Earnings call transcript: CNX Resources Q4 2024 reveals earnings miss

CNX Resources (NYSE:CNX) (market cap: $4.16 billion) reported its financial results for the fourth quarter of 2024, showing a significant earnings miss. The company posted an earnings per share (EPS) of -$0.97, falling short of the forecasted $0.43. Revenue also missed expectations, coming in at $136.58 million against a forecast of $424.4 million. Despite the disappointing earnings, CNX Resources’ stock saw a modest increase, rising 1.38% to close at $27.51. According to InvestingPro, three analysts have recently revised their earnings estimates upward for the upcoming period, suggesting potential improvement ahead.

Key Takeaways

• CNX Resources reported a substantial earnings miss for Q4 2024.
• The company’s stock price rose slightly by 1.38% despite the earnings miss.
• CNX is focusing on coal mine methane monetization and new technology development.
• Free cash flow for Q4 2024 was robust at $30 million.
• The company maintains a flat production outlook for 2024.

Company Performance

CNX Resources showed resilience in its operational strategy despite missing earnings expectations. With an EBITDA of $492.19 million for the last twelve months and a "GOOD" overall financial health score from InvestingPro, the company continues to focus on maintaining flat production throughout 2024, with potential production acceleration expected in the latter half of 2025. CNX is leveraging its strong position in coal mine methane monetization and exploring new revenue streams through environmental attributes.

Financial Highlights

• Revenue: $136.58 million, below the forecast of $424.4 million.
• Earnings per share: -$0.97, missing the forecast of $0.43.
• Free cash flow: $30 million for Q4 2024.
• Capital expenditures: Targeting sub-$500 million run rate.

Earnings vs. Forecast

CNX Resources reported an EPS of -$0.97, significantly below the forecasted $0.43, marking a substantial earnings miss. Revenue also fell short, coming in at $136.58 million compared to the expected $424.4 million. This represents a stark deviation from analyst expectations and highlights challenges in meeting financial targets.

Market Reaction

Despite the earnings miss, CNX Resources’ stock price increased by 1.38%, closing at $27.51. This movement suggests that investors may be focusing on the company’s strategic initiatives and future potential rather than the immediate earnings shortfall. The stock remains within its 52-week range, with a low of $19.07 and a high of $41.93. InvestingPro analysis indicates the stock is currently in oversold territory based on RSI, and their Fair Value assessment suggests the stock is undervalued at current levels. For more insights on undervalued opportunities, visit the Most Undervalued Stocks list.

Outlook & Guidance

Looking forward, CNX Resources expects production to remain flat in 2024, with a possibility of modest acceleration in the second half of 2025. The company is also exploring monetization pathways for coal mine methane and waiting for clarity on 45V hydrogen production rules, which could impact future strategies.

Executive Commentary

Ravi Srivastava, President of the New Technologies Group, emphasized the company’s focus on pursuing monetization opportunities in new markets. CFO Alan Shepherd highlighted CNX’s position as a minimal cash taxpayer until achieving a cumulative $3 billion in free cash flow. Srivastava also noted the environmental and economic advantages of coal mine methane as an energy source.

Risks and Challenges

• Regulatory uncertainties surrounding 45V hydrogen production rules.
• Potential market volatility affecting gas prices.
• Execution risks related to new technology developments and monetization strategies.
• Competitive pressures in the energy sector.
• Dependence on environmental attribute credit generation.

Q&A

During the earnings call, analysts questioned the company’s strategies for coal mine methane monetization and sought clarification on the Apex acquisition’s acreage and potential. There was also significant discussion around the implications of the 45V hydrogen production rules on CNX’s future operations.

Full transcript - CNX Resources Corp (CNX) Q4 2024:

Conference Operator: Good morning, and welcome to the CNX Resources 4th Quarter 20 24 Q and A Conference Call. All participants will be in listen only mode. After today’s brief 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 Tyler Lewis (JO:LEWJ), Vice President of Investor Relations.

Please go ahead.

Tyler Lewis, Vice President of Investor Relations, CNX Resources: Thank you, and good morning, everybody. Welcome to CNX’s Q4 Q and A conference call. Today, we will be answering questions related to our Q4 results. This morning, we posted to our Investor Relations website, an updated slide presentation and detailed 4th quarter earnings release data, such as quarterly E and P data, financial statements and non GAAP reconciliations, which can be found in a document titled 4Q 2024 Earnings Results and Supplemental Information of CNX Resources. Also, we posted to our Investor Relations website our prepared remarks for the quarter, which we hope everyone had a chance to read for the call as the call today will be used exclusively for Q and A.

