Peabody Energy Corp

NYSE:BTU

Earnings Call Transcript 2018-Q1

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the Peabody's First Quarter Earnings Call. As a reminder, today's conference is being recorded.

And I'll turn the conference now to Mr. Vic Svec, Senior Vice President, and Global Investor and Corporate Relations. Please go ahead.

[Vic Svec]

Okay. Thank you. Good morning, everyone, and welcome to BTU's first quarter earnings call. With us today are President and Chief Executive Officer, Glenn Kellow; and Executive Vice President and Chief Financial Officer, Amy Schwetz.

During our formal remarks, we'll reference a supplemental presentation that's available on our website that's at peabodyenergy.com.

And on Slide 2 of this deck, you will find our statement on forward-looking information. We encourage you to consider the risk factors referenced here as well as our public filings with the SEC. I would also note that we use both GAAP and non-GAAP metrics and we refer you to our reconciliation of those measures in this presentation as well as our earnings release.

As we've noted previous calls, most income statement measures are not comparable to the prior period. That's due to the adoption of press start reporting as of April 1, 2017.

And with that I'll now turn the call over to Glenn.

[Glenn Kellow, President and Chief Executive Officer]

Thanks Vic, and good morning, everyone. In the first quarter, Peabody achieved solid year-over-year performance, record free cash flow generation and a number of additional milestones. All of which occurred against some operational challenges that now provide the opportunity for cost and margin improvements as the year progresses.

As noted on Slide 3, first quarter volumes, revenues and adjusted EBITDA increased over the prior year. Liquidity rose to $1.65 billion and we generated record free cash flow of $573 million, or well over 10% of our enterprise value. Included in free cash flow with $254 million in collateral that was released through March.

I'll remind you that it was just this quarter that all the company's preferred shares converted to common stock. That creates a more simplified capital structure and allows for future earnings that fully accrete to common shareholders

We previously states that our focus in 2018, which shipped towards returning cash to shareholders. On that front, we have significantly accelerated our share buyback activities. And just today, we announced that we literally doubling down on our share repurchases by expanding our buyback program from $500 million to $1 billion. We also initiated and paid our first quarterly dividend as part of what we believe to be a sustainable program.

In recent weeks, we successfully repriced the company's senior secured term loan. This provides additional financial and operational flexibility, extends the maturity profile and reduces our cash interest expense. Finally, we sold non-core assets including surface lands in Australia as part of our ongoing resource management activities.

Before I turn the call over to Amy, I'd like to recognize several accomplishments we've had on the ESG front. First, our Wild Boar Mine in Indiana was honored with a 2018 National Reclamation Award by the Interstate Mining Compact Commission or its dedication to environmental protection. This mine also received the excellence in Mining Reclamation Award from the Indiana Department Natural Resources in 2017.

In Australia, a member of our Wilpinjong Mine, was honored with the prestigious New South Wales Women In Mining Award. And colleague from the Metropolitan Mine was named runner-up in the Gender Diversity category. At the corporate level, Peabody was awarded "Employer of the Year of Mine Energy & Natural Resources Companies in the 2018 Corporate LiveWire Innovation and Excellence awards. The company also was recognized with three Communitas Awards for excellence in corporate and social responsibility and community service.

That's a quick summary of actions over the past few months. Amy will now discuss our results for the quarter.

[Amy Schwetz]

Thanks Glenn. Peabody's record free cash flow generation in the first quarter was driven by a number of factors. To review, let's start by going through the income statement and balance sheet items relative to the prior year. Beginning on Slide 4, first quarter revenue rose 10% over the prior year to $1.46 billion. On continued strength in seaborne coal pricing and increased Australian metallurgical coal shipment.

Income from continuing operations, net of income taxes totaled $208 million during the quarter, including DD&A of $170 million and interest expense of $36 million.

As a reminder on DD&A, we expect declines in 2019 and beyond as contract amortization established during our initial fresh start balances grows off.

