CONSOL Energy Inc. (CEIX) CEO Jimmy Brock on Q1 2021 Results - Earnings Call Transcript

CONSOL Energy Inc. (NYSE:CEIX) Q1 2021 Earnings Conference Call May 4, 2021 11:00 AM ET

Company Participants

Nathan Tucker - Director-Finance & Investor Relations

Jimmy Brock - Chief Executive Officer

Mitesh Thakkar - Chief Financial Officer

Conference Call Participants

Lucas Pipes - B. Riley Securities

Operator

Good morning, and welcome to CEIX First Quarter 2021 Earnings Call. All participants will be in a listen-only mode. [Operator Instructions] After this presentation, there will be an opportunity to ask questions. Please note that, this event is being recorded.

I'd like to turn the conference over to Mr. Nathan Tucker, Director of Finance and IR. Please go ahead.

Nathan Tucker

Thank you, Nick and good morning, everyone. Welcome to Consol Energy's first quarter 2021 earnings conference call. Any forward-looking statements or comments we make about future expectations are subject to some risks, which we have outlined in our press release and in our SEC filings and are considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934.

We do not undertake any obligations of updating any forward-looking statements for future events or otherwise. We will also be discussing certain non-GAAP financial measures, which are defined and reconciled to comparable GAAP financial measures in our press release and furnished to the SEC on Form 8-K, which is also posted on our website. We also filed our 10-Q for the quarter ended March 31, 2021 with the SEC this morning. You can find additional information regarding the company on our website www.consolenergy.com.

On the call with me today are Jimmy Brock, our Chief Executive Officer; Mitesh Thakkar, our Chief Financial Officer; Dan Connell, our Senior Vice President of Strategy; and Bob Braithwaite, our Vice President of Marketing and Sales.

In his prepared remarks, Jimmy will provide a recap of our key achievements during the first quarter of 2021 and specific insights on operations and sales. Mitesh will then provide an update on our liability management program, including our recently completed tax-exempt financing, our financial results and 2021 guidance. In his closing comments, Jimmy will lay out our key priorities for the remainder of 2021. After the prepared remarks there will be a Q&A session, which Dan and Bob will join us as well. This morning we posted a supplemental slide deck on our website, which we will refer to on today's call.

With that, let me turn it over to our CEO, Jimmy Brock.

Jimmy Brock

Thank you, Nate and good morning, everyone. Let me start by saying, I'm extremely proud of our employees and the response we've had throughout our organization to manage through a very challenging 2020 and get off to a strong start in 2021 all while standing very much on target with our core values and priorities.

On the ESG front, we're pleased to announce the release of our 2020 corporate sustainability report, our fourth since becoming an independent company in 2017. The report demonstrates our continued pursuit of industry-leading ethical, social and environmental performance and disclosures.

As a Bettercoal supplier throughout the report, we highlight the alignment of our practices with the internationally recognized Bettercoal code of ESG operating principles specific to coal mining supply chain. Our 2020 performance included achieving an environmental compliance record exceeding 99.9% for the 8th consecutive year, reducing our water withdrawals by 24% and reclaiming 2.9 acres for every acre disturbed across our operating footprint.

The report emphasizes the synergy between our sustainability, technology and financial strategies, which together inform and support our growth and diversification goals. At the same time, our ESG performance enables our active operations to continue to provide the coal that is reliable and affordable and is vitally important toward improving the quality of life of its end users, specifically, in developing countries. Ultimately, the alignment of our strategic initiatives in these areas will drive sustainable value creation for our stakeholders.

On the safety front, our Bailey Preparation Plant, the CONSOL Marine Terminal and Itmann Project each had zero recordable incidents during the first quarter of 2021. Our total recorded incident rate at the PAMC finished Q1 of 2021, 44% improved versus the prior year period and continues to track significantly and consistently below the national average for underground bituminous coal mines.

