ALLIANCE RESOURCE PARTNERS LP Q3 FY2026 earnings call

• Production Efficiency: Coal operations delivered strong results, with Illinois Basin segment-adjusted EBITDA expense per ton improving 11.1% sequentially due to resumed longwall production at Hamilton and improved costs at Riverview Complex.
• Metiki Mine Restart: Secured a multi-year supply agreement allowing Metiki mine to return to production, transitioning to two-room and pillar mining by Q1 2027. This is expected to add ~550,000 tons to 2027 production and improve EBITDA margins compared to 2026.
• Commercial Strength: Added 4.2 million committed/priced tons through 2028. 2027 volume is substantially locked in at 31.7 million tons. Export markets are growing, with 3.7 million tons committed for 2026.
• Market Fundamentals: Domestic coal burn increased in late summer. Data center demand is becoming a material driver, with utilities counting contracted load strictly. Existing coal plants remain cost-competitive against new gas generation.
• Regulatory Environment: EPA repealed most 2024 greenhouse gas standards for power plants, supporting the extended operating life of existing coal units as critical grid resources.
• Oil & Gas Growth: The oil and gas royalty segment is contributing increasingly to consolidated free cash flow. High crude prices support record quarterly results, and exposure to gas-weighted plays like Haynesville is expanding due to LNG export tailwinds.

Coal Operations: Total revenues contributed significantly to the $603 million total, with segment-adjusted EBITDA reaching $186.8 million (up 18.6% YoY). Illinois Basin drove performance with $139.8 million in segment-adjusted EBITDA (up 34.1% sequentially) due to resumed longwall production at Hamilton and lower costs. Appalachia reported segment-adjusted EBITDA driven by Tunnel Ridge sales, though average pricing was lower due to a higher mix of lower-priced volumes. Oil and Gas Royalties: Recorded record revenues of $59.8 million and segment-adjusted EBITDA attributable to ARLP of $43.6 million (up 16.8% sequentially), driven by the first full quarter of Alldale 3 and 4 contributions. Coal Royalties: Reported segment-adjusted EBITDA of $18.2 million (up 40% sequentially) due to higher royalty tons sold.

• Coal Operations: Tightened guidance ranges for the remainder of 2026. Expected total coal sales volumes are 34.5 to 35.5 million tons (raising the midpoint). Average coal sales price per ton is guided at $54.25 to $54.75. Segment-adjusted EBITDA expense per ton is guided at $37.50 to $38.50.
• Consolidated Guidance: Updated ranges now include net income and adjusted EBITDA attributable to non-controlling interests due to the consolidation of Alldale 3 and 4.
• 2027 Outlook: Management expects 2027 revenues for the coal segment to be equal to or slightly higher than 2026 levels, with stronger pricing visible in out-years 2028 and beyond. No specific numerical guidance provided for 2027 yet; expected to be released with Q4 results in February.

• Logistical Constraints: Barge capacity is tight due to competition from other industrial movements (e.g., infrastructure projects in Louisiana), which could impede export volume growth. Increased ocean freight and barge costs are compressing margins, with a threshold noted around $125/ton netback.
• Operational Transition Risks: The Metiki mine transition from longwall to room-and-pillar mining carries execution risk, though management believes it will yield better quality product for exports.
• Valuation Volatility: Equity method investments (Gavin Power Plant, NGP Fund) are subject to quarterly valuation changes, causing variability in reported earnings, though distributions remain stable.
• Derivative Losses: Assumed derivative instruments resulted in a $7.3 million loss (mostly unrealized) during the acquisition period.

Q: Analyst asked about the sustainability of Illinois Basin's cost improvements and whether they represent a 'new normal.' / A: CEO stated Q4 costs should be comparable, but 2027 will see further improvement relative to 2026 because Hamilton was down half the prior year. He noted excess capacity exists; if export demand allows volume expansion, costs could drop further. Management is confident in maintaining current low-cost levels despite inflationary pressures due to operational productivity focus.

Q: Analyst asked about potential upside from export volumes in 2027 versus the 35M ton midpoint and any required operational changes. / A: CEO confirmed no additional operational investments are needed to produce more tons. However, logistical headwinds (tight barge capacity and high freight costs) are significant barriers. If logistics stabilize, they could exceed this year's volume by 0.5–1 million tons. They aim for netbacks above $125/ton to make exports viable.

Q: CFO addressed the carrying value impact of reopening the Metiki mine after a Q1 write-down. / A: CFO clarified that the write-down already reduced assets to mobile equipment values. Reopening requires minor equipment investments but will not trigger further balance sheet adjustments. The mine will operate at a lower cost structure next year, contributing positively to 2027 EBITDA.

Q: Analyst asked about capital allocation priorities regarding debt paydown vs. distribution increases given the high coverage ratio of 1.76x. / A: CEO indicated priority is maintaining distribution coverage above 1.5x sustainably before considering an increase. Funds will likely prioritize reinvesting in oil/gas acquisitions if deal flow is attractive. Debt from the Alldale acquisition is being amortized via mineral cash flows, leaving room for future growth financing.