Net income attributable to common stockholders totaled $107 million. Diluted EPS from continuing operations with $0.83 for the quarter which included the impact of the $103 million non-cash dividend charge related to the full conversion of all preferred shares to common in January.

On Slide 5, overall adjusted EBITDA increased $23 million from the first quarter of 2017 to $364 million, as strong seaborne coal pricing overcame the impact of operational conditions in both Australia and the U.S.

Looking first at Australia, adjusted EBITDA reflected an improvement of $43 million over the prior year. Our seaborne thermal segment again delivered strong margins of 31%, despite lower volumes and higher costs. As expected, first quarter volumes were suppressed by a scheduled longwall move at the Wambo Mine. In addition, we mine through an area at Wilpinjong where there was a gap in coal due to geology. Those issues have since been resolved, but export tons were lower than expected as we work to first satisfy volumes required by our domestic contract. We would expect thermal volumes to increase sequentially as the year progresses.

First quarter export thermal volumes total 2.1 million tons at an average realized price of 78.18 for short ton. Total thermal realized pricing reached 53.42 per ton at 10% increase from the first quarter of 2017.

Our Australian net coal segment was again the standout this quarter, leading the platform and total contributions and adjusted EBITDA margin at 36%. Net coal revenues rose 42% to 466 million on increased sales volume and strong seaborne pricing compared to the first quarter of 2017. During the first quarter, we sold right at 3 million tons of net coals in an average price of 153.04 per short ton.

Net coal cost declined modestly from the prior year to 98.44 per ton and temporarily rose above the higher end of our annual guidance range, due to a scheduled longwall move at the Metropolitan Mine and temporary weather related challenges, as well as heavy faulting [ph] that slowed down production at the Millennium Mine.

These operational constraints are now behind us and our Australian metallurgical cost per ton moved to the lower end of our annual guidance range in March. I'll also note that our North Goonyella Mine continued its streak of strong performance with 55% adjusted EBITDA margins this quarter.

Turning to the U.S., total adjusted EBITDA declined $54 million compared to the prior year, due to lower realized pricing and temporary cost increases across the platform. You'll recall that our Western segment also benefited in the first quarter of 2017 from a $30 million contractual settlement with a customer compared to about $3 million this quarter.

Higher costs are largely attributed to pit sequencing issues related to drag line outages at some of our operations. In the Midwestern segment, cost per ton increased 13% due to heavy rain in which some of our mines had nearly a foot of rainfall in the first quarter, as well as scheduled repairs and maintenance and higher diesel fuel prices. In addition Western cost rose 2% over the prior year, due to a planned longwall move at the 20 Mile Mine. I'll point out that three of our four longwall mines had moved in the first quarter.

Overall, we would expect U.S. cost to decline to our full year targeted range overtime, as maintenance completed during the first quarter increases equipment availability and weather conditions improve across the platform.

We've mentioned before that we have flexibility regarding logistics and productions. During the first quarter, we were able to meet increased customer demand for committed volumes as overall U.S. utilities stockpiles reached their lowest monthly level since September of 2014. As a result, we increased our U.S. committed position to 95% largely through the sale of mid-tier PRB coal which led to a $0.07 per ton decline in our average 2018 PRB right position.

Let's now move to the balance sheet on Slide 6. As you've likely heard me say, we continue to believe that 2018 will be a strong year for earnings and an exceptional year for converting those earnings to cash. We ended the quarter with $1.65 billion of liquidity including $1.42 billion in cash and an additional 236 million of available borrowing capacity under our revolver and accounts receivable securitization facility.

We also secured $333 million in third party surety bonds in Australia enabling the release of $254 million in collateral through March with the remaining balance expected to be freed up in the second quarter.

The release of this collateral as well as cash tax refunds of $61 million contributed to positive operating cash flow of $580 million and record free cash flow of $573 million, including $35 million in Middlemount cash contributions during the quarter.