With me today for Q and A are Nick DeIuliis, our President and CEO Alan Shepherd, our Chief Financial Officer Navneet Bell, our Chief Operating Officer and Ravi Srivastava, President of our New Technologies Group. Please note that company’s remarks made during this call include answers to questions, including forward looking statements, which are subject to various risks and uncertainties. These statements are not guarantees of future performance, and our actual results may differ materially as a result of many factors. A discussion of risks and uncertainties related to those factors in 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 and A at this time?

Conference Operator: We will now begin the question and answer session. Our first question today comes from Gabe Daoud with TD Cowen. Please go ahead.

Gabe Daoud, Analyst, TD Cowen: Hey, thanks. Good morning, everyone. I was hoping to start first on new technologies and specifically 45V. Would you be able to walk us through your interpretation of guidance and whether the existing partnership with KeySafe will move forward? I guess, I thought that even with flaring as the counterfactual, the carbon intensity of CMM would still put you in a position to recognize maximum credit value.

So would love, I guess, a bit more understanding on that.

Ravi Srivastava, President of New Technologies Group, CNX Resources: Yes. Thanks for the question, Ravi. So I think you had quite a few layers in that question, so I’ll be trying to address them one after the other. So like first of all, the rule provides us an important federal recognition for capture of cobine methane as a low carbon intensity feedstock for hydrogen production, and we’re pretty excited about that. And kind of validate CMMs potential for to decarbonize a range of hard to break sectors.

So with this inclusion, let’s say, we have successfully validated the premium nature of our coal mine methane, previously in manufacturing, then in power and now we have validation within the hydrogen production sector. But and while we’re excited about the recognition of CMM in 45V and the way the first productive rules came out, that was pretty good. But there were quite a few restrictions that were introduced within the rules, which we believe are inconsistent with the scientific assessment of CMM that was done by the National Labs and what the intent of the IRA was. So, we’re looking forward to the new administration will have an opportunity to kind of improve the rules, to ensure that it’s clarity to make necessary investment decisions in the future, to kind of scale this hydrogen economy And like our participation and moving some of these projects forward is going to be contingent on clarity on these rules going forward.

Gabe Daoud, Analyst, TD Cowen: Okay, got it. Got it. So you need more clarity before moving forward on anything. Okay, Okay. Thanks for that.

And then I guess as a follow-up, I’ll switch gears to the E and P side. Could you maybe just talk a little bit about the second half of ’twenty five with first half being or capital being heavily weighted to the first half, obviously, would expect some declines in the second half into 2026. So any additional commentary on maybe timing of reaccelerating activity or what you would need to see to spend more capital in 2025? Any additional clarity there would be helpful. Thanks, Arun.

Alan Shepherd, Chief Financial Officer, CNX Resources: Yes. So this is Alan. The way we think about it, we position the activity set, basically the whole production flat coming through 2024. Activity set is primarily weighted upfront in Q1. We need to wait and see kind of where the industry production levels are coming out of winter.

We need winter to finalize, see where storage, what projected storage is going to be. And then we’ll make an assessment. But we do want to create that flexibility. If prices stay higher or go higher, you could see us accelerate some activity and bring up some more volumes. But it’s too early to tell at this point.

Gabe Daoud, Analyst, TD Cowen: Got it. Thanks, guys.

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

Zach Parham, Analyst, JPMorgan: Thanks for taking my question. I wanted to follow-up on the 2020 I wanted to follow-up

Ravi Srivastava, President of New Technologies Group, CNX Resources: on the 20 25 budget. It seems very efficient and

Zach Parham, Analyst, JPMorgan: seems to be benefiting from some DUCs on the Apex assets. Could you just give us some color on what the run rate spending would be if you were going to hold this level of production flat going forward?

Alan Shepherd, Chief Financial Officer, CNX Resources: Yes. So I think we talked about this at the beginning of last year. The goal kind of the run rate is sub-five 100 and there’s two things driving that rate. You’re starting to see the efficiencies from the Utica CPA development combined with our kind of low decline PDP base. So we’re comfortable on the legacy assets that you can hold that below $500,000,000 for the upcoming years.

With respect to Apex, we had the tills that are going to come online here. Basically those wells were completed post close, all we need to do is kind of flow those back and turn them in. Ultimately, what we do with that position, we’ll see and that goes back to the earlier comment about production levels on that asset are going to be set by market pricing later in the year as part of our capital allocation process.

Zach Parham, Analyst, JPMorgan: Got it. Thanks for that color. And I want to follow-up on Gabe’s question. You spoke about 45V, but could you talk about other potential pathways to generate credits from the C and M business in the future? Just really trying to think about what could be next for this environmental attributes business?

