SXC - NYSE

Good day, and welcome to the Q4 2025 SunCoke Energy, Inc. Earnings Conference Call. All participants will be in a listen-only mode. By pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Shantanu Agrawal, Vice President, Finance and Treasurer. Please go ahead, sir. Thanks, Nick. Good morning, and thank you for joining us this morning to discuss SunCoke Energy, Inc.'s

fourth quarter and full year 2025 results as well as 2026 guidance. With me today are Katherine Gates, and Chief Executive Officer and Mark Marinko, Senior Vice President and Chief Financial Officer. This conference call is being webcast live on the Investor Relations section of our website and a replay will be available later today. Following management's prepared remarks, we will open the call for Q&A. If we do not get to your questions on the call today, please feel free to reach out to our Investor Relations team. Before I turn things over to Katherine, let me remind you that the various remarks we make on today's call regarding future expectations constitute forward-looking statements. The cautionary language regarding forward-looking statements in our SEC filings apply to the remarks we make today. These documents are available on our website as are reconciliations to non-GAAP financial measures discussed on today's call. With that, I will now turn things over to Katherine.

Thanks, Shantanu. Good morning, and thank you for joining us today. Before we get started, I would like to congratulate Mark on his previously announced retirement. Mark has been instrumental in guiding SunCoke Energy, Inc. through critical phases of our evolution, including the recent acquisition of Phoenix, and the entire SunCoke Energy, Inc. team wishes him the best in his retirement. I would also like to congratulate Shantanu Agrawal on his well-deserved appointment as Chief Financial Officer. Shantanu has acquired deep knowledge of SunCoke Energy, Inc.'s business during his eleven years at the company. He is ideally situated to continue our focus on financial discipline, operational excellence, strategic growth, and creating long-term value for shareholders. I want to share a few highlights from 2025 before I turn it over to Mark to review the results in detail. First, I want to recognize another year with remarkable safety performance. SunCoke Energy, Inc., excluding Phoenix, ended the year with a total recordable incident rate of 0.55. Safety is our first priority, and I would like to thank all of our employees for their continued commitment to exceptional safety performance. Turning to our financial results, we delivered consolidated adjusted EBITDA of $219,200,000. These results reflect the addition of Phoenix for five months, as well as lower terminals handling volumes driven by market conditions. The domestic coke segment was impacted by the change in mix of contract and spot coke sales coupled with lower economics on the Granite City contract extension and the breach of contract by Algoma. We have extended our Granite City coke making contract with U.S. Steel through December 2026 at similar economics to the 2025 extension. We have also extended our Haverhill II contract with Cleveland-Cliffs through December 2028 with key provisions similar to the previous contract. In addition, we have the new take-or-pay coal handling agreement at KRT that began in 2025. We will benefit from a full year of that contract in 2026. We also made great progress on our capital allocation priorities in 2025 with the acquisition of Phoenix. potential in this business. The integration is progressing well, and we are excited for the growth In 2025, we also returned approximately $41,000,000 to our shareholders via our quarterly dividend. We expect to continue our quarterly dividend throughout 2026. With that, I will turn it over to Mark to review our fourth quarter and full year earnings in detail. Mark? Thanks, Katherine.

Turning to Slide four. The fourth quarter net loss attributable to SunCoke Energy, Inc. was $1 per share, down $1.28 versus 2024, primarily driven by one-time items