I mentioned that we completed non-core asset sales in the first quarter as part of our ongoing portfolio management activities, including the sale of surface lands in Australia. Cash proceeds from these transactions totaled $23 million in the first quarter with an additional 28 million expected to be realized in the second quarter.

As we alluded to last quarter, we are also reducing onerous future contractual take or pay and are eliminating 4 million in reclamation liabilities through the sale of 50% in the prep plant and rail facility associated with the Millennium Mine.

Regarding our long term debt goals, we previously stated a targeted range of 1.2 billion to 1.4 billion over time. I'm very pleased to note that we have achieved the high end of our targeted level with the recent repayment of 46 million on our term loan as part of our repricing amendment.

Through the recent repricing, we were able to not only lower our interest, but also extend our maturity profile by three years to 2025 and modify certain terms. We project approximately $5 million in annual cash interest savings as a result of the additional debt repayments and interest rate reduction.

As you may recall, given our strong operating performance, this is our second amendment to our term loan since emergent. Over this period, we successfully reduced our interest rate by a total of 175 basis points and secured incremental operational and financial flexibility to execute on our financial approach. And with the term loan now extended to 2025, our first tranche of debt $500 million of senior secured note is not due until 2022. This compares to $1.45 billion in funded debt due in 2022 at this time last year.

Also during the quarter, one of our rating agencies upgraded Peabody's corporate debt rating reflecting the company's recent strong financial performance.

Turning to Slide 7. We've made it clear that in 2018 we would be shifting our focus from debt repayments to greater returns of cash to shareholders. We are already making good progress on this commitment with the allocation of $239 million of cash to shareholders this here.

In the first quarter, Peabody initiated and paid a cash dividend of approximately $15 million which management believed to be part of a sustainable dividend program. We also accelerated our share buyback activities with 4.4 million shares repurchased in the first quarter and another 1.3 shares repurchase thus far in April. Overall, we have repurchased approximately 11.5 million shares or 8% of our initial shares outstanding for a total of $400 million since the program initiated. Our current shares outstanding are 125.8 million which translates to 128.8 million 3on a fully diluted basis.

Just today, we announced that we are expanding our share repurchase program to $1 billion in reflection of our financial strength and default position to return cash to shareholders.

The company has capacity under our debt agreement to make significant progress on our upside share repurchase program, due to our performance today. In addition, we are evaluating amendment to our bond indentures given our operational performance and significant progress made on releasing collateral.

We believe at the right price, this additional capacity would provide incremental flexibility to accelerate and/or expand our shareholder return program.

On Slide 8, Peabody continue to execute on our stated financial strategy, generate cash, maintain financial strength and that's wisely and return cash to shareholders. Through our strong cash flow generation, we have been able to drive further savings in interest expense. We are thoughtfully allocating capital and utilizing our filters for internal and external investment. All of these activities continue to give us the ability to expand our shareholder return program.

I'll now turn the call over to Glenn to discuss industry conditions and our focus areas for the second quarter.

[Glenn Kellow, President and Chief Executive Officer]

Thanks Amy. Let's begin with seaborne supply and demand details on Slide 9. During the first quarter, we continue to see strong seaborne pricing despite some revising for our peak levels.

Within seaborne thermal coal, Newcastle's spot process averaged $103 per ton compared to $80 per ton in Q1 2017, supported by increased the imports in China, India and Southeast Asian countries. I'll mention that Peabody has secured additional fixed price agreements to capitalize on strong thermal processing levels. We now have approximately 5.5 million tons locked in for 2018 in an average price of $76 per short ton and some 2 million tons committed to 2019 in an average price of $75 dollars per short ton. We also expect to price an additional 2 million short tons on the JFY that runs from the second quarter 2018 through the end of the first quarter 2019. We also beginning to wire in volumes to 2020.

Through March, India imports were up 6 million tons compared to the prior year, as utilities rebuild stockpiles and domestic production fail to keep pace with demand. China imports also rose nearly 60 million ton through March, as cold weather drive a 10% increase in power consumption and impacted domestic production of rail systems. Our ASEAN demand increased on continued strong economic growth and expanding coal generating capacity.

