FELP Foresight Energy Partners LP

Second Quarter 2018 Highlights:

• Coal sales of nearly $270.0 million, an increase of 32% compared to the second quarter 2017, on higher sales volumes of 5.9 million tons and higher sales realization per ton sold.
• Adjusted EBITDA of $104.1 million.
• Cash flows from operations of $30.6 million.
• Net loss attributable to limited partner units of $29.2 million, or ($0.18) per common unit and ($0.23) per subordinated unit, which includes a $110.7 million non-cash impairment charge and a $69.1 million non-cash contract benefit related to the previously announced closure of Hillsboro operations.
• Declared a $0.0565 per unit distribution from retained excess cash flow generated in 2017, to be paid on August 31, 2018 to unitholders of record as of August 21, 2018.

Foresight Energy LP (“Foresight” or the “Partnership”) (NYSE: FELP) today reported financial and operating results for the second quarter ended June 30, 2018. Foresight generated coal sales revenues of nearly $270.0 million on sales volumes of 5.9 million tons resulting in a net loss attributable to limited partner units of $29.2 million, Adjusted EBITDA of $104.1 million, and cash flows from operations of $30.6 million. Net loss attributable to limited partner units reflects the receipt of $44.1 million of insurance proceeds related to the combustion event at the Partnership’s Hillsboro operation and includes a $110.7 million non-cash impairment charge and a $69.1 million non-cash contract benefit related to the previously announced closure of the Partnership’s Hillsboro operation.

“The second quarter was another successful period for Foresight, as we were able to take advantage of a strong export market to realize significant year-over-year improvements in our sales volumes,” said Mr. Robert D. Moore, Chairman, President and Chief Executive Officer. “Foresight remains well-positioned to continue capitalizing on the strong export market for our product. Furthermore, with all of our calendar year 2018 longwall moves completed, we expect to continue to improve on our industry-leading cost structure over the remainder of the year.”

Foresight also announced that due to the Partnership’s operating performance during the second quarter, the Board of Directors of its General Partner approved a quarterly cash distribution of $0.0565 per unit from retained excess cash flow. The distribution is payable on August 31, 2018 for unitholders of record on August 21, 2018.

Second Quarter Consolidated Financial Results

Coal sales totaled nearly $270.0 million for the second quarter 2018 compared to $204.5 million for the second quarter 2017, representing an increase of $65.5 million, or 32%. The increase in coal sales revenues was due to higher coal sales volumes combined with higher coal sales realization per ton sold. Coal sales volumes and coal sales realization per ton sold were higher due to increased export sales, which experienced more favorable API2 pricing during 2018.

Cost of coal produced was $137.0 million, or $23.70 per ton sold, for the second quarter 2018 compared to $105.8 million, or $21.88 per ton sold, for the second quarter 2017. The increase was due to an increase in produced tons sold as well as a higher cash cost per ton sold resulting primarily from increased expenses relating to royalties, subsidence, and two longwall moves during the second quarter. The higher royalty and subsidence expenses are functions of which coal reserve leases and land parcels that we currently mine. Royalty expense also increased because of higher coal sales realizations per ton.

Transportation costs increased approximately $30.7 million from the second quarter 2017 to the second quarter 2018 due to a higher percentage of sales going to the export market during the current year period and the additional transportation and transloading costs associated therewith.

In April 2018, the permanent closure of the Hillsboro complex was announced. As a result, Foresight recorded an aggregate impairment charge of $110.7 million in the second quarter of 2018. Also related to the permanent closure of Hillsboro, Foresight recognized a benefit of $69.1 million associated with the write-off of an unfavorable royalty agreement during the second quarter of 2018.

Other operating (income) expense, net increased $29.5 million for the second quarter 2018 compared to the second quarter 2017 primarily due to the receipt of $43.0 million in payments from the insurance companies in the current period compared to $12.8 million in the prior year period. An additional $1.1 million of insurance proceeds related to the recovery of mitigation costs was recorded to cost of coal produced (excluding depreciation, depletion and amortization). Foresight continues to pursue additional remedies under its insurance policies; however, there can be no assurances that Foresight will receive any further insurance recoveries related to the Hillsboro combustion event.

During second quarter 2018, Foresight generated operating cash flows of $30.6 million and ended the period with $38.8 million in cash and $124.0 million of available borrowing capacity, net of outstanding borrowings and letters of credit, under its revolving credit facility. Capital expenditures for the quarter ended June 30, 2018 totaled $15.7 million compared to $21.7 million for the quarter ended June 30, 2017.