On the operations front, not only did we end 2020 on a very strong note, but we followed that up in Q1 of 2021 with our highest ever first quarter production in the history of the Pennsylvania Mining Complex as well as achieving a new record low cash cost at the Pennsylvania Mining Complex, all while running less than a four five longwall schedule.

We also continued our shift to seaborne markets by penetrating several new markets and strengthening our existing relationships. Due to our strong free cash flow generation, we bolstered our balance sheet by increasing our cash position, paying down our mandatory debt obligations, and continually to opportunistically accelerate additional debt reduction through open market purchases.

Towards the end of the quarter we demonstrated our company's ongoing access to capital markets by pricing $75 million in tax-exempt solid waste disposable revenue bonds with an initial term of seven years.

Finally, our first quarter free cash flow exceeded the free cash flow generated in the full year of 2020 and was nearly at the level of full year 2019, which demonstrates our significant earnings potential in a recovering market. We believe that this is particularly impressive when we consider the fact that coal pricing levels are still in transition and remain somewhat suppressed during Q1 of 2021. This provides me further reason for optimism as economic conditions continue to improve and energy demand recovers to pre-pandemic levels.

Now, let me provide our Q1 2021 operational performance in detail. Coal production at the Pennsylvania Mining Complex came in at 7 million tons in Q1 of 2021 compared to 6 million tons in the year ago quarter. The vast improvement was due to a continued increase in demand for our product as well as no longwall moves during the quarter.

We consistently ran four longwalls in Q1 of 2021. However, as demand exceeded our production, we sporadically ran the fifth longwall to meet this additional demand. This recent quarter now marks the third consecutive quarter in which we have steadily increased our production as our Q1 2021 quarter production improved 19% from Q4 of 2020 levels and nearly 200% from Q2 of 2020 levels as demand has steadily increased since the depths of the COVID-19 related shutdowns.

For Q1 2021, productivity at the Pennsylvania Mining Complex measured as tons per employee hour improved by an impressive 31.9% compared to Q1 of 2020. We are not only increasing our overall output but also improving our efficiencies by rightsizing our operations.

On the cost front, our average cash cost of coal sold per ton was $24.44 in Q1 of 2021 a new record low quarterly level at the Pennsylvania Mining Complex and a nearly 25% improvement compared to the $32.41 in Q1 of 2020.

Our operation team was once again successful in keeping tight control over cash expenditures in the quarter, while benefiting from our improved operating leverage due to the increased production volume.

The adjustments we made to our operations continue to pay dividends by allowing us to reduce our overall cash cost of coal sold per ton on our producing assets. The improvement was driven by a combination of factors including lower mine maintenance and supply cost, contractors and purchase service costs, labor expense, and project expenses. Not to be outdone, the CONSOL Marine Terminal achieved a throughput volume of 4.1 million tons during Q1 of 2021, establishing a new record for quarterly throughput compared to 3.4 million tons in the year ago period. The terminal throughput volume reflects a pace of over 16 million tons per annum.

Terminal revenues for the quarter came in at $18.2 million compared to $16.5 million in the year ago quarter. Consistent with recent trends across the company, the CMT employees remain diligent in their cost control measures. And despite the 700,000 ton increase in throughput volumes, cash operating costs were basically flat at $5.3 million versus $5.2 million in the year ago quarter. Our two core operations once again proved that they can adapt in any commodity market and thrive in improving markets.

With that let me now provide an overview of the coal markets. Demand for our product continued to strengthen in the first quarter of 2021 since the COVID-19 demand trough of Q2 of '20, as economic recovery continued and electric power and export demand improved.

Henry Hub natural gas spot prices averaged $3.50 per million BTU during the quarter or an 85% increase compared to Q1 of '20. Additionally, average PJM West day-ahead power prices ended Q1 2021 52% improved versus the prior year period. Consistent with these trends, the US EIA estimates that coal share of electric generation mix was 23% for the quarter, which has significantly improved from 18% in Q1 of '20 and vastly improved from the low point of 15% in April of 2020.