Turning now to seaborne metallurgical coal, global steel production rose 4% through February. During this time. India imports increased 21% compared to the prize year, nearly offsetting reduced demand from China, despite strong domestic steel production.

During the first quarter, from seaborne hard coking coal prices increased proximately $60 compared to the prior year to an average of $228 per ton.

The index-based pricing settlement for premium hard coking coal was at a $237 per ton. This compares to the benchmark settlement of $285 per ton in the first quarter of 2017. In addition to first and second quarter benchmark process, the low-vol PCI was settled by Peabody at $156.50 and $155 per ton respectively. Recently as we anticipated, we've seen a tightening in the pricing differential between premium hard coking coal and PCI.

In terms of supply, both Australian thermal and metallurgical exports were in line with prior year levels through February. Also we've seen a fair bit of media coverage regarding the dispute between the horizon and the Queensland Competition Authority, we're not anticipating any impact of Peabody shipments on the Goonyella line at this time and are maintaining our full year guidance targets.

Our impacts mainly occurring on the black water line which Peabody does not utilize. We will continue to monitor the situation and longer term, we hope to see commonsense prevail.

During the quarter, we also saw some robust prices paid for Australian metallurgical coal assets. We believe that has impressive read through results of Peabody's Australian platform both in met and thermal coal.

On Slide 10, our seaborne [indiscernible] positive in the first quarter. U.S. coal demand was impacted by strong gas and wind generation. Overall, coal generation was down 3% through March, despite a 20% increase in heating degree days. The decline was driven by lower natural gas prices, as well as increased wind generation.

During this time, PRB utility coal consumption was flat with the prior year, while demand from other coal producing regions declined 6%.

Despite domestic demand constraints in the first quarter, U.S. thermal exports increased approximately 38% over the prior year. Increased exports combined with lower overall U.S. coal production, but the strong inventory grows compared to the prior year. As a result, overall utility coal inventories declined approximately 10 million tons from the prior year. In addition, SPRB stockpiles fell to 53 days of maximum burn, down 7 days from March 2017.

With that let's cover our priorities and expectations for the second quarter on Slide 11. To begin, we look for sequential increases in our Australian thermal volumes from quarter-to-quarter through 2018 as well as improvements in cost.

Next, performance for our Australian Metallurgical Coal segment is expected to rebound in the second quarter, mitigating the impacts of the plant longwall move of the North Goonyella Mine that will reach the second and third quarters.

Third, we anticipate improved cost performance in the Midwest on increased equipment availability. Our PRB volume experienced lower volumes during the traditional second quarter shoulder season.

Finally, we will continue to execute on our stated financial approach with a strong emphasis on returning cash to shareholders through outside share repurchase program and substantial dividend.

Before we move into questions, I would like to turn to Slide 12 and take a moment to focus on the third component of our financial approach as wisely. We noted that our Analysts and Investors Day that we committing to earning a high multiple to enhance shareholder value. We've been clear about our investment feathers and would note that our expanded share repurchase program represent a wide for us to invest more in the company we know and like the best. There are several comparisons to punctuate that point.

Based on a trailing 12 month average, Peabody outperformed the S&P Midcap 400 on operating margins by 84% and an EBITDA margin by 88%. Profit margin totaled 16% for BTU compared to just 6% for the S&P 400.

Our return on common equity far exceeded the average company in the index and BTU also compares very favorably on free cash flow metrics. We've stated that margins matter and returns matter for Peabody, we also believe these measures make a difference to our investors. And also we're not yet a member of the S&P Midcap 400, we believe we meet the necessary qualifications on that front.

Based on these comps, we consider Peabody to be a highly compelling investment and one of the reasons we continue to invest in the company through our share repurchase program. We also believe the BTU offers a powerful vehicle to deliver results and generate value across the cycle. We aimed on a premium multiple uplift overtime through strong operating performance from a diversified platform, a discipline capital allocation approach and help the returns about our cost of capital.

