SunCoke Energy (SXC) Q2 2025 Earnings Call Transcript

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DATE

• Wednesday, July 30, 2025, at 11 a.m. EDT

CALL PARTICIPANTS

• Chairman, President, and Chief Executive Officer — Katherine Gates
• Senior Vice President and Chief Financial Officer — Mark Marinko
• Chief Strategy Officer — Shantanu Agrawal

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RISKS

• Net income attributable to SunCoke Energy (GAAP) fell to $0.02 per share in 2025, driven by the timing and mix of lower contract coke sales, reduced earnings from the Granite City contract extension, declining CMT volumes, and $5.2 million in acquisition-related transaction costs in Q2 2025.
• Spot coke sales margins are "significantly lower than the contract sold coke sales margins due to the current challenging market conditions," according to Marinko.
• CMT terminal handled lower volumes in the logistics segment owing to "tepid market conditions," contributing to a decline in adjusted EBITDA for Q2 2025.

TAKEAWAYS

• Consolidated Adjusted EBITDA: $43.6 million, down from $63.5 million in the prior year period, primarily due to lower contract coke sales, less favorable Granite City economics, and reduced logistics volumes, partially offset by lower legacy black lung expenses.
• Phoenix Global Acquisition: $325 million purchase expected to close August 1, 2025, on a cash-free, debt-free basis, funded by cash and revolver borrowings, representing roughly 5.4x LTM adjusted EBITDA; projected annual synergies of $5 million-$10 million.
• Domestic Coke Segment EBITDA: $40.5 million, with adjusted EBITDA impacted by adverse contract/spot mix at Haverhill and weaker Granite City performance.
• Logistics Segment EBITDA: $7.7 million on 4.8 million tons throughput. Barge unloading expansion at KRT completed and new take-or-pay coal handling agreement to drive second-half results.
• Liquidity Position: $186.2 million in cash and $350 million undrawn revolver, yielding total liquidity of $536.2 million.
• Dividend Declared: $0.12 per share dividend payable Sept. 2, 2025; $10.2 million paid in the quarter.
• Revolving Credit Facility Extended: Now matures July 2030, down to $325 million from $350 million, with similar covenants.
• Free Cash Flow Guidance: Free cash flow guidance is now expected to be between $103 million and $118 million in 2025, lowered to reflect the Phoenix transaction, debt costs, and a new tax bill in full-year 2025 free cash flow guidance; guidance for operating cash flow unchanged.
• Full-Year Guidance Reaffirmed: Consolidated adjusted EBITDA (non-GAAP) expected to be between $210 million and $225 million for full-year 2025; Domestic coke adjusted EBITDA guidance range of $185 million to $192 million in 2025; Full-year logistics adjusted EBITDA guidance range of $45 million to $50 million.
• CapEx Guidance: CapEx guidance has been lowered to approximately $1 million in 2025 after spending $12.6 million in the quarter.
• Phoenix Integration: Will combine operations with the logistics segment to form a new industrial services segment, bringing new international reach and customer diversification, including electric arc furnace operators.
• Coke Sales Volume Outlook: 2.0-2.1 million tons projected for the second half of 2025 for an annual total of approximately 4 million tons of coke sales in 2025, with per-ton adjusted EBITDA expected to normalize to $46–$48 in the second half of 2025, based on mix.
• New KRT Throughput: The logistics volume increase in the second half of 2025 is anticipated to stem mainly from the KRT terminal's expansion project.
• Phoenix Revenue Profile: Contracts are long-term, carry fixed and pass-through revenue, and limit commodity price risk by avoiding consumables ownership.

SUMMARY

SunCoke Energy (NYSE:SXC) announced it will close its $325 million acquisition of Phoenix Global on Aug. 1, supported by a newly extended $325 million revolving credit facility now maturing in July 2030. Adjusted EBITDA of $43.6 million in Q2 2025 reflected reduced contract coke volume and logistics softness, confirming management's position that this quarter represents the earnings low point for the year. The company reaffirmed full-year consolidated adjusted EBITDA guidance of $210 million to $225 million for 2025 and updated full-year 2025 free cash flow guidance to $103 million to $118 million, citing transaction costs and tax law changes. A quarterly dividend of $0.12 per share was declared, and total liquidity stood at $536.2 million. SunCoke leadership signaled that Phoenix will be integrated as a new industrial services segment, diversifying its customer base and operational footprint.