Ravi Srivastava, President of New Technologies Group, CNX Resources: Yes. So like we’ve been talking about this where coal mine methane offers a clear environmental and economic advantage as an energy source. And we have successfully validated the premium pricing in manufacturing with a deal like you like in the power generation sector with qualification in the ATS type program. And now in the with 2 45V for hydrogen production. So we’re going to continue to target these different sectors, whether it’s in power generation, manufacturing, data centers, all and the validation that we get from recognition to these programs kind of open up a lot of other monetization opportunities.

So we’ll keep driving those efforts and we’ll share more information as we have more updates to share on that front.

Michael Scialla, Analyst, Stephens: Thanks a lot.

Conference Operator: The next question is from Leo Mariani with ROTH. Please go ahead.

Leo Mariani, Analyst, ROTH: Hi. Just wanted to dive in a little bit more to some of the new tech numbers here. So it looked like Q4 of ’twenty four saw very robust free cash flow at $30,000,000 So as we’re kind of looking ahead into 2025, seemingly you guys are guiding to say that Newtek free cash flow will be down a little bit this year. Maybe you could just provide a little color around that given the strength that we saw in 4Q? And then just additionally,

Michael Scialla, Analyst, Stephens: have

Leo Mariani, Analyst, ROTH: you seen any real contribution yet from the oilfield service business or the CNG LNG business in 2024? Is that free cash flow? And do you expect those businesses to be additive here in 2025?

Ravi Srivastava, President of New Technologies Group, CNX Resources: Yes. So this is Ravi again. So the 4th quarter numbers are kind of primarily if you primarily in Q3, we had a lower volume, we had a lower cash flow number because some of the volumes got pushed into Q4. So Q4 numbers are kind of benefiting from monetization of more environmental attributes in the Q4 volume itself in Q4 itself. So the overall volume is consistent and we were able to kind of bring some volume that would have been monetized in January, kind of got into December, which allowed the Q4 number to be high.

But on a run rate basis, I think the volumes that we’ll be able to monetize into that ATS program is in that 17 to 18 DCF and the value recognition is kind of still staying in that, say, dollars 30 to $35 per megawatt hour range. So I think and that’s going to be the primary driver for the free cash flow in that segment, which kind of comes out

Alan Shepherd, Chief Financial Officer, CNX Resources: to

Ravi Srivastava, President of New Technologies Group, CNX Resources: that $75,000,000 ish per year range. There may be like some ebbs and flows because of when some of those volumes get monetized, but largely that’s what the driver is. The AutoCEP and CNG business, they’re still in early commercialization phase. I mean, where AutoCEP is fully fully deployed on CNX’s footprint and we’re seeing the cost benefits and the safety benefits and operational efficiencies and emission reduction objectives that we wanted to achieve with that. So we’re seeing that on that front, but expansion beyond CNX’s footprint, we expect to see in 2025.

And as some of that materializes, we’ll share more information.

Leo Mariani, Analyst, ROTH: Okay. That’s helpful. And then obviously, I think in your comments, you folks referred to hopefully the new administration here, which has come in, might take a fresh look at the 45 rule interpretation and maybe make some more favorable changes. Just overall, obviously, you have 45Q legislation pending as well. Clearly, we had the rent sweep that happened with the elections here.

I mean, it’s been, I guess, a short period of time, just a couple of weeks since the Trump administration has taken over. Do you folks have any read on how the new administration would just kind of be viewing coal mine methane in terms of the abatement there and how that can kind of translate into potential opportunities for you folks? Has there been any signal at the administration that they’re more inclined to maybe be helpful on this front?

Ravi Srivastava, President of New Technologies Group, CNX Resources: I mean, I would say it’s too early at this point in time. Recombined methane has a lot of inherent environmental and socioeconomic benefits. So I think we’re going to continue to advocate and make the case for it. But it’s a 45Q and other process like that, they’re going to run their political due course and we’ll stay connected in that with the right folks. But in the meantime, we’re going to continue to pursue opportunities in these other markets and sectors for monetization pathways.

Leo Mariani, Analyst, ROTH: Okay. That’s helpful. And then just jumping over to some of your comments on production just real quick. Just wanted to kind of make sure I sort of understood them. So really, the goal here of ’twenty five production is to kind of keep your base volumes flat.

But it sounds like, if I heard you right, you’ll expect to see some maybe modest declines on the Apex volumes, maybe as we get into the second half of the year. I know you’re bringing some deferred tills kind of online, which will happen for little to no capital. Maybe that props up production in the near term, but then you kind of see a modest decline in the second half. I just wanted to make sure I sort of heard that right. And it sounded like also if conditions though are more favorable in the gas market and the rest of the winter is decent, then there’s a reasonable chance you might have a few more wells late this year with maybe the goal to kind of flatten that out as we head into the end of the year in 2026?