totaling $0.85 per share net of tax, including a non-cash asset impairment charge primarily due to the closure of Haverhill 1, site closure costs were primarily related to Phoenix operating sites, and restructuring and transaction costs primarily primarily related to the acquisition of Phoenix. Fourth quarter net loss was also impacted by lower coke sales volumes in the domestic coke segment due to the breach of contract by Algoma. Our full year net loss attributable to SunCoke Energy, Inc. was $0.52 per share, down $1.64 versus the full year 2024. The decrease was primarily driven by one-time items totaling $0.97 per share net of tax, including a non-cash asset impairment charge primarily due to the closure of Haverhill One, acquisition-related transaction and restructuring costs, and Phoenix operating site closure costs. Full year net loss was also impacted by the change in mix of contract and spot coke sales, coupled with lower economics on the Granite City contract extension in the domestic coke segment, partially offset by lower income tax expense driven by capital investment tax credits. Consolidated adjusted EBITDA for the fourth quarter 2025 was $56,700,000, down $9,400,000 versus the prior year period. The decrease was mainly driven by lower coke sales volumes due to the breach of contract by Algoma, lower economics on the Granite City contract extension, and lower terminals handling volumes due to market conditions, partially offset by the addition of Phoenix Global. On a full year basis, we delivered adjusted EBITDA of $219,200,000, down $53,600,000 versus the prior year. The year-over-year decrease was primarily driven by the change in mix of contract and spot coke sales, lower economics on the Granite City contract extension, lower coke sales volumes due to the breach of contract by Algoma, and lower terminals handling volume due to market conditions, partially offset by the addition of Phoenix Global. Turning to Slide five to discuss the year-over-year adjusted EBITDA variance in detail. Our domestic coke business delivered full year adjusted EBITDA of $170,000,000, down $64,700,000 from the prior year period. Results were impacted by the change in mix of contract and spot coke sales, the lower Granite City contract extension economics, and the Algoma breach of contract. Our Industrial Services segment, which includes the former logistics segment and new Phoenix Global business, delivered full year adjusted EBITDA of $62,300,000, representing a year-over-year increase of $11,900,000. The increase is primarily driven by the addition of Phoenix Global, partially offset by lower terminals handling volumes due to market conditions. Finally, corporate and other expenses, which include results from our legacy coal mining business and Brazil coke making business, were $13,100,000, an increase of $800,000 year over year. Turning to Slide six to discuss capital deployment in 2025. We generated operating cash flow of $109,100,000 in 2025, net cash provided by operating activities negatively impacted by two items. Number one, the accounting treatment of a portion of Phoenix Global's acquisition price. Phoenix's management incentive plan and transaction costs, cash payments totaling $29,300,000 included in the acquisition price but flowed through our operating cash flow as a use of cash. Number two, the $30,000,000 impact from the breach of contract by Algoma,

and coal coke and coal inventory on the books

at year-end. Without the impact of these two one-time items, our operating cash flow would have been approximately $59,000,000 higher. Net borrowing on our revolver was $193,000,000. Cash acquired from the Phoenix Global acquisition was $24,300,000. And after factoring in the $29,300,000 flowing through operating cash flow, the net purchase consideration for Phoenix was $295,800,000. Capital expenditures came in at $66,800,000, which is slightly below our revised guidance of $70,000,000 due to the timing of CapEx payments. We also returned capital to our shareholders in the form of a $0.48 per share annual dividend, which was a use of approximately $41,000,000 of cash. We ended 2025 with a cash balance of $88,700,000 and $132,000,000 of availability on our $325,000,000 revolver, resulting in strong liquidity of approximately $221,000,000. Now I would like to turn to our expectations for 2026. Slide eight lays out our SunCoke Energy, Inc.’s historical adjusted EBITDA, free cash flow generation, annual dividends paid per share, and gross leverage. SunCoke Energy, Inc. has a strong track record of generating steady free cash flow, and we expect the trend to continue with the addition of Phoenix Global. Our deliberate and careful capital allocation decisions over the last several years have strengthened our balance sheet and financial position while continuing to reward our long-term shareholders. We refinanced our debt and prioritized deleveraging in the midst of COVID-19, which allowed us to significantly lower our interest expense, resulting in higher free cash flow conversion. We expanded both our foundry market presence and participation in the spot blast coke market during 2023 and 2024, while our terminals expanded both their customer base and their services. With our leverage target in sight, we prioritized return of capital to shareholders by establishing a quarterly dividend and increasing that dividend each year for three years in a row. While our 2025 results reflect the challenging market conditions we operated in during the year, we still generated positive free cash flow for the year. We anticipate meaningful recovery in 2026 with an optimized coke fleet, extended coke making contracts at Granite City and Haverhill II, improved market conditions for our terminals, and a full year of Phoenix Global. With deleveraging as our priority, we plan to use excess free cash flow to pay down the outstanding borrowing on our revolver and anticipate 2026 year-end gross leverage around 2.45 times, comfortably below our long-term target of three times. As Katherine mentioned earlier, we also intend to continue utilizing our free cash flow to reward our shareholders with our regular dividend, which is reviewed and approved on a quarterly basis by our Board of Directors. Moving to 2026 guidance summary on Slide nine. We expect consolidated adjusted EBITDA to be between $230,000,000 and $250,000,000 in 2026. Domestic coke adjusted EBITDA is expected to be lower by $2,000,000 to $8,000,000, primarily driven by approximately two twenty thousand lower coke