• Chief Financial Officer Marinko stated, "We believe Q2 2025 to be the trough of the year, and with higher contract coke sales expected in the second half, we are reaffirming our domestic coke adjusted EBITDA guidance range" of $185 million to $192 million.
• Chief Strategy Officer Agrawal explained that reduced revolver capacity will not restrict Phoenix funding, as "$200 to $210 million" is expected to be drawn; the GPI project would require separate financing.
• Management is in "active discussions" regarding contract renewals with the largest customer, despite external commentary on potential reductions in third-party coke demand.
• Lower CMT volumes in May and June shifted into July, supporting management's unchanged logistics segment guidance despite market volatility.
• Phoenix's "last twelve months trailing adjusted EBITDA of about $61 million (non-GAAP, for the twelve months ended March 31, 2025)" remains a baseline as SunCoke completes integration and explores organic growth from new customer exposure.

INDUSTRY GLOSSARY

• CMT: Convent Marine Terminal, a bulk export terminal operated by SunCoke handling coal and other materials.
• KRT: Kanawha River Terminals, a logistics asset for coal and other dry bulk material handling within SunCoke's portfolio.
• Blast Coke: Metallurgical coke used in blast furnace steelmaking, distinct from foundry coke or spot coke sales.
• Foundry Coke: A high-quality coke sold to foundries for metal casting, generally with higher margins than blast coke.
• Take-or-pay Agreement: A long-term logistics contract obligating a customer to pay for a minimum volume, securing revenue for the operator.
• Electric Arc Furnace (EAF): A steel production process that uses electricity to melt scrap and reduce iron, with different coke requirements than blast furnace operations.
• Spot Coke: Coke sold on the open market at prevailing prices rather than through fixed, long-term contracts; typically carries lower, more volatile margins.

Full Conference Call Transcript

Katherine Gates: Thanks, Shantanu. Good morning, and thank you for joining us on today's call. This morning, we announced SunCoke Energy, Inc.'s second-quarter results. I want to share a few highlights before turning it over to Mark to discuss the results in detail. We delivered Q2 2025 consolidated adjusted EBITDA of $43.6 million, driven by the timing and mix of contract and spot coke sales, as well as lower volumes at CMT. During the quarter, we announced the acquisition of Phoenix Global for $325 million. We are happy to share that we received the necessary regulatory approvals faster than anticipated and now expect to close on August 1.

Additionally, we amended and extended our revolving credit facility originally due June 2026 during the month of July. Covenants are similar to the previous agreement, and it is now maturing in July 2030. Earlier today, we also announced a $0.12 per share dividend payable to shareholders on September 2, 2025. From a balance sheet perspective, we ended the second quarter with a strong liquidity position of $536.2 million. I would like to take this opportunity to review the fundamentals of the Phoenix acquisition. Let's turn to Slide four. Phoenix Global is a leading provider of mission-critical services to major steel-producing companies.

SunCoke Energy, Inc. will purchase 100% of the common units of Phoenix for $325 million on a cash-free, debt-free basis, representing an acquisition multiple of approximately 5.4 times on a March 31, 2025, last twelve months adjusted EBITDA of $61 million. This transaction is expected to be immediately accretive for SunCoke Energy, Inc. We will fund the purchase through a combination of cash on hand and borrowing on our amended and extended revolver, which is fully undrawn with $325 million of borrowing capacity. We expect to recognize between approximately $5 million and $10 million in annual synergies from this transaction.