Guidance for 2018

Based on Foresight’s remaining contracted position, second quarter and year-to-date performance, and its current outlook on pricing and the coal markets in general, the Partnership is affirming and updating the following guidance for 2018:

Sales Volumes – Based on current committed position and expectations for the remainder of 2018, Foresight is projecting sales volumes to be between 22.0 and 22.8 million tons, with at least 8.5 million tons expected to be sold into the international market.

Adjusted EBITDA – Based on the projected sales volumes and operating cost structure, Foresight currently expects to generate Adjusted EBITDA in a range of $300 to $330 million.

Capital Expenditures – Total 2018 capital expenditures are estimated to be between $70 and $80 million.

Forward-Looking Statements

This press release contains “forward-looking” statements within the meaning of the federal securities laws. These statements contain words such as “possible,” “intend,” “will,” “if” and “expect” and can be impacted by numerous factors, including risks relating to the securities markets, the impact of adverse market conditions affecting business of the Partnership, adverse changes in laws including with respect to tax and regulatory matters and other risks. There can be no assurance that actual results will not differ from those expected by management of the Partnership. Known material factors that could cause actual results to differ from those in the forward-looking statements are described in Part I, “Item 1A. Risk Factors” of the Partnership’s Annual Report on Form 10-K filed on March 7, 2018. The Partnership undertakes no obligation to update or revise such forward-looking statements to reflect events or circumstances that occur, or which the Partnership becomes aware of, after the date hereof.

Non-GAAP Financial Measures

Adjusted EBITDA is a non-GAAP supplemental financial measure that management and external users of the Partnership’s consolidated financial statements, such as industry analysts, investors, lenders and rating agencies, may use to assess:

• the Partnership’s operating performance as compared to other publicly traded partnerships, without regard to historical cost basis or, in the case of Adjusted EBITDA, financing methods;
• the Partnership’s ability to incur and service debt and fund capital expenditures;
• and the viability of acquisitions and other capital expenditure projects and the returns on investment of various expansion and growth opportunities.

The Partnership defines Adjusted EBITDA as net income (loss) attributable to controlling interests before interest, income taxes, depreciation, depletion, amortization and accretion. Adjusted EBITDA is also adjusted for equity-based compensation, losses/gains on commodity derivative contracts, settlements of derivative contracts, a change in the fair value of the warrant liability and material nonrecurring or other items, which may not reflect the trend of future results. As it relates to commodity derivative contracts, the Adjusted EBITDA calculation removes the total impact of derivative gains/losses on net income (loss) during the period and then adds/deducts to Adjusted EBITDA the amount of aggregate settlements during the period. Adjusted EBITDA also includes any insurance recoveries received, regardless of whether they relate to the recovery of mitigation costs, the receipt of business interruption proceeds, or the recovery of losses on machinery and equipment.

The Partnership believes the presentation of Adjusted EBITDA provides useful information to investors in assessing the Partnership’s financial condition and results of operations. Adjusted EBITDA should not be considered an alternative to net (loss) income, operating income, cash flow from operations, or any other measure of financial performance presented in accordance with U.S. GAAP, nor should Adjusted EBITDA be considered an alternative to operating surplus, adjusted operating surplus or other definitions in the Partnership’s partnership agreement. Adjusted EBITDA has important limitations as an analytical tool because it excludes some, but not all, of the items that affects net (loss) income. Additionally, because Adjusted EBITDA may be defined differently by other companies in the industry, and the Partnership’s definition of Adjusted EBITDA may not be comparable to similarly titled measures of other companies, the utility of such a measure is diminished. For a reconciliation of Adjusted EBITDA to net loss, please see the table below.

This press release references forward-looking estimates of Adjusted EBITDA projected to be generated by the Partnership during the year ending December 31, 2018. A reconciliation of estimated 2018 Adjusted EBITDA to U.S. GAAP net income (loss) is not provided because U.S. GAAP net income (loss) for the projection period is not practical to assess due to unknown variables and uncertainty related to future results. In recent years, the Partnership has recognized significant asset impairment charges, transition and reorganization costs, losses on early extinguishment of debt, and debt restructuring costs. While these items affect U.S. GAAP net income (loss), they are generally excluded from Adjusted EBITDA. Therefore, these items do not materially impact the Partnership’s ability to forecast Adjusted EBITDA.

About Foresight Energy LP

Foresight is a leading producer and marketer of thermal coal controlling over 1.7 billion tons of coal reserves in the Illinois Basin. Foresight currently operates two longwall mining complexes with three longwall mining systems (Williamson (one longwall mining system) and Sugar Camp (two longwall mining systems)), one continuous mining operation (Macoupin) and the Sitran river terminal on the Ohio River. Foresight’s operations are strategically located near multiple rail and river transportation access points, providing transportation cost certainty and flexibility to direct shipments to the domestic and international markets. Foresight also owns coal interests and mining assets located in southeastern Ohio.