lower contract blast

coke sales tons. With the closure of Haverhill One, our revised capacity is now 3,100,000 blast furnace equivalent tons. We will be running at full utilization and are sold out for the year. Industrial Services adjusted EBITDA is expected to be higher by $28,000,000 to $38,000,000 in 2026, primarily driven by a full year of Phoenix Global and our expectations for improvement in market conditions for our terminals. Corporate and other expenses are expected to be higher by $5,000,000 to $9,000,000, primarily driven by normalized employee bonus expense and Phoenix integration-related IT costs. We expect 2026 corporate expenses to be comparable to 2023 and 2024 spending. Moving on to Slide 10 to discuss domestic coke segment in detail. In 2026, we expect our domestic coke adjusted EBITDA to be between $162,000,000 and $168,000,000, sales of approximately 3,400,000 tons, which includes contract foundry and spot blast coke. We have optimized our coke fleet with the closure of Haverhill One operations due to the breach of contract by Algoma. The approximately 500,000 ton reduction in coke production and sales represent our lowest margin tons. As a result, we expect a modest increase in the domestic coke adjusted EBITDA per ton in 2026. Our revised total domestic coke blast furnace equivalent capacity is now approximately 3,700,000 tons. Have extended our Granite City coke making contract through 12/31/2026, similar economics to the 2025 extension. We have also extended our Haverhill II contract through December 2028 with similar economics to previous contracts and will provide

Cleveland-Cliffs with 500,000 tons of coke annually.

Our coke fleet will be operating at full utilization in 2026. We have approximately 3,000,000 tons contracted under long-term take-or-pay agreements and the remaining capacity is sold out for the year between the foundry and spot markets. Finally, we are experiencing a slower than normal start to 2026. Our Middletown coke plant experienced a turbine failure during a planned outage, which is impacting power production. This is an insured event and we expect the turbine to be back in operation mid-year. Additionally, the severe winter weather we all experienced over the last few weeks has impacted several several of our operations as well.

The impact of these events is reflected

in our 2026 guidance. Moving to Slide 11 to discuss Industrial Services in more detail. 2026 Industrial Services adjusted EBITDA is estimated to be between $90,000,000 and $100,000,000. Our outlook for 2026 reflects our expectations for improvement in market conditions. We will have a full year of Phoenix Global in our results for the year. As our terminals handling volumes are largely market driven, our current guidance assumes improved market conditions in 2026. We have included partial synergies in our 2026 guidance and expect to continue recognizing synergies in 2027. We expect approximately 24,000,000 tons of terminals handling volumes and approximately 22,000,000 tons of steel customer volume serviced. Moving to Slide 12. Once again, we expect consolidated adjusted EBITDA to be between $230,000,000 and $250,000,000. Our Domestic Coke segment is expected to deliver adjusted EBITDA between $162,000,000 and $168,000,000 while the Industrial Services segment is expected to deliver between $90,000,000 and $100,000,000 in adjusted EBITDA. We anticipate CapEx in 2026 between $90,000,000 and $100,000,000 driven by a full year of Phoenix CapEx requirements. We expect 2026 operating cash flow to be between $230,000,000 and $250,000,000 and our free cash flow is expected to be between $140,000,000 and $150,000,000. With that, I will turn it back over to Katherine.