After closing, we will plan to host investor conferences where we will share updated guidance for SunCoke Energy, Inc., including Phoenix. Turning to Slide five to revisit the transaction benefits to SunCoke Energy, Inc. Phoenix is an excellent strategic fit with the core elements of our business, namely customers, capabilities, and contracts. With the addition of these operations, SunCoke Energy, Inc.'s reach will now extend to new industrial customers, including electric arc furnace operators that produce carbon steel and stainless steel. Phoenix's global footprint will add to our existing Brazil footprint, as well as select international markets. Phoenix's operations provide high-value, site-based services that are mission-critical to operational efficiency and reliability for steel mills.

SunCoke Energy, Inc. has a reputation as a critical partner in the steel value chain and as a reliable provider of high-quality industrial services through our logistics business. Similar to SunCoke Energy, Inc., Phoenix's contracts are long-term in nature, with contractually guaranteed fixed revenue and pass-through components. Additionally, under its current contracts, Phoenix does not take ownership of major consumables, reducing exposure to commodity price volatility. Phoenix offers a well-capitalized asset portfolio, having invested approximately $75 million since June 2023 on new equipment or the refurbishment of existing equipment. New customers and new markets provide multiple paths for future organic growth.

By leveraging SunCoke Energy, Inc.'s strong financial position and operational excellence, we will build upon Phoenix's success to better serve our existing and new customers. Following the closing of the transaction, we expect Phoenix's operations will be combined with our logistics segment to form a new industrial services segment. We are pleased to have a strong operator within SunCoke Energy, Inc. to lead the new operations. He will be joined by certain Phoenix employees whose knowledge and experience will be beneficial to the successful integration. We are excited to welcome Phoenix's team members to the SunCoke Energy, Inc. family as we build on the strong foundation set by the business in recent years.

With that, I will turn it over to Mark to review our second-quarter earnings in detail.

Mark Marinko: Thanks, Katherine. Turning to Slide six. Net income attributable to SunCoke Energy, Inc. was $0.02 per share in 2025, down $0.23 versus the prior year period. The decrease was primarily driven by the timing and mix of lower contract coke sales coupled with lower economics from the Granite City contract extension in the domestic coke segment. Additionally, CMT volumes in the logistics segment were lower due to market conditions. Finally, transaction costs of $5.2 million related to the acquisition of Phoenix Global also impacted earnings per share. Consolidated adjusted EBITDA for 2025 was $43.6 million compared to $63.5 million in the prior year period.

The decrease in adjusted EBITDA was primarily driven by the timing and mix of lower contract coke sales and unfavorable economics on the Granite City contract extension in the coke segment, and lower transloading volumes at CMT in the logistics segment, partially offset by lower legacy black lung expenses in corporate and other. Moving to Slide seven to discuss our domestic coke business performance in detail. Second quarter domestic coke adjusted EBITDA was $40.5 million, and coke sales volumes were 943,000 tons. The decrease in adjusted EBITDA as compared to the prior year period was primarily driven by the change in mix of contract and spot coke sales at Haverhill.

Additionally, spot coke sales margins are significantly lower than the contract sold coke sales margins due to the current challenging market conditions. Lower economics and volumes at Granite City from the contract extension also impacted domestic coke results. We believe the second quarter to be the trough of 2025, and with higher contract coke sales expected in the second half of the year, we are reaffirming our domestic coke adjusted EBITDA guidance range of $185 million to $192 million. Now moving on to Slide eight to discuss our logistics business. Our logistics business generated $7.7 million of EBITDA in 2025, and our terminals handled combined throughput volumes of 4.8 million tons.

The decrease in adjusted EBITDA was primarily driven by lower transloading volumes at CMT due to tepid market conditions. Our previously announced barge unloading capital expansion project at KRT has been completed and is operating. We expect to see benefits from the new take-or-pay coal handling agreement starting in the third quarter and reaffirm our full-year logistics adjusted EBITDA guidance range of $45 million to $50 million. Now turning to Slide nine to discuss our liquidity position for Q2. SunCoke Energy, Inc. ended the second quarter with a cash balance of $186.2 million and a fully undrawn revolver of $350 million.