Alan Shepherd, Chief Financial Officer, CNX Resources: Yes, that’s right. The guidance we provided kind of speaks to what you’re talking about, but the optionality to increase volumes or accelerate volumes in the second half of the year if the pricing and capital allocation methodologies suggest we should do that.

Leo Mariani, Analyst, ROTH: Okay. Okay. Thank you for the clarification.

Conference Operator: The next question is from Bert Donis with Truist. Please go ahead.

Bert Donis, Analyst, Truist: Hey, good morning, guys. On the coal mine methane front, I just want to make sure I understood your comments correctly. You’re only looking for clarity on the overly restrictive rules, but if those are cleared up, the financial incentives are enough. Is that correct? And then is there any capital levels that would be associated if the rules were clarified positively that maybe a CapEx you’d have to spend?

Ravi Srivastava, President of New Technologies Group, CNX Resources: Hey, Bert. I think it’s going to it’s the restricted nature of the rules and like there’s some lack of clarity on the booking claim methods and which will like facilities qualify. There’s a lot there to unpack. I think it’s going to take a little bit of time to figure out like how all those things kind of shake out. And once we have a better idea of all those things, I think that will provide a better understanding of like what the how the plan forward would be in terms of capital investments and like where those capital investments are made.

So there’s just too much lack of clarity at this point in time and it’s going to take a little bit of time to figure out how the rules get fixed and then how some of the more clarifications on treasury and DOE on some of the other applications kind of comes in. So too early at this point in time to comment on that.

Bert Donis, Analyst, Truist: Okay. Just to make sure, so there is some level of if the rules were clarified positively, you would have some level of revenue, but then maybe you could increase that amount by spending some capital. I guess there’s room to accelerate activity through operations.

Nick DeIuliis, President and CEO, CNX Resources: So this is Nick. Just to be clear and back up a step, where we’re at with coal mine methane and the climate benefits tied to it as a fuel stock blend to different industries. We’ve got manufacturing where it’s established a premium pricing level. We’ve got the hydrogen economy now with the recently issued 45E guidance, and we’ve got the power generation sector with sort of programs like the APS standards in Pennsylvania. We’re continuing to work all those different avenues to optimize that portfolio.

And

Leo Mariani, Analyst, ROTH: some

Nick DeIuliis, President and CEO, CNX Resources: of that is going to involve things like 45Q and 45E, and some of that will include pursuing opportunities and things like the AI power generation industry to feed it and recognizing the benefits in market transactions with regard to a fugitive methane capture. So with respect to these individual rules and programs, it’s part of a bigger puzzle and it’s too early to say. We’ll have to wait and see where it lands.

Bert Donis, Analyst, Truist: That’s perfect. Thank you. And then just the other question would be on the buyback activity, I was just a little bit surprised you didn’t step in, in Q1 of ’twenty five. Would there maybe some blackout periods due to Apex or maybe a view on the macro or is it maybe a game of we should preserve the capital if we want to accelerate in the second half instead of

Ravi Srivastava, President of New Technologies Group, CNX Resources: using it on of using

Bert Donis, Analyst, Truist: it on buybacks now or just any thoughts there? Thanks guys.

Alan Shepherd, Chief Financial Officer, CNX Resources: Yes, I think we talked about before. It doesn’t we don’t talk about tactics on these calls. I think we just refer back to it. We do run a continuous capital allocation process and obviously there is a blackout period as part of that consideration.

Ravi Srivastava, President of New Technologies Group, CNX Resources: Understood. Thanks guys.

Conference Operator: The next question is from Michael Scialla with Stephens. Please go ahead.

Michael Scialla, Analyst, Stephens: Thank you. Good morning, everybody. I wanted to ask on the Apex acquisition. You talked about 8,600 net acres there of undeveloped Utica. Just wondering with that acquisition being 36,000 acres, was the Utica developed on a large portion of that acreage or is it limited by geology?

Just looking for a little bit more color there.

Alan Shepherd, Chief Financial Officer, CNX Resources: Yes. Our view is that there’s available Utica across that footprint and there hasn’t been any development on that particular asset just yet on the Utica.

Michael Scialla, Analyst, Stephens: So there a bad does that imply that there’s upside to that 8,600? I guess I’m just looking at how did you come to the 8,600 number?

