 154,039 Note 4. Income Taxes For the three months ended March 31, 2023 and 2022, the Company estimated its annual effective tax rate and applied this effective tax rate to its year-to-date pretax income at the end of the interim reporting period. The tax effect of unusual or infrequently occurring items, including the effects of changes in tax laws or rates and changes in judgment about the realizability of deferred tax assets, are reported in the interim period in which they occur. For the three months ended March 31, 2023 and 2022, the Company had an income tax expense of $ 29.1 million and $ 33.5 million, respectively. The $ 29.1 million income tax expense for the three months ended March 31, 2023, includes a benefit related to depletion and Internal Revenue Code ("IRC") Section 250 Deduction: Foreign-Derived Intangible Income ("FDII"). The Tax Cuts and Jobs Act ("TCJA") was enacted on December 22, 2017 and enacted IRC Section 250 Deduction: FDII, which provides for, among other things, a deduction of 37.5% with respect to foreign-derived intangible income, which reduces the statutory tax rate from 21% to 13.125%. Beginning in 2026, the deduction is reduced from 37.5% to 22.5% of foreign-derived intangible income. The Company has historically not been eligible to claim the deduction due to the deduction being limited to taxable income and the Company's ability to utilize its net operating losses to offset taxable income. Note 5. Debt The Company's debt consisted of the following (in thousands): March 31, 2023 December 31, 2022 Weighted Average Interest Rate Final Maturity Senior Secured Notes $ 302,618 $ 310,618 7.875 % December 2028 ABL Borrowings — — Varies (1) December 2026 Debt discount ( 7,567 ) ( 8,030 ) Total debt 295,051 302,588 Less: current debt — — Total long-term debt $ 295,051 $ 302,588 (1) Borrowings under the ABL Facility bear interest at a rate equal to Secured Overnight Financing Rate ("SOFR") ranging from 1.5 % to 2.0 %, plus a credit adjustment spread, ranging currently from 0.11448 % to 0.42826 %, or an alternate base rate plus an applicable margin, which is determined based on the average availability of the commitments under the ABL Facility, ranging from 0.5 % to 1.0 %. 10 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) Senior Secured Notes On December 6, 2021, the Company issued $ 350.0 million in aggregate principal amount of 7.875 % senior secured notes due 2028 (the “Notes”) at an initial price of 99.343 % of their face amount. The Notes were issued to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to certain non-U.S. persons in transactions outside the United States in accordance with Regulation S under the Securities Act. The Company used the net proceeds of the offering of the Notes, together with cash on hand, to fund the redemption of all of the Company’s outstanding 8.00 % senior secured notes due 2024 (the “Existing Notes”), including payment of the redemption premium in connection with such redemption. The Notes will mature on December 1, 2028. During the three months ended March 31, 2023, the Company repurchased in the open market and extinguished approximately $ 8.0 million principal amount of our Notes. In connection with the extinguishment of our Notes, we recognized a loss on early extinguishment of debt of $ 0.1 million which is included in interest income (expense), net in the Condensed Statements of Operations. ABL Facility On December 6, 2021, the Company entered into the Second Amended and Restated Asset-Based Revolving Credit Agreement (the “Second Amended and Restated Credit Agreement”), by and among the Company and certain of its subsidiaries, as borrowers, the guarantors party thereto, the lenders from time to time party thereto and Citibank, as administrative agent (in such capacity, the "Agent"), which amends and restates in its entirety the then existing Amended and Restated Asset-Based Revolving Credit Agreement (as amended, the “ABL Facility”). The Second Amended and Restated Credit Agreement, among other things, (i) extended the maturity date of the ABL Facility to December 6, 2026; (ii) changed the calculation of the interest rate payable on borrowings from being based on a London Inter-Bank Offered Rate to be based on a SOFR, with corresponding changes to the applicable interest rate margins with respect to such borrowings, (iii) amended certain definitions related to the calculation of the borrowing base; (iv) increased the commitments that may be used to issue letters of credit to $ 65.0 million; and (v) amended certain baskets contained in the covenants to conform to the baskets contained in the indenture governing the Notes (the "Indenture"). The Second Amended and Restated Credit Agreement also allows