While natural gas prices haven't sustained above the $3 per million BTU mark that had been projected by many industry experts, we remain hopeful that overall market conditions will continue to improve due to increased global economic recovery and a relatively muted supply response.

The US Energy Information Administration estimates that total domestic coal demand will increase by 13% in 2021 versus 2020, while domestic coal supply is expected to increase by only 9%. In fact, we continue to see tightness in the supply of Northern App coal and the majority of our domestic customer stockpiles are at or below target levels for this time of year. These fundamentals should help to maintain the current tightness in the domestic market that we see today.

On the export front, we have seen sustained improvements in the seaborne thermal coal market since the end of the third quarter of 2020. Pet coke prices continue to remain supportive as a result of reduced oil production, propping up demand and pricing for Northern App coal and high CV markets, particularly India.

Global LNG prices have been elevated with the Asian spot market benchmark price ending Q1 2021 more than double compared to Q1 of '20. API2 spot prices also remained strong and ended Q1 of 2021 improved by 37% compared to the prior year quarter.

As such, I am very pleased to announce that we were able to capture the ongoing improvements in the export market and reported our highest export shipment quarter in the history of the PAMC, both in terms of total tonnage and percentage of tons sold. We placed 3.3 million tons into the export market in Q1 of 2021 much of which was used in industrial non-power generation applications.

As you can see on slide 5 in our supplemental slide deck, we have continued to steadily diversify our global customer base and end-use markets since 2019. In the first quarter of 2021, our overall export volume, as a percentage of total sales volume, went up 15 percentage points versus full year of 2019, driven by a sharp increase in the portion of our tons going into the export industrial markets, which has driven by 17 percentage points.

We have not only strengthened our relationships with existing global customers but we are now serving several new international end users as well. In Q1 of 2021, exports accounted for approximately 48% of our shipments and global customers continue to provide competitive pricing opportunities compared to our domestic customers. This heightens our focus on export sales is consistent with our strategy of further reducing our exposure to declining US coal market.

Our move away from the large take-or-pay contract at the terminal has given us increased flexibility to serve the seaborne markets, which include continuing to present growth opportunities for our product. From a marketing perspective, it is encouraging to see that demand for our coal has continued to improve since the low point in Q2 of 2020. We continue to maintain the vast majority of our core customer base and continue to see improvements in our customers' contracting appetite.

Since the end of 2020, our sales team has continued to remain opportunistic in its marketing strategy and increased our contracted position by 2.3 million tons, bringing our contracted position to 20.5 million tons in 2021 and 5.6 million tons in 2022.

With that, I will now turn the call over to Mitesh to provide the financial update.

Mitesh Thakkar

Thank you, Jimmy and good morning, everyone. I will start with an update on the progress we have made on our financial priorities. I will then review our first quarter 2021 results and our full year 2021 guidance. We continue to remain laser-focused on generating free cash flow, maintaining strong liquidity, reducing outstanding debt and further strengthening our balance sheet.

After setting the stage in 2020 through the acquisition of CCR and retiring of a significant amount of our debt we achieved a major milestone at the end of 1Q 2021. Our net leverage ratio declined to just under two times, which as many of you know, creates significant flexibility for us going forward.

However, we recognize that we have more work to do and have several initiatives underway that we believe will create long-term value for our shareholders. First, we continue to focus on our cost containment efforts. And as a result, we achieved a new record low cash cost of coal sold per ton at the Pennsylvania Mining Complex in the first quarter of 2021.

To highlight the importance of that, consider the following: In full year 2019, we generated $16.2 per ton cash margin, when our revenue per ton averaged $47.17. For 1Q 2021, we generated $16.95 per ton cash margin even with a $5.78 per ton lower revenue. This is a result of the large step down in our operating costs which has positioned us to generate significant cash flows even in lower revenue environments. It means, we are more productive from a labor standpoint, use supplies more efficiently and have a more optimized mine plan.