Net cash provided by operating activities was $17.5 million and was impacted by income tax and interest payments as well as $5.2 million in transaction costs. We spent $12.6 million on CapEx and paid $10.2 million in dividends at the rate of $0.12 per share this quarter. In total, we ended the quarter with a strong liquidity position of $536.2 million. Our free cash flow guidance has changed as a result of the transaction costs related to the Phoenix acquisition, extension of the revolving credit facility, and the new tax bill that was recently passed.

We did not previously include transaction or debt issuance costs in our free cash flow guidance, but we now expect to incur between $12 million and $14 million related to these transactions during the year. We are now expecting our cash taxes to be between $5 million and $9 million and have also lowered our CapEx guidance to approximately $1 million during the year. We now expect our free cash flow guidance to be between $103 million and $118 million. Our operating cash flow guidance is unchanged. With that, I will turn it back over to Katherine.

Katherine Gates: Thanks, Mark. Wrapping up on Slide 10. The acquisition of Phoenix is a result of SunCoke Energy, Inc.'s disciplined pursuit of profitable growth to reward long-term shareholders. SunCoke Energy, Inc. is well known for our best-in-class safety, advanced technology, operational discipline, and strong financial position. We remain focused on safely executing against our operating and capital plan and maintaining the strength of our core businesses while working to integrate Phoenix's operations. Phoenix is a service provider of choice for steelmakers, and we look forward to continuously engaging with their customers to find new opportunities to expand the scope of services provided as well as enter into new contracts at other sites.

As always, we take a balanced yet opportunistic approach to capital allocation. We continuously evaluate the capital needs of the business, our capital structure, and the need to reward our shareholders, and we will make capital allocation decisions accordingly. Finally, we see improvement in both logistics and domestic coke in the second half of the year, and we are reaffirming our full-year consolidated adjusted EBITDA guidance range of $210 million to $225 million. With that, let's go ahead and open up the call for Q&A. We will now begin the Q&A session. If at any time your question has been addressed and you would like to withdraw, please let us know. The first question comes from Nick Giles with B.

Riley Securities. Please go ahead.

Nick Giles: Thank you, operator, and good morning, everyone. This is Henry Hurl on for Nick Giles. So to start off, you reaffirmed your annual guidance, and my math implies roughly a 22% increase in quarterly EBITDA for the remainder of the year to reach the low end of your guidance at $210 million. So my question is, can you walk us through the drivers of the improvement from here? And what are your assumptions around last coke sales volumes?

Mark Marinko: Sure, Henry. Thanks for the question. So as we talked about, if you look at our Q1 domestic coke adjusted EBITDA per ton, it was $55, and our Q2 is around $42 a ton. Right? And if you take the average of those two, we are right in the range of $46 to $48. That is kind of our annual guidance. So in Q3 and Q4 or the second half of the year, we expect to kind of get back to our average full-year EBITDA per ton range where the mix, you know, it was all about the mix. That's why we are talking about a mix between contract and spot sales. Right?

In Q1, we were very heavy on the contract side. In Q2, we were very heavy on the spot side. So in Q3 and Q4, this will kind of become normalized, and we will have roughly 2 to 2.1 million tons of coke sales in the second half, getting us closer to the 4 million tons guidance of the total coke sales. With the average domestic coke distributor margin of $46 to $48 a ton. So that's kind of on the coke side. On the logistics side, you know, we saw surprisingly lower volumes in May and June at CMT, and we are already seeing those volumes get picked up in July.

There were a couple of shipments in June that did not, you know, the timing of the ship kind of shifted to July. So we are going to pick that up in Q3. So we will go back to our normal run rate EBITDA for logistics as a whole in the second half. And that's how we are getting to our full-year adjusted EBITDA guidance range of $210 million to $225 million.

Henry Hurl: Understood. Thanks for that.

Nick Giles: And then could you also talk about the macro drivers of Phoenix Global? So I understand you have a large share of fixed and contracted revenues in place. Hoping to get more color on what moves the needle in the long term? Thanks.

Katherine Gates: Sure. So I think the short answer to your question is that we will have a lot more to say on Phoenix when we go out and do our investor days and roadshow following the close. As I said, you know, we are going to be closing on August 1, and then we will be working through, you know, opening balance sheet, taxes, some other valuation work. So we are going through, you know, that process now. I think what I can say in terms of drivers going forward is that we are very excited about having the EAF exposure, which really diversifies our customer base.