the Company to borrow up to $ 132.0 million through October 13, 2023, decreasing to $ 116.0 million through November 2026, subject to availability under the borrowing base and other conditions. As of March 31, 2023, no loans were outstanding under the ABL Facility and there were $ 8.7 million of letters of credit issued and outstanding under the ABL Facility. At March 31, 2023, the Company had $ 123.3 million of availability under the ABL Facility (calculated net of $ 8.7 million of letters of credit outstanding at such time). Note 6. Other Long-Term Liabilities Other long-term liabilities are summarized as follows (in thousands): March 31, 2023 December 31, 2022 Black lung obligations 27,316 27,407 Other 500 500 Total other long-term liabilities $ 27,816 $ 27,907 Note 7. Leases The Company primarily enters into rental agreements for certain mining equipment that are for periods of 12 months or less, some of which include options to extend the leases. Leases that are for periods of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense on these agreements on a straight-line basis over the lease term. Additionally, the Company has certain finance leases for mining equipment that expire over various contractual periods. These leases have remaining lease terms of one to five years and do not include an option to renew. Amortization expense for finance leases is included in depreciation and depletion expense. 11 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) Supplemental balance sheet information related to leases was as follows (in thousands): March 31, 2023 December 31, 2022 Finance lease right-of-use assets, net (1) $ 69,494 69,596 Finance lease liabilities Current 26,535 24,089 Noncurrent 4,026 9,002 Total finance lease liabilities $ 30,561 $ 33,091 Weighted average remaining lease term - finance leases (in months) 25.6 27.2 Weighted average discount rate - finance leases (2) 6.39 % 6.96 % (1) Finance lease right-of-use assets are recorded net of accumulated amortization of $ 29.0 million and $ 28.0 million and are included in property, plant and equipment, net in the Condensed Balance Sheets as of March 31, 2023 and the Balance Sheets as of December 31, 2022, respectively. (2) When an implicit discount rate is not readily available in a lease, the Company uses its incremental borrowing rate based on information available at the commencement date when determining the present value of lease payments. The components of lease expense were as follows (in thousands): For the three months ended March 31, 2023 2022 Operating lease cost (1) : $ 6,430 $ 5,990 Finance lease cost: Amortization of leased assets 5,280 4,621 Interest on lease liabilities 638 880 Net lease cost $ 12,348 $ 11,491 (1) Includes leases that are for periods of 12 months or less. Maturities of lease liabilities for the Company's finance leases as of March 31, 2023 were as follows (in thousands): Finance Leases (1) 2023 $ 23,451 2024 5,489 2025 3,094 2026 458 2027 — Thereafter — Total 32,492 Less: amount representing interest ( 1,931 ) Present value of lease liabilities $ 30,561 (1) Finance lease payments include $ 2.2 million of future payments required under signed lease agreements that have not yet commenced. 12 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) Supplemental cash flow information related to the Company's leases was as follows (in thousands): For the three months ended March 31, 2023 2022 Cash paid for amounts included in the measurement of lease liabilities: Operating cash flows from finance leases $ 638 $ 880 Financing cash flows from finance leases $ 7,634 $ 7,203 Non-cash right-of-use assets obtained in exchange for lease obligations: Finance leases $ 2,158 $ 1,911 As of March 31, 2023, the Company had additional commitments for finance leases, primarily for mining equipment, that have not yet commenced of $ 2.2 million. These finance leases will commence during the fiscal years 2023 and 2024 with lease terms of one to two years . Note 8. Net Income per Share Basic and diluted net income per share was calculated as follows (in thousands, except per share data): For the three months ended March 31, 2023 2022 Numerator: Net income $ 182,277 $ 146,249 Denominator: Weighted-average shares used to compute net income per share—basic 51,842 51,532 Dilutive restrictive stock awards 114 102 Weighted-average shares used to compute net income per share—diluted 51,956 51,634 Net income per share—basic $ 3.52 $ 2.84 Net income per share—diluted $ 3.51 $ 2.83 Note 9. Commitments and Contingencies Environmental Matters The Company is subject to a wide variety of laws and regulations concerning the protection of the environment, both with respect to the construction and operation of its plants, mines