Second, on the legacy liabilities front, I'm very pleased to announce that under our current actuarial assumptions, we have a funded status of approximately 103% on our defined benefit pension plan. At this point, we do not have any funding requirements for the foreseeable future and have significantly lowered our exposure to equity market volatility.

Third, one of the most important developments in 1Q 2021 was our free cash flow generation of nearly $73 million. Even more exciting is the fact, that the vast majority of this free cash flow was generated directly from operating activities, as the demand for our product continued to increase since the end of 2020.

Fourth, in anticipation of our future capital needs and the growing challenges of access to capital, we also continue to tap alternative sources of capital in the first quarter of 2021.

We successfully priced $75 million of tax-exempt solid waste disposal revenue bonds through the Pennsylvania Economic Development Finance Authority at the end of first quarter, which were subsequently issued in mid-April.

The bonds were priced at 9% and have an initial seven-year term. This transaction gives us additional financial flexibility, by freeing up our future operating cash flow that was earmarked for the Pennsylvania Mining Complex Refuse Area project and allows us to prioritize the greatest arbitrage in executing our capital allocation strategy.

Furthermore, this transaction also helps to derisk a portion of our future refinancing efforts, by pushing $75 million of maturity in 2028. Finally, perhaps the most important thing to come out of this transaction is that approved capital is still available to CONSOL Energy and in this case even for a seven-year, duration.

The investor interest was very strong for the offering, and this avenue is something that we can also use in the future. We continue to take advantage of an ongoing strong equipment financing market, and raised an additional $8 million of new capital in the quarter.

Fifth, we continue to opportunistically deploy discretionary capital towards our outstanding second-lien notes and spent $9.3 million to retire $10.2 million at a discount to par.

We still view these buybacks as a good use of capital, even as our second-lien prices have rallied back into the 90s. However, we are now running into significant liquidity issues for further debt repurchases, at a discount. In light of this, we do not mind holding cash on our balance sheet and waiting for the right opportunity.

Our Board of Directors continues to remain supportive of this approach and views open market debt repurchases, as a very effective tool to reduce our leverage ratio, strengthen the balance sheet and create long-term shareholder value, while maintaining control over the liquidity needs of the company.

We recently increased our repurchase program by an additional $50 million to an aggregate amount of up to $320 million and extended the duration of the program by six months to December 31st 2022.

We now have approximately $132 million of availability, under the program to repurchase our Term Loan B, second-lien notes and CEIX common shares, subject to compliance with our debt documents and applicable laws.

Finally, we have also made significant strides on our overall debt reduction goal, as we reduced our total debt outstanding by $22 million in 1Q 2021. And due to our strong cash generation in the quarter, we reduced our consolidated net indebtedness, for the credit agreement by $63 million.

Let me direct you to slide number nine, in our supplemental presentation. This slide really lays out how successful we have been since our spin, in implementing our strategy of reducing our debt and improving the risk profile of our balance sheet in spite, of very challenging market conditions particularly in 2020.

We have continued to generate free cash flow in all parts of the cycle and generating free cash flow in 2020 was extremely impressive when you consider the significant demand decline, our industries and global economies faced.

We stemmed the pride, through cost reductions and other management actions such as the CCR merger, and other EBITDA generating transaction that we completed which set us up, to hit the ground running in early 2021.

We'll continue to remain true to our strategy of absolute debt reduction, and have reduced our overall debt level by $73 million, since the start of a very challenging 2020 and by a total of $272 million. since the end of 2017 or a reduction of 30%. This is even more impressive, when you consider that we have added additional finance leases as an alternative and sustainable source of capital.

We have taken a very measured and diligent approach, avoided unnecessary risk and the entire team is working towards our goal of improving liquidity, reducing cost and strengthening the balance sheet. As we move forward, we'll continue to focus on strengthening our balance sheet while implementing our targeted growth and diversification strategy.