Alan Shepherd, Chief Financial Officer, CNX Resources: The 8,600s that we disclosed on the acquisition, you’re saying on the Unica? Yes. Those are controlled rights at acquisition. That’s what they had in terms of lease.

Michael Scialla, Analyst, Stephens: Got you. So they didn’t have right to haul 36,000. Okay, got it. 36,000, sorry. And of those 8 wells that are going to be turned in line on that acreage, are all those Marcellus or any of those Utica?

Alan Shepherd, Chief Financial Officer, CNX Resources: Those are all Marcellus.

Michael Scialla, Analyst, Stephens: Okay. And just one more on the used goods. Are you still thinking kind of 3 Bcf per 1,000 foot of lateral and any update on what you’re seeing with cost per lateral foot in those wells?

Tyler Lewis, Vice President of Investor Relations, CNX Resources0: Yes, Mike. That’s correct. The wells that we gave guidance last quarter, like the BP-6N and O well, they are holding production like we expected to and they are in line for 3 BCF 2000 feet.

Michael Scialla, Analyst, Stephens: And anything on the cost side you can say there?

Alan Shepherd, Chief Financial Officer, CNX Resources: I would just say part of the capital efficiency number that you’re seeing in total CapEx, we’re delivering these wells at the target numbers we’re looking to see. I think there’s a little bit of room to improve and we’re going to continue to work on that, but we’re very pleased with where we’re at on the drilling and the capital efficiency side on those wells.

Michael Scialla, Analyst, Stephens: Great. Appreciate it, guys.

Conference Operator: The next question is from Noah Huynhnes with Bank of America. Please go ahead.

Nick DeIuliis, President and CEO, CNX Resources: Good morning, Nick and team. I guess the first question here is also on the Utica. If you guys could give us any latest thoughts on spacing, just for new drill locations?

Tyler Lewis, Vice President of Investor Relations, CNX Resources0: Yes. I can do that. This is Nav. So on the spacing, so far with the BD-six wells, like we have they are at 1300 foot spacing and that’s in line. And then we have a few more spacing tests coming up at 1500 feet.

So we will be able to like talk about that later this year.

Nick DeIuliis, President and CEO, CNX Resources: Appreciate it. And then my second question is just on cash taxes for 25, how we can think about that given how volatile Strip has been?

Alan Shepherd, Chief Financial Officer, CNX Resources: Yes. So we’re still a de minimis cash taxpayer until we reach kind of a cumulative $3,000,000,000 of free cash flow. So we don’t see material kind of cash tax payments until we get out to late ’twenty six, early ’twenty seven.

Nick DeIuliis, President and CEO, CNX Resources: Okay. Thanks.

Conference Operator: The next question is from Jacob Roberts with TPH. Please go ahead.

Tyler Lewis, Vice President of Investor Relations, CNX Resources1: Good morning. Good morning. I wanted to touch on the comment about coal mine methane volumes relative to the referenced anticipated mining plans. Can you give any insight into how much insight you guys might have into those plans and the timeframe of that mine development we should be thinking about? And is that comment on development specific to the Buchanan complex?

It just it seems like you guys may be capturing almost all of the drainage gas there, but it appears there may be other mines at smaller volumes that could present some opportunities. And are there any limitations on capturing those volumes?

Ravi Srivastava, President of New Technologies Group, CNX Resources: Yes. Our volumes are primarily Buchanan mine at this point in time. I mean, we have some capture operations in our Northern Appalachian footprint as well. We work closely with the mine operators to have an understanding of what their annual or long term plans are and we provide try to provide guidance and our expectations based on the best information we have from them.

Tyler Lewis, Vice President of Investor Relations, CNX Resources1: Okay. Thank you. And then my second one is on marketing. Just curious what is driving the changes year over year and the percentages in the various sales points, maybe what you guys are looking for seeing in those markets at the moment and how that could shift through the year?

Alan Shepherd, Chief Financial Officer, CNX Resources: Yes. Marketing is on a daily basis. We’re continually optimizing with our Feet portfolio, which end markets we hit. So there’s any variation you’re seeing quarter to quarter or year to year, it’s just optimization on the marketing side. We haven’t entered into any new sort of Feet contracts or anything like that that would fundamentally change the market split.

Tyler Lewis, Vice President of Investor Relations, CNX Resources1: Thank you. Appreciate the time.

Conference Operator: This concludes our question and answer session. I would like to turn the conference back over to Tyler Lewis for any closing remarks.

Tyler Lewis, Vice President of Investor Relations, CNX Resources: Thank you again for joining us this morning. Please feel free to reach out if anyone has any additional questions. Otherwise, we will look forward to speaking with everyone again next quarter. Thank you.

Conference Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.

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