and other facilities and with respect to remediating environmental conditions that may exist at its own and other properties. The Company believes it is in compliance with federal, state and local environmental laws and regulations. The Company accrues for environmental expenses resulting from existing conditions that relate to past operations when the costs are probable and can be reasonably estimated. As of March 31, 2023 and December 31, 2022, there were no accruals for environmental matters other than asset retirement obligations for mine reclamation. Miscellaneous Litigation From time to time, the Company is party to lawsuits arising in the ordinary course of its businesses. The Company records costs relating to these matters when a loss is probable and the amount can be reasonably estimated. The effect of the outcome of these matters on the Company’s future results of operations cannot be predicted with certainty as any such effect depends on future results of operations and the amount and timing of the resolution of such matters. As of March 31, 2023 and December 31, 2022, there were no items accrued for miscellaneous litigation. On July 15, 2015, Walter Energy and certain of its wholly owned U.S. subsidiaries, including Jim Walter Resources, Inc. (“JWR”) filed voluntary petitions for relief under Chapter 11 of Title 11 of the U.S. Bankruptcy Code (the “Chapter 11 13 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) Cases”) in the Northern District of Alabama, Southern Division. On December 7, 2015, Walter Energy Canada Holdings, Inc., Walter Canadian Coal Partnership and their Canadian affiliates (collectively “Walter Canada”) applied for and were granted protection under the Companies’ Creditors Arrangement Act (the “CCAA”) pursuant to an Initial Order of the Supreme Court of British Columbia. As a result of the Company’s acquisition of certain core operating assets of Walter Energy during the Chapter 11 Cases, in the first quarter of 2023 and 2022 the Company received $ 0.2 million and $ 0.7 million, respectively, from the Chapter 11 Cases which is reflected as other income in the Condensed Statement of Operations for the three months ended March 31, 2023. Other Commitments and Contingencies The Company is party to various transportation and throughput agreements with rail and barge transportation providers and the Alabama State Port Authority. These agreements contain annual minimum tonnage guarantees with respect to coal transported from the mine sites to the Port of Mobile, Alabama, the unloading of rail cars or barges, and the loading of vessels. If the Company does not meet its minimum throughput obligations, which are based on annual minimum amounts, it is required to pay the transportation providers or the Alabama State Port Authority a contractually specified amount per metric ton for the difference between the actual throughput and the minimum throughput requirement. At March 31, 2023 and December 31, 2022, the Company had no liability recorded for minimum throughput requirements. Royalty Obligations A substantial amount of the coal that the Company mines is produced from mineral reserves leased from third-party landowners. These leases convey mining rights to the Company in exchange for royalties to be paid to the landowner as either a fixed amount per ton or as a percentage of the sales price. Although coal leases have varying renewal terms and conditions, they generally last for the economic life of the reserves. Coal royalty expense was $ 33.2 million and $ 25.2 million for the three months ended March 31, 2023 and 2022, respectively. Note 10. Stockholders' Equity Common Shares The Company is authorized to issue up to 140,000,000 common shares, $ 0.01 par value per share. Holders of common shares are entitled to receive dividends when authorized by the Company's Board of Directors (the "Board"). Stock Repurchase Program On March 26, 2019, the Board approved the Company's second stock repurchase program (the “New Stock Repurchase Program”) that authorizes repurchases of up to an aggregate of $ 70.0 million of the Company's outstanding common stock. The Company fully exhausted its previous stock repurchase program (the "First Stock Repurchase Program") of $ 40.0 million of its outstanding common stock. The New Stock Repurchase Program does not require the Company to repurchase a specific number of shares or have an expiration date. The New Stock Repurchase Program may be suspended or discontinued by the Board at any time without prior notice. Under the New Stock Repurchase Program, the Company may repurchase shares of its common stock from time to time, in amounts, at prices and at such times as the Company deems appropriate, subject to market and