I will note that in the coming quarters our debt reduction progress will be partially offset by the addition of the tax-exempt bonds due to the treatment of restricted cash under our credit agreement. However, this will only be a transient issue and overall will result in improved liquidity.

With that let me now recap the first quarter results before moving on to our 2021 guidance. CEIX reported a very strong first quarter 2021 financial performance with net income of $26.4 million or $0.75 per diluted share with adjusted EBITDA of $106.7 million which is our highest quarterly EBITDA since the second quarter of 2019. This compares to $2.5 million $0.09 per diluted share and $62.9 million respectively in the year ago quarter.

Our 1Q, 2021 earnings marked the third consecutive quarter since a low point in Q2 '20 in which we have seen significantly improved earnings versus the prior quarter. Most importantly in 1Q, 2021 we generated $78 million of cash flow from operations spent $13.8 million in capital expenditures and received $8.5 million in proceeds from asset sales which resulted in free cash flow generation of $72.7 million.

This was higher than our total free cash flow generation in all of 2020 and nearly at the level achieved in the full year of 2019 and it highlights our earnings potential in all parts of the cycle, especially in the strong markets. As a result of our free cash flow generation, we ended the first quarter with cash and cash equivalents of $91.2 million a substantial improvement from $50.9 million at the end of 2020. CEIX finished the quarter with a net leverage ratio of 1.97x crossing below the 2x mark for the first time since year-end 2019.

Now let me provide you with our outlook for 2021. We are reaffirming our full year 2021 guidance based on our results and expectations for the remainder of the year with the exception of our pricing assumptions. We currently have a 2021 contracted position of 20.5 million tons at an expected average price of approximately $42.35 per ton. Despite a very strong first quarter, we chose to maintain our current guidance for two key reasons.

First, it is early in the year. The first quarter was very strong and we are cautiously optimistic that we will be able to achieve the high end of our sales volume guidance. However all of us are witnessing a new wave of COVID that is impacting global economies. While we have not seen any impact to our shipments or customer demand this is an area of risk that we will closely monitor.

We also have approximately 2 million to 4 million tons of our coal that are uncontracted. And as a result we did not feel it was prudent to raise the guidance given this sole position.

Second. on the cost front our operations team did a great job of managing our costs in 1Q, 2021. However we are expecting two longwall moves in the second quarter and one longwall move each in the third and fourth quarters which could make it difficult to keep costs as low particularly in the inflationary environment that all of us are witnessing.

Our costs are expected to be in the mid- to low end of our guidance range, but this will ultimately be a function of how well we manage the impending longwall moves and how our shipments play out. As always, we strive to be as transparent as possible and provide you with our best estimate at any given time. We will continue to reassess our guidance range each quarter. The good news is that we are off to a very strong start for 2021. We expect to generate significant free cash flow this year and improve the return on our assets and the return on equity for our shareholders.

With that, let me turn it back to Jimmy to make some final comments.

Jimmy Brock

Thank you, Mitesh. Before we move on to the Q&A session, let me take this opportunity to provide a recap of our accomplishments in the first quarter and reiterate our priorities as we move forward. We continue to prioritize strengthen our balance sheet and improving liquidity and financial flexibility. Access to capital for coal companies has been shrinking. However, we have been extremely dedicated to identifying and executing alternative sources of capital.

As Mitesh alluded to, we're remaining laser-focused on continuing to drive down costs at our operations through efficiencies and a focus on reducing discretionary spending. The team continues to look for ways to effectively drive costs down without sacrificing the effectiveness of our operation. Our significant reduction in cash cost of coal sold per ton over the past several quarters is proof that if we set a target, we intend to achieve or beat it. Third, we will continue to pursue our targeted growth and diversification strategy as we move forward.

On previous calls, we highlighted the many projects we have been working on and remain excited about. I won't rehash all of those, but I want to reiterate that in the near term, our most important growth and diversification vehicle remains our Itmann Metallurgical Coal project in Southern West Virginia. We are continuing with development mining where we are operating a single section one ship per day at minimal costs, while evaluating all options associated with ramping the project back up.

