Alliance Resource Partners, L.P. — Q1 2024 Form 10-Q Summary
Business context and reporting period
Alliance Resource Partners, L.P. is a diversified natural-resource limited partnership operating seven underground coal mining complexes, coal transportation and royalty assets, approximately 69,000 net oil and gas royalty acres, and related energy-transition investments. The report covers the three months ended March 31, 2024, compared with the three months ended March 31, 2023. Financial statements are unaudited.
Key financial metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total revenue | $651.7 million | $662.9 million | Down 1.7% |
| Operating income | $160.3 million | $207.3 million | Down 22.7% |
| Net income | $159.6 million | $192.7 million | Down 17.2% |
| Net income attributable to ARLP | $158.1 million | $191.2 million | Down 17.3% |
| Basic and diluted earnings per unit | $1.21 | $1.45 | Down 16.6% |
| Operating margin | 24.6% | 31.3% | Down approximately 670 basis points |
| Net margin | 24.5% | 29.1% | Down approximately 460 basis points |
| Operating cash flow | $209.7 million | $221.7 million | Down 5.4% |
| Capital expenditures | $123.8 million | $95.5 million | Up 29.7% |
| Consolidated Segment Adjusted EBITDA | $260.6 million | $291.9 million | Down 10.8% |
- Coal sales were $561.9 million, down from $578.8 million. Tons sold increased 2.4% to 8.7 million, but average coal sales prices declined 5.2%.
- Oil and gas royalty revenue increased 7.3% to $37.0 million, with volumes up 18.3% to 898 thousand barrels of oil equivalent.
- Cash and cash equivalents were $134.0 million at March 31, 2024, versus $59.8 million at December 31, 2023.
- Debt principal totaled $440.5 million, including $45.0 million drawn under the securitization facility. Carrying value of total debt, net of discounts and issuance costs, was $431.0 million. Approximate debt less cash was $297.0 million using carrying values.
- The revolving credit facility had no borrowings and $384.0 million of borrowing availability after $41.0 million of letters of credit. The securitization facility had $33.3 million available after $11.7 million of letters of credit.
- ARLP paid $91.2 million in distributions during the quarter, equivalent to $0.70 per common unit. A further $0.70 per-unit distribution was declared for payment May 15, 2024.
Material changes versus the prior comparable period
- Operating expenses increased 7.9% to $491.4 million. The increase included a $15.3 million litigation accrual, $9.1 million of outside coal purchases, higher sales volumes, and increased per-ton labor, materials and maintenance costs.
- Illinois Basin Segment Adjusted EBITDA increased 6.3% to $140.3 million, supported by higher prices and volumes.
- Appalachia Segment Adjusted EBITDA decreased 36.3% to $74.2 million, primarily because of a 19.4% decline in average coal sales prices at Tunnel Ridge.
- Oil and gas royalty Segment Adjusted EBITDA increased 4.5% to $31.4 million, while Coal Royalties Segment Adjusted EBITDA increased 22.9% to $12.4 million.
- The company adopted fair-value accounting for qualifying digital assets on January 1, 2024. The adoption increased opening partners’ capital by $6.2 million, and bitcoin fair-value gains contributed $11.9 million to Q1 2024 income. Digital assets were reported at a $30.3 million fair value at quarter-end.
- Capital spending increased by $28.4 million, while investing cash outflows declined because Q1 2023 included the $65.0 million JC Resources acquisition.
- Debt increased primarily from a $54.6 million February 2024 equipment financing and $45.0 million of net securitization-facility borrowings.
Guidance, outlook, commentary and risks
- Management estimates 2024 total capital expenditures of $450 million to $500 million and average annual maintenance capital expenditures over the next five years of approximately $7.76 per ton produced.
- Management expects cash balances, operating cash flow and available borrowing capacity to fund 2024 capital requirements, debt service, contractual obligations and distributions, and expects continued compliance with credit covenants.
- The credit agreement requires specified leverage and interest-coverage ratios. At March 31, 2024, reported ratios were well within limits: Alliance Coal debt to cash flow of 0.21x, consolidated debt to cash flow of 0.59x, and interest coverage of 59.18x.
- The $400 million senior notes mature May 1, 2025. The revolving credit agreement could mature January 30, 2025 if the senior notes remain outstanding and Alliance Coal lacks at least $200 million of liquidity.
- In April 2024, the company agreed to settle six wage-and-hour lawsuits for $15.3 million, subject to court approval; the amount was accrued at March 31, 2024.
- Key risks include declining coal demand and coal-fired generation, coal and oil and gas price volatility, customer concentration and contract performance, mine interruptions and safety events, labor and input-cost inflation, regulatory and environmental requirements, financing and covenant risk, litigation, oil and gas operator activity, and volatility in bitcoin values.
- Most coal supply contracts had approximately $3.05 billion of allocated future transaction price for unsatisfied or partially unsatisfied performance obligations at March 31, 2024, including $1.56 billion for 2024.
Most important facts for investors to verify
- Verify the timing and funding plan for the May 2025 senior-note maturity and January 2025 securitization-facility maturity.
- Monitor whether the $450 million to $500 million 2024 capital-spending range remains consistent with operating cash flow and distribution policy.
- Assess the sustainability of coal pricing, particularly the sharp year-over-year decline in Appalachia pricing and the related EBITDA reduction.
- Separate recurring operating performance from the $11.9 million bitcoin fair-value gain and the $15.3 million litigation accrual.
- Confirm court approval and final cash-payment timing for the $15.3 million litigation settlement.
- Review exposure to commodity prices, mine operating costs, regulatory requirements, reclamation, workers’ compensation and pneumoconiosis obligations.
- Evaluate the risks and carrying values of non-controlled investments, including Francis, Infinitum, NGP Energy Transition IV and Ascend Elements.