industry conditions, share price, regulatory requirements and other considerations as determined from time to time by the Company. The Company’s repurchases may be executed using open market purchases or privately negotiated transactions in accordance with applicable securities laws and regulations, including Rule 10b-18 of the Exchange Act and repurchases may be executed pursuant to Rule 10b5-1 under the Exchange Act. Repurchases will be subject to limitations in the ABL Facility and the Indenture. The Company intends to fund repurchases under the New Stock Repurchase Program from cash on hand and/or other sources of liquidity. Any future repurchases of shares of the Company's common stock will be subject to the 1% excise tax under the Inflation Reduction Act of 2022 (“IRA”). As of March 31, 2023 and December 31, 2022, the Company has repurchased 500,000 shares under the New Stock Repurchase Program for approximately $ 10.6 million, leaving approximately $ 59.4 million of share repurchases authorized under the New Stock Repurchase Program. 14 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) Dividends The Company has declared the following dividends on common shares as of the filing date of this Form 10-Q: Dividend per Share Dividends Paid Dividend Type Declaration Date Record Date Payable Date (in millions) $ 0.06 $ 3.1 Quarterly February 18, 2022 March 03, 2022 March 03, 2022 $ 0.06 $ 3.1 Quarterly April 26, 2022 May 06, 2022 May 06, 2022 $ 0.50 $ 25.8 Special May 03, 2022 May 13, 2022 May 13, 2022 $ 0.06 $ 3.1 Quarterly August 1, 2022 August 11, 2022 August 11, 2022 $ 0.80 $ 41.3 Special August 1, 2022 August 22, 2022 August 22, 2022 $ 0.06 $ 3.1 Quarterly October 24, 2022 November 4, 2022 November 4, 2022 $ 0.07 $ 3.6 Quarterly February 9, 2023 February 20, 2023 February 20, 2023 $ 0.88 $ 46.4 Special February 13, 2023 February 28, 2023 February 28, 2023 $ 0.07 $ — Quarterly April 25, 2023 May 5, 2023 May 12, 2023 Preferred Shares The Company is authorized to issue up to 10,000,000 shares of preferred stock, $ 0.01 par value per share. Note 11. Derivative Instruments The Company enters into natural gas swap contracts from time to time to hedge the exposure to variability in expected future cash flows associated with the fluctuations in the price of natural gas related to the Company’s forecasted sales. As of March 31, 2023, the Company had natural gas swap contracts outstanding with notional amounts totaling 4,145,000 million metric British thermal units maturing in the first quarter of 2024. As of December 31, 2022, the Company had no natural gas swap contracts outstanding. The Company’s natural gas swap contracts economically hedge certain risks but are not designated as hedges for financial reporting purposes. All changes in the fair value of these derivative instruments are recorded as other revenues in the Condensed Statements of Operations. The Company recognized a gain related to natural gas swap contracts of $ 0.7 million, which includes $ 0.2 million of realized gains, for the three months ended March 31, 2023. For the three months ended March 31, 2022, the Company recognized a loss of $ 13.2 million, which includes $ 1.5 million of realized losses related to natural gas swap contracts. The Company records all derivative instruments at fair value and had an asset of $ 0.7 million as of March 31, 2023 in prepaid expenses and other receivables in the accompanying Condensed Balance Sheets and had no asset or liability as of December 31, 2022. Note 12. Fair Value of Financial Instruments The following table presents information about the Company’s financial liabilities measured at fair value on a recurring basis and indicates the level of the fair value hierarchy utilized to determine such fair value (in thousands): Fair Value Measurements as of March 31, 2023 Using: Level 1 Level 2 Level 3 Total Assets: Natural gas swap contracts $ — $ 705 $ — $ 705 15 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) Fair Value Measurements as of December 31, 2022 Using: Level 1 Level 2 Level 3 Total Assets: Natural gas swap contracts $ — $ — $ — $ — The Company had no significant assets or any other liabilities measured at fair value on a recurring basis as of March 31, 2023 or December 31, 2022. During the three months ended March 31, 2023, there were no transfers between Level 1, Level 2 and Level 3. The Company uses quoted dealer prices for similar contracts in active over-the-counter markets for determining fair value of Level 2 liabilities. There were no changes to the valuation techniques used to measure liability fair values on a recurring basis during the three months ended March 31, 2023. The following methods and assumptions were used to estimate the fair value for