We believe this project provides a solid pathway for organic growth and diversification. Finally, we continue to focus on ways to leverage one of the most important assets that we have in our portfolio, the CONSOL Marine Terminal. As we highlighted, we successfully shipped 48% of our total sales volumes into the export market in Q1 of 2021. We expect this trend to continue as we move further into the year.

As an operator, owning our own terminal is a huge differentiator for us compared to our peers, especially when you consider the continued strong coal demand that is expected from growing economies across the globe. And the attractive quality characteristics of our coal that make it a sought-after product in seaborne industrial and metallurgical as well as power generation markets.

Before handing the call over, I want to end as I always do by thanking our entire workforce for their continued hard work and commitment to achieving the strategic goals we've laid out. While there's always more work to do, we are extremely proud of our accomplishments to-date and believe we have a lot of opportunity in front of us to build upon our strategic priorities. We once again showcased why we believe our high-quality low-cost assets are truly in a class of their own. We can generate cash in almost all parts of the commodity cycle as we proved last year and we really demonstrated our earnings potential in improving markets in Q1 of 2021. We continue to focus our goal of building a robust balance sheet and creating long-term value for our shareholders.

With that, I will hand the call back over to Nate for further instructions.

Nathan Tucker

Thank you, Jimmy. We will now move to the Q&A session of our call. Nick, can you please provide the instruction to our callers?

Question-and-Answer Session

Operator

[Operator Instructions] First question comes from Lucas Pipes with B. Riley Securities. Please go ahead.

Lucas Pipes

Hey, good morning everyone, and congratulations on a very strong start to the year especially on the [indiscernible] side.

Jimmy Brock

Good morning, Lucas.

Lucas Pipes

I wanted to follow-up on the cost side just a bit. And you didn't raise the guidance. In your prepared remarks you mentioned the longwall moves. You mentioned some inflationary pressures. But to what extent do you see the inflationary pressures kind of coming through today? And is that on the labor side? Is it on the raw material 0side steel side? Would you say there's also just a degree of conservatism maybe embedded in your numbers just given how strong you were in the first quarter? Appreciate your thoughts. Thank you.

Jimmy Brock

Thanks, Lucas. Well, when we look at guidance, as you know is something that we take very seriously. We like to be within a close range on our guidance and our forecast as we move forward.

The one reason we didn't raise the guidance on many fronts cost or sales price or production. When we look at that today, there's still all of the uncertainties as of COVID. It's very easy to say, well, production you mined 7 million tons if you multiply that by four quarters it should be 28 million. We know that typically our second quarter due to summer shutdown and we have two longwall moves in here, the production will be less than the 7 million tons. Now I would be happy if we hit 7 million tons, but we're trying to be realistic about that. So I look for us to take a real close look.

When we get through Q2, we should know more about the COVID-related shutdowns, if there are any and those things, and we probably will update our guidance at that point in time, but we'll have a half a year underneath our belt, and certainly have more certainties.

On the cost front, it's something that I've emphasized on almost every call we've had. It's something that we do daily. We emphasize on cost. Our mine managers, our employees at the mine did an extremely good job in this quarter of the things that they control. So commodities, I think there is -- we are seeing some inflation, small inflation in the commodities that we use to produce the coal. But we'll continue to monitor those and we think it's well within our guidance range where we are now. And I would expect as Mitesh alluded to in his comments that we will be somewhere in the mid to lower end of our guidance for the full year when you look at cost.

Mitesh Thakkar

And Lucas also remember like cost is partially driven by volume. So assuming this COVID situation does not result in any impact on the volumes, I think, if the volumes remain strong we'll look to beat and improve on our cost guidance.