Thanks, Mark. Wrapping up on Slide 13. As always, safety is our first priority. We are coming off of another year of excellent safety performance and the team remains committed to maintaining strong safety and environmental performance in 2026. Robust safety and environmental standards set SunCoke Energy, Inc. apart and are central to our reliable delivery of high-quality coke and industrial services. In 2026, our focus will be on utilizing our free cash flow to support our capital allocation priorities. We will use excess cash to pay down our revolver balance with a goal of gross leverage below three times by 2026 and beyond. We also plan to continue returning capital to shareholders via the quarterly dividends. In addition, our efforts will continue on the seamless integration of Phoenix, maintaining the strength of our core businesses, as well as assessing new growth opportunities across all areas of our business. As always, 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. We continue to see SunCoke Energy, Inc. being well-positioned for long-term success. We continue to invest in our coke and industrial services assets to ensure that they are safe, efficient, reliable, and environmentally compliant, putting SunCoke Energy, Inc. in the best position to grow and diversify our customer and product base. Finally, we are pleased to share that we plan to host a virtual Investor Day on Thursday, February 26. We are looking forward to discussing the recent developments at SunCoke Energy, Inc. and having some one-on-one conversations. With that, let us go ahead and open up the call for Q&A.

Thank you. We will now begin the question and answer session. The first question will come from Nick Giles with B. Riley Securities. Please go ahead. Thank you, Operator, and good morning, everyone. This is Henry Hearle on for Nick Giles.

First off, Mark, congratulations on your retirement. And Shantanu on the CFO appointment.

Great. Thank you. Last call, you discussed

oh, yeah.

Of course. So on the last call, you discussed pursuing all legal means to enforce the Algoma contract.

And recover any financial losses.

But now with Haverhill One closed and subsequent impairment charges, could you give us some more color on the current status of litigation

and what are some of the likely outcomes?

Sure. And thanks for the question. We continue to pursue Algoma in its in an arbitration arbitration. We are pursuing all legal means to recover our losses. So we absolutely believe we have an enforceable contract. This is a clear breach of contract by Algoma, and we expect to prevail in our litigation with them. The breach by Algoma is actually ongoing. We had sales to them in 2025 as well as in 2026. So if you think about this in terms of, you know, the amounts that are owed by Algoma and what we are pursuing, in our third quarter call, we said that we had that the impact to the working capital for the breach by Algoma could be up to $70,000,000 and this is in 2025. So if you look at our guidance summary, there is a deferral cash receipt from Algoma for $30,000,000 in 2025. So you can see that we are actually able to do much better and mitigate that potential loss through sales to third parties and also through the turn down of our facility. So that amount that you see, that $30,000,000, it actually represents part but not the full amount of the Algoma losses for the breach of contract in 2025. But, again, as I said, that breach is 2025, but also ongoing, and we are pursuing not just our losses from our losses in 2026. Beyond that, I cannot really provide detail on the outcome of the litigation since it is active litigation, but I will emphasize again that this is a clear breach of contract and we expect to recover. The other thing that I can say that might provide some color and be helpful is that if you are looking at bridging our 2025 to our 2026 guidance, is really as a matter of coincidence the losses from in 2025 are very similar to what we would have expected to have lost in 2026. So in other words, what we would have made last year with Algoma and this year without Algoma is not meaningfully different. And so I hopefully that is helpful if you are thinking about bridging the years, but really beyond that, I cannot say more because we are in active litigation.

Okay. Yeah. That is very helpful. Thanks for that. And then moving over to Phoenix Global, are you guys still

anticipating an annual EBITDA contribution of roughly $60,000,000 and synergies of $5,000,000 to

10 in this 2026 guidance?

Yes, we are.

Okay. And then could you also remind us of any of the onetime integration costs that you incurred with Phoenix Global in 4Q? And then should we expect any more in 1Q of this year? So that related just to Phoenix,

one-time it is, you had some site closure costs of about $3,900,000. That is really related to some international sites that during due diligence we identified that we would like to close down. There were some transaction costs of about $600,000 as well. Really related to the Phoenix. That is the Phoenix side. Yep.

Okay. Great. Thanks for the time guys and continue best of luck. Thank you.