which the fair value option was not elected: Cash and cash equivalents, short-term investments, receivables and trade accounts payable — The carrying amounts reported in the Condensed Balance Sheets approximate fair value due to the short-term nature of these assets and liabilities. Debt — The Company's outstanding debt is carried at cost. As of March 31, 2023, there were no borrowings outstanding under the ABL Facility, with $ 123.3 million available, net of outstanding letters of credit of $ 8.7 million. As of December 31, 2022, the Company had no borrowings outstanding under the ABL Facility, with $ 123.3 million available, net of outstanding letters of credit of $ 8.7 million. As of March 31, 2023 and December 31, 2022, the estimated fair value of the Notes based upon observable market data (Level 2) was approximately $ 302.6 million and $ 304.4 million, respectively. Note 13. Segment Information The Company identifies a business as an operating segment if: (i) it engages in business activities from which it may earn revenues and incur expenses; (ii) its operating results are regularly reviewed by the Chief Operating Decision Maker (“CODM”), who is the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess its performance; and (iii) it has available discrete financial information. The Company has determined that its two underground mining operations are its operating segments. The CODM reviews financial information at the operating segment level to allocate resources and to assess the operating results and financial performance for each operating segment. Operating segments are aggregated into a reportable segment if the operating segments have similar quantitative economic characteristics and if the operating segments are similar in the following qualitative characteristics: (i) nature of products and services; (ii) nature of production processes; (iii) type or class of customer for their products and services; (iv) methods used to distribute the products or provide services; and (v) if applicable, the nature of the regulatory environment. The Company has determined that the two operating segments are similar in both quantitative and qualitative characteristics and thus the two operating segments have been aggregated into one reportable segment. The Company has determined that its natural gas and royalty businesses and the Blue Creek mine development did not meet the criteria in ASC 280 to be considered as operating or reportable segments. Therefore, the Company has included their results in an “all other” category as a reconciling item to consolidated amounts. The Company does not allocate all of its assets, or its depreciation and depletion expense, selling, general and administrative expenses, transactions costs, interest income (expense), and income tax expense or benefit by segment. 16 WARRIOR MET COAL, INC. NOTES TO CONDENSED FINANCIAL STATEMENTS (Continued) THREE MONTHS ENDED MARCH 31, 2023 (UNAUDITED) The following tables include reconciliations of segment information to consolidated amounts (in thousands): For the three months ended March 31, 2023 2022 Revenues Mining $ 500,491 $ 382,433 All other 9,183 ( 3,781 ) Total revenues $ 509,674 $ 378,652 For the three months ended March 31, 2023 2022 Capital Expenditures Mining $ 40,149 $ 7,155 All other 28,030 3,373 Total capital expenditures $ 68,179 $ 10,528 The Company evaluates the performance of its segment based on Segment Adjusted EBITDA, which is defined as net income adjusted for other revenues, cost of other revenues, depreciation and depletion, selling, general and administrative, business interruption, idle mine, other income, interest income (expense), net, income tax expense, and certain transactions or adjustments that the CODM does not consider for the purposes of making decisions to allocate resources among segments or assessing segment performance. Segment Adjusted EBITDA does not represent and should not be considered as an alternative to cost of sales under GAAP and may not be comparable to other similarly titled measures used by other companies. Below is a reconciliation of Segment Adjusted EBITDA to net income, which is its most directly comparable financial measure calculated and presented in accordance with GAAP (in thousands): For the three months ended March 31, 2023 2022 Segment Adjusted EBITDA $ 267,861 $ 247,092 Other revenues 9,183 ( 3,781 ) Cost of other revenues ( 11,438 ) ( 7,040 ) Depreciation and depletion ( 37,213 ) ( 25,797 ) Selling, general and administrative ( 14,516 ) ( 13,929 ) Business interruption ( 4,217 ) ( 6,688 ) Idle mine — ( 3,008 ) Other income 221 675 Interest income (expense), net 1,460 ( 7,822 ) Income tax expense ( 29,064 ) ( 33,453 ) Net income $ 182,277 $ 146,249 17