And, you know, as I said on our call when we signed, I think it is very, very critical to us that we use this as a platform for organic growth. So when we think about drivers, we see opportunities with our technical and our engineering teams to look to the customers and expand the suite of services that we are providing at sites where we are already operating, as well as looking to new sites to bring on new business. You know, what we said when we signed is that Phoenix had, you know, a last twelve months trailing adjusted EBITDA of about $61 million.

And what I can say today is that, you know, that business, despite some of the cyclicality and some of the challenges in the steel sector right now, that, you know, that is still not an unreasonable number to put out there as you think ahead to Phoenix. So we feel good about the business today in the foundation, and then our opportunity to expand it, bringing our operational excellence and our engineering and technical expertise.

Henry Hurl: Thanks. I appreciate the color there. And then one more for me. Could you also talk about the recent conversations with your largest customer and if there is any potential for renewal of the Haverhill contract? Or any other color on how to think about your contracts that are rolling off this year and the split between contracted versus blast coke?

Katherine Gates: Yeah. Absolutely. You know, frankly, we were extremely surprised by the comments on the Cliff's earnings call, given that we are in active discussions with Cliff on contract renewal. As we said back in January, we knew that Cliff did not need more coke in 2025. And that's why we announced in January that we were sold out even though, you know, the pricing in the spot market is not what we wanted it to be, but we sold out and we sold into the spot market knowing that Cliffs would not need more coke from us in 2025. So that is unchanged.

But at the same time, we were continuing contract discussions with Cliff, and we are continuing those discussions with them today. In terms of specific detail on volumes, etcetera, as you know, we do not talk about the specifics of our contract negotiations with our customers. So I cannot really say more than that, other than that we are in active discussions with them.

Henry Hurl: Okay. Thanks for that. To you and your team, continue best of luck.

Katherine Gates: Thank you. The next question comes from Nathan Martin with Benchmark Company. Please go ahead.

Nathan Martin: Thanks, operator. Good morning, everyone. And maybe just following up on that last line of questioning. Like you said, surprised maybe by some of the comments Cliff made. You know, they indicated they have got plenty of internal coke production post the Stelco acquisition. They do not need any third-party coke, you know, kind of going forward. You know, how if that's the case, like, how do you guys go about finding another long-term contract for that production in Haverhill? Is it a case where whoever Stelco was selling to previously could be a potential option?

Or, you know, could the shift to Cliffs using more internal coke lead to a balance disruption in the market that needs to be addressed with, you know, supply curtailments?

Katherine Gates: Sure. I mean, I think, you know, just the starting point is we continue to be in active discussions with Cliff, but we have also, and you have seen this over time, we have looked for ways to profitably sell our coke when we are not selling on a long-term contract basis. So whether that is selling foundry and selling more foundry going forward, that's certainly a very profitable avenue for us, and we have continued to grow our market share in the foundry market. We would also look to profitably sell our blast coke to other customers.

So while we obviously, you know, cannot get into any sort of discussions on that front, we have been able to profitably sell our blast coke even at these depressed prices. Selling into North America. We would continue to look to sell into the seaborne market if that was profitable. So that will continue to be our focus just as it has been in the past years.

Nathan Martin: I appreciate that, Katherine. Any thoughts, like, does this potentially upset the supply-demand balance here in North America or not necessarily if they continue or start using more internal coke?

Katherine Gates: Well, I think, you know, as we have said before, you know, there is a volume of coke that is needed for the volume of steel that is being produced. So, you know, if, for example, Cliffs is now using more of the Stelco coke, Stelco coke that was being used by another customer, as you pointed out before, would be a customer that we would pursue going forward. So from an overall kind of supply-demand balance, you know, we would understand that as being there today, and we would try to take advantage of that if things were moving.