That concludes today's formal remarks. At this time, we're happy to take your questions Operator?

[Operator]

[Operator Instructions] And we'll take our first question from Michael Dudas from Vertical Research.

[Michael Dudas, Vertical Research]

Good morning, gentlemen, Amy.

[Amy Schwetz]

Good morning, Michael.

[Glenn Kellow, President and Chief Executive Officer]

Good morning.

[Michael Dudas, Vertical Research]

Australia, first Glenn or Amy, your customer base from a metallurgical side, could you just remind us is it shifting a bit, India has been a very big consumer, at least the growth has been question stronger, how you position there relative to other traditional markets? And are those customers starting to feel a bit more resize effect that normalize pricing for the products that they're purchasing are probably going to be a higher level than they would have thought 6 or 12 months ago or are you getting a sense of that with your discussions is my first question.

[Glenn Kellow, President and Chief Executive Officer]

I think Michael, as you indicated, we certainly favor a traditional relationship market approach given out our platforms. So those traditional markets of Japan, Taiwan, central markets, increasingly, so India as you've indicated, China are actually being a bad about the signs as India. I think because of that we continue to make sure that we provide high quality products into those markets and we know that certainly look to us to continue to provide quality products into those relationship areas.

[Amy Schwetz]

Probably worth noting just as a follow-up to that, that although that pricing mechanism is rapidly changing. We really only sell about 30% of our volumes on a spot bases with the remainder being under some sort of contract over the course of the year.

[Michael Dudas, Vertical Research]

Okay, fair enough. And my follow-up is, Glenn you mention about orders on situation and you're somewhat insulated from it which is helpful. But as that develops and are there - are you seeing other issues on the inventories in rail import in Australia, is that also going to be you think a limiting factor throughout into the summer into the fall and potential shipments out of Australia?

[Glenn Kellow, President and Chief Executive Officer]

I can't speak for us. I can only speak for us in terms of what we're seeing, we're obviously continue to execute well. I'll go back to the fourth quarter of last year, but it seemed an outstanding job to move through logistical constraints and what not to deliver. I think we've had a solid execution in the first quarter and I'd expect to see that continue. In fact what we've indicated is we do expect to see sequentially increasing thermal volumes for example moving through the course of the year.

[Operator]

And our next question comes from Lucas Pipes of B. Riley FBR. Please go ahead.

[Lucas Pipes, B. Riley FBR]

Hey, good morning, everybody.

[Amy Schwetz]

Good morning, Lucas.

[Lucas Pipes, B. Riley FBR]

Amy, I wanted to touch on the capital return profile a little more. And specifically I wanted to ask how much capital you're able to return over the remainder of this year under the existing bond of interest? Thank you.

[Amy Schwetz]

Sure. So you know what, we think at this point in time we have to have a significant amount of flexibility to begin our second tranche of $500 million. But I will say that we know that this is a question that is on the minds of our investors and that's why we are exploring the amendment process for us to be able to say with certainty to investors that we've got the capacity to complete the second $0.5 billion of our share repurchase program. It's something that we think at the right price. It's something valuable for equity holders to have and that's we're beginning that review process right now.

[Lucas Pipes, B. Riley FBR]

I appreciate that. I think it's fair to say that investors look at your liquidity and your free cash flow profile and I think it is great how you double down on the share repurchase. But as you put it, I think there's also an expectation that maybe more is to come. So is it possible to give us a number in terms of how much capital you could return this year?

[Amy Schwetz]

I think what I would say is that capital return to shareholders are probably going to be our largest non-operating related use of cash over the course of the year. That will be a shift from last year where we were more focused on debt reduction. The other thing that I would say about our share repurchase program and we hope it's evident from what we've done on the first $500 million program. This is not a management team that intense to utilize self-program. The dominations that we have we have put out there are programs that as a team we intend to execute on. And you can see that in the pacing that we've had over the last several months that as our cash flows have increased particularly with the return of that collateral in Australia that we picked up the pace on our share repurchase program.

