ALLIANCE RESOURCE PARTNERS LP Q1 FY2025 earnings call

Key Points

• Operating performance in Q1 2025 was generally in line with expectations. Illinois Basin operations strong; cost improvements in Appalachia though not at target levels yet.
• Domestic market strengthened in early 2025 due to cold weather, higher natural gas prices, leading to increased coal consumption. Secured commitments for additional 17.7 million tons over 2025-2028. 96% contracted for 2025 and 61% contracted in price for 2026.
• Trump's executive orders on grid reliability and coal-fired generation welcomed, with potential to extend coal plant lives. Trade policy uncertainties impact coal demand, pricing, and costs.
• Balance sheet: Total debt $484.1 million, total and net leverage ratios 0.76x and 0.63x. Free cash flow $52.7 million, distributable cash flow $84.1 million. Quarterly distribution $0.70 per unit, annualized $2.80 per unit.

Coal Operations

• Total revenues for Q1 2025: $540.5 million, down from $651.7 million in Q1 2024. Average coal sales price per ton: $60.29, a decrease of 6.9% Y/Y but up 0.5% Q/Q. Total coal production: 8.5 million tons, down 7.2% Y/Y; coal sales volumes: 7.8 million tons, down 10.4% Y/Y. Segment adjusted EBITDA expense per ton sold: $42.75, up 4.7% Y/Y but down 11.1% Q/Q. Illinois Basin coal sales volumes decreased due to timing of committed sales and export sales; Appalachia volumes down due to challenging mining conditions.

Royalty Segment

• Total revenues: $52.7 million in Q1 2025, down 6% Y/Y but up 8.8% Q/Q. Reflects lower oil and gas pricing and volumes, but up Q/Q due to increased oil and gas royalty revenue per BOE.

Guidance Details

• Increased Illinois Basin sales tons for 2025 by 500,000 tons. Full year sales guidance range 32.75-34.75 million tons, midpoint 33.75 million tons (96% contracted for 2025).
• Second quarter 2025 coal sales volumes expected 8%-12% higher than first quarter. Cost per ton expected lower in second half of 2025.
• Oil and gas royalties sales volumes: 1.55-1.65 million barrels of oil, 6.1-6.5 million McF natural gas, 775,000-825,000 barrels natural gas liquids. Segment adjusted EBITDA expense expected 15% of oil and gas royalty revenues.
• Full year 2025 capital expenditures guidance: $285-$320 million, down from 2024's $429 million. Oil and gas minerals acquisition activity slow due to lower oil prices.

Risks

• Trade policy uncertainties, including tariff announcements, impacting coal demand, pricing, and costs. Uncertainty regarding inflation, supply chain interruptions, and global economic activity affecting energy prices and company operations.

Q: Nathan Martin asked about Trump's executive orders, specifically plant retirement delays and customer feedback, and potential additional capital for coal production.

A: Joe Craft mentioned EDA analysis, utilities served included in MATS extension, and utilities likely to take advantage. No immediate plans for additional capital for coal production but utilities encouraged to invest in existing fleet.

Q: Mark Reichman asked about capital allocation, investments in grid reliability, and if two-year relief from executive orders could be permanent.

A: Focus narrowed, Infinitum relationship advancing, looking at infrastructure areas related to data centers and coal-serving regions. Believes EPA is acting on rules to provide clarity, but uncertainty remains on permanence of relief.

Q: Dave Storms asked about capacity levels and inventory normalization.

A: Q2 coal sales volumes expected higher than Q1. Inventory levels: utilities maintaining current levels, coal consumption up, favorable natural gas curve supports continued demand, but utilities not building large inventories.