Shantanu Agrawal: Nate, I would want to add a little bit. This is Shantanu. You know, like, if they are running at full capacity, I think the question is more on the Cliffs side. You know, if there is a capacity rationalization, permanently on their side, on one of the blast furnaces, that definitely disrupts the supply-demand balance of coke. Right? Then the structure looks very different. In the long run, if one of the blast furnaces, which had been running for a longer time, goes down, then, yes, it definitely disturbs the supply-demand balance of coke within Canada and the US, and that makes it a little bit challenging for us, you know, from that perspective. Right?

But if the assumption is that they continue running the blast furnaces, which they have been running and their demand stays the same, as Katherine mentioned, there is demand for that coke to go there.

Nathan Martin: Gotcha. Shantanu, I appreciate that. Maybe shifting to the logistics business. Again, you called out the weakness at CMT. Was that mainly coal, or was that any other product there first? And then how do you view kind of export coal demand over the next few quarters? Are you guys assuming any benefit at all from price adjustment given where the indices are today?

Katherine Gates: Well, in terms of products, you know, we move products other than coal through CMT, including iron ore, including pet coke. So there is a mix of products there, but the vast majority of the volumes there are, you know, are coal for export. We have seen higher domestic pricing and higher demand, you know, as we kind of look at the market today. And so that higher demand domestically can impact volumes being shipped internationally just based on that pricing.

But at the same time, as Shantanu mentioned earlier, we look at, you know, the volumes that we are shipping in July, and we look at what we have in our plan for the balance of the year, and, you know, we are reaffirming our logistics guidance based on what we see going forward. We are comfortable with that. In terms of any sort of, you know, price adjustment mechanism, we have not had a price adjustment thus far under the new contract, and we did not contemplate that in our guidance for 2025.

Nathan Martin: Got it. That's helpful, Katherine. And then just back to the guidance for a second. I know you reiterated your full-year adjusted EBITDA guidance for the segment. But I do not think I saw any update to the volume guidance. So should we assume you still feel good about handling, I think it was around 22.9 million tons for the full year? And if so, is that, you know, increase in tonnage here in the second half versus the first half mainly expected to come from the KRT expansion?

Shantanu Agrawal: That's right.

Nathan Martin: Okay. Perfect. Maybe just one final one. Again, congratulations on successfully amending and extending your revolver. Obviously, capacity did come down a little bit to $325 million from $350 million. You previously said, I think you expected to borrow about $230 million on the revolver for Phoenix. That lower capacity, does that impact your plans at all there for financing? And then does it still leave, you know, enough room to continue pursuing the GPI project?

Shantanu Agrawal: Yeah. So, Nate, I mean, actually, our borrowing amount for the acquisition is lower. It's closer to $200 to $210 million on the revolver, being more having more cash available on the balance sheet. So we are using that. And then, you know, that leaves us more than enough to do kind of, you know, work through the working capital changes. You know, we have been undrawn on the revolver for, like, at least a couple of years. So that leaves us enough capacity for our working capital day-to-day work.

On the GPI side, now that we have done the Phoenix acquisition, if we do the GPI project, that will lead us into a separate borrowing, and it will all be, you know, some sort of term loan or a note or something like that. So that will be a separate financing deal when we get into the GPI project.

Nathan Martin: Makes sense, Shantanu. And I guess I should just go ahead and ask, you know, are there any updates on that GPI project, any additional thoughts on the discussions you guys are having with Nippon at this point?

Katherine Gates: So we are in active discussions with US Steel. I guess, at this point, we would say US Steel because it is truly, you know, US Steel with Nippon, but we are in active discussions, but I do not have anything to share at this point.

Nathan Martin: Got it. I'll leave it there. I appreciate the time, Katherine and Shantanu, and best of luck in the second half.

Katherine Gates: Thank you.

Shantanu Agrawal: Thank you.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Katherine Gates for any closing remarks. Please go ahead.

Katherine Gates: Thank you all again for joining us this morning and for your continued interest in SunCoke Energy, Inc. We look forward to announcing the completion of the Phoenix Global acquisition. Let's continue to work safely today and every day. Thank you for attending today's presentation. You may now disconnect.

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