1 Foresight adopted pushdown accounting as of March 31, 2017 as a result of Murray Energy obtaining control of its general partner. As required by pushdown accounting, the Partnership revalued its balance sheet on the change of control date and therefore certain financial statement line items are not comparable to prior periods. As such, operational results prior to March 31, 2017 were recorded on the predecessor financial statements (the “Predecessor”). Operational results subsequent to March 31, 2017 were recorded on the successor financial statements (the “Successor”).

        Foresight Energy LP Unaudited Condensed Consolidated Balance Sheets

(In Thousands)

  (Successor) (Successor) June 30, December 31, 2018 2017 Assets Current assets: Cash and cash equivalents $ 38,760 $ 2,179 Accounts receivable 27,242 35,158 Due from affiliates 49,908 37,685 Financing receivables - affiliate 3,262 3,138 Inventories, net 44,678 40,539 Prepaid royalties — 4,000 Deferred longwall costs 20,427 9,520 Other prepaid expenses and current assets 7,243 10,844 Contract-based intangibles   1,867   11,268 Total current assets 193,387 154,331 Property, plant, equipment and development, net 2,203,885 2,378,605 Due from affiliates — 947 Financing receivables - affiliate 62,434 64,097 Prepaid royalties, net 2,096 1,250 Other assets 4,087 5,358 Contract-based intangibles   1,389   2,052 Total assets $ 2,467,278 $ 2,606,640 Liabilities and partners’ capital Current liabilities: Current portion of long-term debt and capital lease obligations $ 50,449 $ 109,532 Current portion of sale-leaseback financing arrangements 4,907 4,148 Accrued interest 24,258 13,410 Accounts payable 88,081 76,658 Accrued expenses and other current liabilities 65,575 62,442 Asset retirement obligations 4,416 4,416 Due to affiliates 24,909 13,324 Contract-based intangibles   20,275   28,688 Total current liabilities 282,870 312,618 Long-term debt and capital lease obligations 1,221,776 1,205,000 Sale-leaseback financing arrangements 194,118 196,496 Asset retirement obligations 51,583 39,655 Other long-term liabilities 29,383 32,330 Contract-based intangibles   71,220   144,715 Total liabilities 1,850,950 1,930,814 Limited partners' capital: Common unitholders (79,921 and 77,644 units outstanding as of June 30, 2018 and December 31, 2017, respectively) 388,575 421,161 Subordinated unitholder (64,955 units outstanding as of June 30, 2018 and December 31, 2017)   227,753   254,665 Total partners' capital   616,328   675,826 Total liabilities and partners' capital $ 2,467,278 $ 2,606,640               Foresight Energy LP Unaudited Condensed Consolidated Statements of Operations

(In Thousands, Except Per Unit Data)

  (Successor) (Successor) (Successor) (Successor) (Predecessor)

Three Months

Ended

June 30, 2018

Three Months

Ended

June 30, 2017

Six Months

Ended

June 30, 2018

Period From

April 1, 2017

through

June 30, 2017

Period From

January 1,

2017

through

March 31,

2017

Revenues: Coal sales $ 269,992 $ 204,516 $ 508,379 $ 204,516 $ 227,813 Other revenues   1,430   2,577   3,769   2,577   2,581 Total revenues 271,422 207,093 512,148 207,093 230,394   Costs and expenses: Cost of coal produced (excluding depreciation, depletion and amortization) 136,982 105,790 257,552 105,790 117,762 Cost of coal purchased 3,906 — 5,657 — 7,973 Transportation 59,034 28,258 105,477 28,258 37,726 Depreciation, depletion and amortization 55,312 49,537 106,732 49,537 39,298 Contract amortization and write-off (70,424 ) 8,733 (71,844 ) 8,733 — Accretion on asset retirement obligations 559 728 1,290 728 710 Selling, general and administrative 10,534 7,277 18,309 7,277 6,554 Long-lived asset impairments 110,689 — 110,689 — — Loss on commodity derivative contracts — 1,117 — 1,117 1,492 Other operating (income) expense, net   (42,983 )   (13,490 )   (43,631 )   (13,490 )   451 Operating income 7,813 19,143 21,917 19,143 18,428 Other expenses: Interest expense, net 37,035 35,420 72,708 35,420 43,380 Change in fair value of warrants — — — — (9,278 ) Loss on early extinguishment of debt   —   —   —   —   95,510 Net loss $ (29,222 ) $ (16,277 ) $ (50,791 ) $ (16,277 ) $ (111,184 )   Net loss available to limited partner units - basic and diluted: Common unitholders $ (14,090 ) $ (8,790 ) $ (23,879 ) $ (8,790 ) $ (56,259 ) Subordinated unitholder $ (15,132 ) $ (7,487 ) $ (26,912 ) $ (7,487 ) $ (54,925 )   Net loss per limited partner unit - basic and diluted: Common unitholders $ (0.18 ) $ (0.12 ) $ (0.30 ) $ (0.12 ) $ (0.85 ) Subordinated unitholder $ (0.23 ) $ (0.12 ) $ (0.41 ) $ (0.12 ) $ (0.85 )   Weighted average limited partner units outstanding - basic and diluted: Common units 79,842 76,270 79,347 76,270 66,533 Subordinated units 64,955 64,955 64,955 64,955 64,955   Distributions declared per limited partner unit $ 0.0565 $ — $ 0.1130 $ — $ —         Foresight Energy LP Unaudited Condensed Consolidated Statements of Cash Flows