[Lucas Pipes, B. Riley FBR]

That's very helpful and maybe one related question. Obviously, investors are highly focused on capital returns but at the same time there is some concerns and I think this is placed across the industry that operations are not fully capitalized and that in some way the capital returns are may be kind of borrowing from the future. So when you think about your operating portfolio on an annual basis and on average, how much do you think you have to spend in terms of sustaining capital in order to maintain current levels of output? Thank you.

[Glenn Kellow, President and Chief Executive Officer]

Yeah, I think we've spent lots of time sort of taking investors we hope through their process that we undertook in terms of thinking about sustaining capital levels. We've indicated for 2018 and for 2019 that we would have slightly higher CapEx programs, particularly aimed at supporting out Wambo and North Goonyella activities to really underpin the strength of that platform. Going forward, we'd indicated around about $125 million - sorry $225 million, in excess of $200 million of sustaining capital would be the run rate but notwithstanding 2018 and 2019 levels.

[Amy Schwetz]

We'd spent a lot of time within the organization focused on maintenance and you can - you saw some of that actually in our first quarter costs as we look forward, but we do pride ourselves on running our equipment well, but also monitoring our equipment to determine when the optimal time is to perform that maintenance. Some of the costs associated with the upkeep of our fleet to see in our operating cost and some of that you see in capital. But I think overall our operators feel like they are well positioned to deliver tonnage into the future.

[Lucas Pipes, B. Riley FBR]

Great. Well, thank you very much and good luck.

[Amy Schwetz]

Thanks.

[Operator]

And our next question comes from Mark Levin of Seaport Global.

[Mark Levin, Seaport Global]

Great. Couple of just quick modeling related question, so tax refund to cash for 2018, Amy, maybe how to think about that on a yearly basis and also maybe on a quarterly basis if you know?

[Amy Schwetz]

Yes. So as we indicated, we received $61 million in the first quarter. We've actually started to receive some refunds in the second quarter as well. We've got about $23 million in so far in the second quarter with just a little bit more expected to come in over the course of the year. As we look forward to 2019, you'll recall that we had - that we had a benefit in the fourth quarter of 2017 related to AMT tax credits. That was an $85 million benefit. And we expect to see about 50% of that in 2019 and then the remainder of that to come in over 2020 and 2021. So the tax refunds will be a component of our cash flow through 2021, although with decreasing size benefits in those years.

[Mark Levin, Seaport Global]

Got it. Great. Thank you for the help on that. And then with regard to meet price realization, so if I take your average realize net revenue per ton in the quarter and I kind of look at it against the benchmark settlement was, it comes out after the conversions to around just call it 71%, 72%. The met is obviously becoming more opaque in terms of pricing and how to model pricing given the varying types of contract structures. I mean should we be thinking around like obviously we all will have our own different expectations for what met prices are, but is that kind of 71%, 72% of the ACC settlement, the right kind of zip code to be thinking about realizations?

[Amy Schwetz]

You know you can think about it that way or will often times where there is slice and dice it a little bit more. So thinking about our mix of PCI to our coking coal has being somewhere around 55% to 65% PCI. And then if we break it down a little bit further for both our HCC products and our PCI products, we generally realize between 85% and 90% of the benchmark pricing for each of those products.

[Mark Levin, Seaport Global]

Okay. Great.

[Glenn Kellow, President and Chief Executive Officer]

And obviously those are - I'm sorry, Mark, those are annual ranges. Within a given quarter, you can understand that you will have boats that kind of move in and out of a particular quarter and can adjust your mix by 5% in points or so.