Lucas Pipes

Very helpful. Thank you. And then my second question is on the ESG side. Earlier in your prepared remarks you commented on your profile and how consistently you've been working towards continued advancement of your profile there. And I congratulate and commend you on all those efforts. I want to ask to what extent you think stakeholders be it on the bonding side, surety side financial markets at large are recognizing your efforts instead of just looking at US as another coal company to put it bluntly? But I would appreciate your thoughts on that. And again, I really comment all the work you've been doing on that front?

Jimmy Brock

Yes. It's a very good question. And it is on the minds of many investors. It is an important issue. And at the end of the day we want to be responsible for our employees, the communities in which we work. So we will continue to work on the ESG part of our business. Our Corporate Sustainability Report that we posted late last night on the website, has a lot of the details in it. But it is something that we take very seriously.

It's on the minds of many investors. Biden administration and a lot of others one of the first things we hear about is ESG concerns. And we strongly believe that we can be compliant with ESG issues and produce a low-quality energy source that's needed particularly in these developing countries.

Mitesh Thakkar

And Lucas, I think your comment about how much credit do we get from insurance companies and sureties and some of the other stakeholders, I think they do recognize that we are the best-in-class, I think in terms of how we deal with environmental issues and reclamation work that we do. I think we also need to do a little bit better job on our front to communicate the various markets that we supply coal to.

I think historically we have been a thought of as predominantly thermal coal. And today like you probably noticed in our presentation deck, it is amazing when you look at things how we have gone from 75-plus percent of our coal going into thermal market to just around 62% going into thermal market in the first quarter of 2021.

So I think part of that is on us that we need to do a better job of communicating it. But I think generally we -- the stakeholders do realize that we do good, from an environmental perspective reclamation work and some of the other things that you mentioned. So, I think it is a marathon not a sprint. We'll have to continue to making sure that we convey our story correctly.

Jimmy Brock

But we do get a lot of credit for at least disclosing what we do. And we're going to continue to be very transparent about that moving forward and continue to be very responsible as an operator.

Lucas Pipes

Terrific. That's really good to hear. I'll try to sneak in one last one. Mitesh, you spoke a fair bit about kind of reduce leverage in your prepared remarks. And could you share your thoughts on where you see kind of long-term optimum capital structure for this business, and especially in light of the prior comments just a moment ago? So thank you for your perspective.

Mitesh Thakkar

Yes. Thank you, Lucas. And I'm sure you noticed that like even though sub two times is something that was important from a credit agreement perspective, I did mention that we still have some wood to chop here. So, we are not done yet. We'll continue to de-lever.

I think it is really hard for me to answer right now what is the right leverage for this business. But as you can see, we have generated free cash flow in all parts of the cycle now, and 2020 was particularly challenging but we demonstrated that we can generate free cash flow.

So, I think I feel a lot better. Having said that, we'll have to be watchful. Like, if you asked me three years ago, what the right leverage ratio was, I would have told you probably 1.5. Now it's lower, and given our comments about access to capital that number will continue to go lower.

And I think there is a good understanding in the entire management team is deleveraging is not something that we are going to achieve a certain level and call it a day. It's going to be a continued work in progress this year, next year and as we look out.

I think the tax-exempt financing, for instance, allowed us to push the maturity to 2028, so to speak. And those are the kind of things that we are going to block and tackle, but generally speaking, we're going to continue to delever our balance sheet to reduce the overall and -- reduce the overall debt level. I wish, I can give you an exact fine number. If things continue the way it is, I think you could make a case for zero leverage.

Lucas Pipes

Very helpful. Really appreciate all the detailed answers and continued best of luck. Thank you.

Mitesh Thakkar

Thanks, Lucas.

Operator

[Operator Instructions] At this time, we have no further questions. I'd like to turn the call back over to Mr. Nathan Tucker for final remarks.

Nathan Tucker

Thank you, Nick. We appreciate everyone's time this morning and thank you for your interest in and support of CEIX. Hopefully, we were able to answer most of your questions today. We look forward to our next quarterly earnings call. Thanks everybody.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.