Natural Resource Partners L.P. — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial statement amounts are in millions unless noted. NRP owns and leases U.S. mineral interests and holds a 49% non-controlling interest in Sisecam Wyoming, a soda ash business.
Financial performance and condition
- Q3 revenue and other income: $86.4 million, down 16% from $102.3 million a year earlier. Net income was $63.8 million, down 14% from $74.6 million. Net income attributable to common unitholders was $43.0 million versus $65.7 million; basic and diluted earnings per unit were $3.40 and $2.91, respectively, versus $5.25 and $3.71.
- Nine-month revenue and other income: $276.8 million, down 5% year over year. Net income increased 4% to $213.5 million, while net income attributable to common unitholders fell to $135.2 million from $179.1 million. Basic and diluted earnings per unit were $10.72 and $8.88, compared with $14.36 and $10.24.
- Cash generation: Nine-month operating cash flow was $233.2 million, versus $198.0 million; free cash flow was $235.0 million versus $199.0 million; and distributable cash flow was $236.0 million versus $199.7 million. Q3 operating cash flow was $78.9 million versus $82.5 million.
- Adjusted EBITDA: Nine-month adjusted EBITDA, a non-GAAP measure, was $243.7 million versus $241.9 million. Q3 adjusted EBITDA was $82.9 million versus $85.6 million.
- Liquidity and debt at September 30: Liquidity totaled $45.4 million: $18.4 million cash and $27.0 million available under the credit facility. Debt was $208.1 million at face value ($207.5 million net), compared with $169.1 million at face value at year-end 2022. The reported leverage ratio was 0.7x. NRP reported compliance with debt covenants and approximately $20 million of senior-note principal payments due during the remainder of 2023.
- Margins: The filing does not provide a single consolidated operating or net margin measure in its summary discussion.
Material changes versus the comparable period
- Mineral Rights revenue and other income declined 12% for the first nine months, primarily reflecting lower metallurgical coal prices and reduced oil-and-gas royalty and carbon-neutral initiative revenue. Coal royalty revenue fell 5%; coal volumes declined 5%.
- Soda Ash segment revenue and other income rose 33% over nine months, mainly on higher sales prices, partly offset by lower production and sales volumes. Higher distributions from Sisecam Wyoming supported the increase in NRP’s soda ash cash flow.
- Q3 revenue and other income fell 16%. Lower carbon-neutral initiative and oil-and-gas royalty revenue were notable Mineral Rights factors; lower international soda ash prices and sales mix also weighed on the quarter.
- Nine-month net income rose despite lower revenue, in part because interest expense and debt-extinguishment losses were lower than in 2022. Common-unit earnings were also affected by preferred-unit redemptions: NRP recorded a $60.9 million reduction to income available to common unitholders for the nine months, including $17.1 million in Q3.
Outlook, capital actions and risks
- Management gave no formal numerical earnings or cash-flow guidance. It expects coal prices to remain supported by constraints on production, while noting prices were below 2022 record highs. It expects lower international soda ash prices to persist into the following year and anticipates lower pricing in 2024 domestic contracts amid new supply and recessionary headwinds.
- NRP paid down or repurchased preferred units during 2023; 71,666 remained outstanding at September 30, versus 250,000 at year-end 2022. It also repurchased warrants for $33.6 million during Q3. After two October repurchases totaling about $22.5 million, 1.54 million warrants remained outstanding.
- In November, the board declared a $0.75-per-common-unit distribution for Q3 and a $2.15 million distribution on outstanding preferred units. Future distributions remain subject to board approval and depend on cash flow, debt service, market conditions and reserves.
- Key risks include coal and soda ash price volatility, lessee production and contract conditions, interest-rate exposure, customer concentration, and collectability of receivables. A 1 percentage-point increase in rates would raise annual interest expense by approximately $1.3 million if credit-facility borrowings remained unchanged. Alpha Metallurgical Resources and Foresight together accounted for 42% of Q3 revenue.
- NRP reported no material changes to its previously disclosed risk factors, no material ordinary-course legal matters identified, and no material changes to internal control over financial reporting. Management concluded disclosure controls were effective.
Most important facts for investors to verify
- Whether lower soda ash prices and the expected 2024 contract reset materially reduce Sisecam Wyoming distributions to NRP.
- Whether coal prices, lessee volumes, and concentrated customer relationships sustain Mineral Rights cash generation.
- How upcoming debt repayments, variable-rate borrowings, and remaining preferred units and warrants affect liquidity, distributions and per-unit earnings.
- How much of reported cash generation depends on distributions from the unconsolidated soda ash investment and on non-GAAP adjustments in DCF and free cash flow.