[Mark Levin, Seaport Global]

Got it, got it, got it. And then last question goes back to Glenn on horizon. So the railroad itself is talking about maybe 20 million tons of potential loss coal on an annualized basis and if you look at their mix, it's about 70% met, so that's about 14 million, 15 million tons of met. I know most of the impacts of forest being on Black Water not on Goonyella but I guess one would assume if they're talking about losing that many tons, a good chunk of that would probably be on the Goonyella side. If in fact the regulators there can't reach a decision, how should we think about like a yeah or reach compromise I should say, how should we think about a worst case scenario for Peabody, is it a million tons, is it 2 million tons, I know you have to take or pay and you expect them, but in a situation where they declare force measure, what's the worst case shipment number to be thinking about if there is one solution?

[Glenn Kellow, President and Chief Executive Officer]

And it just drilling on horizon a little bit further. As you know this is part of right case that's securing between the rail operator and the Queensland Competition Authority in which both sides really articulate and negotiate a particular position. Both coming out taking about potential worst case impacts associated with taking maintenance practices to one level. We'd really whether it was Australia or the United States, we'd really expect rail providers to be seeking to maximize the competitiveness of the integrated rail chain.

I wouldn't like to speculate on the impact to Peabody other that we've demonstrated, to date we have still been average ship strongly. I think it's going to come down to the continued discussions and negotiations through that competition authority process. I would say each respective shipper they like cut their mind, their loading capacity, their location on particular rail would be important, contract positions with respect to available capacity, short positions et cetera maybe a determining factor and then overall I would say relationships between particular customers and the rail operator. We're holding our guidance. We have no reason to believe anything would be different on that front and we expect to continue to ship.

[Operator]

And we'll take our next question from Brett Levy of [indiscernible]. Please go ahead.

[Unidentified Analyst]

Good morning.

[Operator]

Brett, please check your mute function. And we will move on to our next question from Matthew Fields of Bank of America.

[Matthew Fields, Bank of America]

Hey, Everyone.

[Glenn Kellow, President and Chief Executive Officer]

Good morning.

[Amy Schwetz]

Good morning.

[Matthew Fields, Bank of America]

I wanted to ask about capital returns as well. You know I know that you're talking about getting flexibility in your bond indentures, but right now it seems like you have unlimited RP capacity when you're under 1.25 times total leverage which you have a good amount of headroom under right now and especially with sort of the way the world looks in your guidance. So I'm wondering sort of why the sort of urgency to put statements like that in your press release to try to get something done. Is really accelerating buybacks or is it hey, we have secured bonds, we'd like to refund them with them unsecured bonds. Can you just talk a little bit more about that calculus?

[Amy Schwetz]

Sure. So I think that probably urgency is a little bit stronger term in terms of where we view that we're at with this process. It is about flexibility. We like the tenor of these bonds. We like the rate from these bonds. And so we are - our head is not necessarily in the refinance space at this point in time. And the governor that we're looking at in the bond indentures is the C&I calculation related to payments and what that calculation doesn't necessarily reflect is the cash flow generation outside of net income that we have had over the past 12 months, particularly with the return of collateral in the form of cash to us. And so we are we are trying to correct, our goal would be to correct that imbalance through an amendment. That being said, we do have flexibility and some headroom that we built in that C&I calculation. And so if this isn't something that is economically attractive to us over time, then I think that we can and we'll wait for the day that it is.

[Matthew Fields, Bank of America]

Okay. That's very helpful. Thank you very much.

[Operator]

And I would now like to turn the call back to Mr. Kellow for any additional or closing remarks.

[Glenn Kellow, President and Chief Executive Officer]

Okay. Thank you for your questions and for taking part in today's call. It was strong start to the year on a number of fronts, we demonstrated our ability to generate significant free cash flow as well as our commitment to returning that cash to shareholders. To all our employees, thank you for your ongoing focus on safe productive work places and to our shareholders, bondholders, lenders and sale side analysts, thank you for continued interest and support. Operator that concludes today's call.

[Operator]

And this concludes today's conference. Thank you for your participation and you may now disconnect.