The next question will come from Nathan Martin with The Benchmark Company. Please go ahead. Thanks, Operator. Good morning, everyone. First, I would also like to congratulate Shantanu on his upcoming promotion and, of course, wish Mark well in his retirement. Thank you. Thanks, mate. Haverhill One closure, first question there, is that permanent, or would you guys be able to reopen if market conditions improve

And then what savings, if any, do you see on the coal side from the closure?

Sure. So the Haverhill One could be restarted, but it would require a significant capital investment and it would take about twelve to eighteen months to restart. So that facility was taken down completely cold. So we would certainly be willing to restart that facility, but we would need to see a meaningful a meaningful return to do it. And, you know, sitting here today with the market conditions being what they are and Algoma's breach, we do not really see any economic value in the asset. I think it is important to note that, you know, we do not have any sort of environmental or other remediation related costs for Haverhill One. So no reclamation, no remediation. We have some non-material costs to remain in sort of compliance. But they are minimal. And then in terms of the savings that we will see from Haverhill One, we have a reduction in our workforce and obviously some other costs related to ongoing O&M for that facility.

And Katherine, I am assuming all those costs are incorporated in guidance already?

They are.

Okay, perfect. Second, I wanted to touch on, you know, maybe EBITDA cadence. Like, how should we think about that as we go through the year? You guys called out the Middletown turbine failure. I think that is said, you know, come back maybe midyear. Obviously, the recent Arctic weather impacting operations as well. So maybe a couple things there. Like, what is the cost on the turbine? You know, again, how should that impact operations in sounds like the first half? And then, you know, additionally, like, when will most of the IT integration and bonus expense items hit that you guys talked about?

Sure. Why do not I start with the weather and the turbine outage? So obviously, you have seen this across the space. Like, we had an absolutely brutal start to the year. So between the extreme storms, the extreme freeze, as Mark mentioned, really all of our facilities were impacted, Phoenix sites, terminals, and our coke plants. And the impact was really the most acute at Indiana Harbor, which sits on a peninsula on Lake Michigan. And so was significant lost production there, and you are going to see that come through in the first quarter results. But we do have the balance of the year to make that up at our other facilities. With respect to the Middletown turbine outage, so not only did that impact our fourth quarter because we had six weeks of lost power that was not built into our revised guidance, but we also had the entire really first half as you mentioned where we will have that turbine down, we will be addressing the unexpected failure, and it is an insured event. But we will not see any earnings associated with the power production at Middletown until the turbine is back up and we have recovered the amounts that were owed for that lost power from the insurer. So I, while not being able to give sort of plant-specific EBITDAs, you know, that we do not do, what I can tell you is that the impact from those events, the Middletown turbine and the weather that impacted the first quarter, that is going to aggregate to approximately a $10,000,000 impact in the first quarter. And then again, we do not expect to see the turbine up and the recoveries from the power in the second in the second quarter. So that may help you a little bit as you are trying to build out the cadence of the year.

Yeah. No. That is definitely helpful, Katherine. Appreciate that. And then maybe just related while you are talking about the power production there, anything we need to think about for power at Haverhill One? With that being down? Any losses there?

No. That facility did not produce power, so no impact.

Okay. Appreciate that.

Maybe one last question. expected improvement in tons handled. Could you kind of walk us through what is driving the in the Industrial segment? Is this mainly the KRT expansion and take-or-pay there you mentioned earlier? How should we think about CMT? I believe you guys still also have some small take-or-pay there for 2026 as well. Thanks.

Sure. So, yes, we have built in our guidance a full year of the new contract that we began in 2025 at KRT. We are also expecting some modest recovery overall across both KRT and CMT. And you are seeing that come through in the guidance as well.

Okay. Great. I will leave it there. I appreciate the time, and best of luck in 2026.

Thank you very much.

This concludes our question and answer session. Would like to turn the conference back over to Katherine Gates, President and CEO, for any closing remarks.

Thanks. I want to thank everyone for joining us today. And again, the SunCoke Energy, Inc. team for their hard work and excellent safety performance in 2025. We are looking forward to speaking with everyone on the twenty-sixth. Let us continue to work safely today and every day.