CNX Resources Corporation (NYSE:CNX) Q4 2023 Earnings Call Transcript

CNX Resources Corporation (NYSE:CNX) Q4 2023 Earnings Call Transcript January 25, 2024

CNX Resources Corporation beats earnings expectations. Reported EPS is $0.68, expectations were $0.27. CNX isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning and welcome to the CNX Resources Fourth Quarter 2023 Q&A Conference Call. [Operator Instructions] I would now like to turn the conference over to Tyler Lewis, Vice President of Investor Relations. Please go ahead.

Tyler Lewis: Thank you and good morning, everybody. Welcome to CNX’s fourth quarter Q&A conference call. Today, we will be answering questions related to our fourth quarter and full year results. This morning, we posted to our Investor Relations website, an updated slide presentation and detailed fourth quarter earnings release data, such as quarterly E&P data, financial statements and non-GAAP reconciliations, which can be found in a document titled 4Q 2023 Earnings Results and Supplemental Information of CNX Resources. Also and as previously announced, we posted to our Investor Relations website our prepared remarks for the quarter. This is a new format to better streamline the earnings process and dissemination of information.

So we hope that everyone had a chance to read the prepared remarks before the call as the call today will be used exclusively for Q&A. With me today for Q&A are Nick DeIuliis, our President and CEO; Alan Shepard, our Chief Financial Officer; Navneet Behl, our Chief Operating Officer; and Ravi Srivastava, President of our New Technologies Group. Please note that the company’s remarks made during this call, including answers to questions include forward-looking statements, which are subject to various risks and uncertainties. Statements are not guarantees of future performance and our actual results may differ materially as a result of many factors. The discussion of risks and uncertainties related to those factors and CNX’s business is contained in its filings with the Securities and Exchange Commission and in the release issued today.

With that, thank you for joining us this morning. And operator, can you please open the call up for Q&A at this time?

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Q&A Session

Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Bertrand Donnes with Truist. Please go ahead.

Bertrand Donnes: Hey, good morning guys. Just want to start off on the New Tech free cash flow guidance, maybe could you talk about specifically what’s changed over the past 3 months to kind of impact your outlook? And then I suspect it’s probably pricing, but secondly, is it a matter of IRRs when you discussed in your prepared remarks about the incentive for new expansion, is it IRRs not meeting some sort of internal threshold or is it maybe that the projects have actually flipped to a negative free cash flow territory? Thanks.

Ravi Srivastava: Hey, Bertrand, this is Ravi. And on the New Tech cash flow side of things, you are right the way what’s going to impact the cash flows for New Tech is two things, the volume that qualifies for different programs and I think the team has done a great job of maximizing what those volumes can be. We have provided a guidance of about 15 to 18 BCF that qualifies for these various programs. And we were focused on getting all that volume kind of turned in line. So that’s happened. We are pretty excited about that part of it. And the second thing that impacts what the free cash flow is going to be is what the pricing is. And we have seen some softening of pricing, specifically in the AEPS market for the Tier 1 RECs and that’s driven the cash flows down.

But there is some seasonality, there is some volatility that kind of comes into that, what the pricing that we were seeing in Q3 Q4 of last year, there is no reason why we could not go back to those types of pricing later in the year. But what we are trying to do is providing guidance based on the information that we have available at this point in time and that’s where that market stands at this point in time. And on the future investment standpoint, that’s correct, I think we have a portfolio of opportunities that we can invest our capital into and we do have opportunity to go and capture more gas. But at this point in time with incentive structure that’s available through the programs that we have access to at this point in time, we are limited in terms of how much more capital we could invest to capture this more waste methane.

Bertrand Donnes: That makes sense. And then just shifting gears a little bit, it looks like the footnote on full year ‘24 cash unit cost just ticks up a little bit versus the 4Q ‘23 disclosure. Is there any color on which bucket it maybe going up and does that reverse if you ramp up your production? Thanks.

Alan Shepard: So, the way to think about that’s quarterly – quarter-to-quarter kind of unit cost numbers. They fluctuate based on kind of the production volumes for the quarter and potential maintenance projects that slide around between quarters. The way to think about it is always to look to the sort of annual guidance that we provide and then you will see that’s kind of the way you should think about modeling that on an annual basis, because there is noise in quarter-to-quarter.

Bertrand Donnes: Okay. So there is nothing specifically going up that we feel like…

Alan Shepard: No.

Bertrand Donnes: Okay, got it. Thanks, guys.

Operator: The next question comes from Zach Parham with JPMorgan. Please go ahead.

Zach Parham: Hey, guys. Thanks for taking my questions. I guess first, another one on New Tech. In December, you announced you are no longer partnering with the Adams Fork project, which is one of the potential drivers of future New Tech free cash flow growth. Could you talk a little bit about the drivers that you expect to – you talked about growing New Tech from here maybe what drives that higher than the $75 million in 2024 as we go out into 2025 in future years?

Ravi Srivastava: Hey, Zach, that’s a great question. So the way I would look at New Tech free cash flow growth, you could put them into, I’d say, three different buckets. One is the environmental attribute opportunities we talked about the volume that qualifies for some of these opportunities being 15 to 18 Bcf. So we can grow that volume. For that volume to grow, there is better incentives that needs to be available for it. So we’re looking for other opportunities, other incentive programs where – or other pathways that can be created where that the realization for these environmental attributes can be – we can realize more value for these. So we are looking at a portfolio of opportunities on that front. So, if that happens, not only the realizations go up, there is opportunity to add more volume to it.

So that’s one pathway to grow New Tech free cash flows. The second part of it that we have talked about in the past is we have a technology portfolio that we are trying to look to create value out of. And I think ‘24 is going to be the year where we have been in the prototype and testing phase for a lot of that stuff, but I think this year we start to see that those opportunities start to take commercial scale. So we are excited about those. I think more to come on that front in the coming quarters, but we are very excited with the progress that we have seen on that front. And then the third part is this alternate fuel opportunity where hydrogen projects for getting into CNG LNG market opportunities – creates opportunity for New Tech to grow its cash flows.