(In Thousands)

  (Successor) (Successor) (Predecessor)

Six Months

Ended

June 30, 2018

Period From

April 1, 2017

through

June 30, 2017

Period From

January 1, 2017

through

March 31, 2017

Cash flows from operating activities Net loss $ (50,791 ) $ (16,277 ) $ (111,184 ) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation, depletion and amortization 106,732 49,537 39,298 Amortization of debt discount and deferred issuance costs 1,326 628 6,365 Contract amortization and write-off (71,844 ) 8,733 — Equity-based compensation 352 211 318 Loss on commodity derivative contracts — 1,117 1,492 Settlements of commodity derivative contracts — 444 3,724 Realized gains on coal derivatives included in investing activities — — (3,520 ) Long-lived asset impairments 110,689 — — Insurance proceeds included in investing activities (42,947 ) — — Change in fair value of warrants — — (9,278 ) Debt extinguishment expense — — 95,510 Other — 5,867 1,321 Changes in operating assets and liabilities: Accounts receivable 7,916 1,836 19,695 Due from/to affiliates, net 309 (4,204 ) (13,157 ) Inventories (3,327 ) (19,863 ) (917 ) Prepaid expenses and other assets (5,050 ) (2,224 ) (5,117 ) Prepaid royalties 3,154 4,276 (241 ) Commodity derivative assets and liabilities — (303 ) (532 ) Accounts payable 11,423 4,075 7,324 Accrued interest 10,848 11,801 (9,803 ) Accrued expenses and other current liabilities 2,007 423 (3,430 ) Other   1,491   (965 )   1,782 Net cash provided by operating activities 82,288 45,112 19,650 Cash flows from investing activities Investment in property, plant, equipment and development (32,228 ) (21,732 ) (19,908 ) Return of investment on financing arrangements with Murray Energy (affiliate) 1,539 719 705 Insurance proceeds 42,947 — — Settlement of certain coal derivatives — — 3,520 Proceeds from sale of property, plant and equipment   —   —   1,898 Net cash provided by (used in) investing activities 12,258 (21,013 ) (13,785 ) Cash flows from financing activities Borrowings under revolving credit facility 50,000 — — Payments on revolving credit facility (15,000 ) — (352,500 ) Net change in borrowings under A/R securitization program — (100 ) 7,000 Proceeds from long-term debt and capital lease obligations — — 1,234,438 Payments on long-term debt and capital lease obligations (78,633 ) (12,287 ) (970,721 ) Payments on short-term debt (3,654 ) — — Proceeds from issuance of common units to Murray Energy (affiliate) — — 60,586 Distributions paid (9,020 ) — — Debt extinguishment costs — — (57,645 ) Debt issuance costs paid — — (27,328 ) Other   (1,658 )   (2,130 )   (1,892 ) Net cash used in financing activities   (57,965 )   (14,517 )   (108,062 ) Net increase (decrease) in cash, cash equivalents, and restricted cash 36,581 9,582 (102,197 ) Cash, cash equivalents, and restricted cash, beginning of period   2,179   14,724   116,921 Cash, cash equivalents, and restricted cash, end of period $ 38,760 $ 24,306 $ 14,724              

Reconciliation of U.S. GAAP Net Loss to Adjusted EBITDA (In Thousands)

 

(Successor)

Three

Months

Ended

June 30, 2018

(Successor)

Three

Months

Ended

June 30, 2017

(Successor)

Six Months

Ended

June 30, 2018

(Successor)

Period From

April 1, 2017

through

June 30,

2017

(Predecessor)

Period From

January 1,

2017

through

March 31,

2017

Combined -

Period From

January 1,

2017

through

June 30,

2017

Net loss(1) $ (29,222 ) $ (16,277 ) $ (50,791 ) $ (16,277 ) $ (111,184 ) $ (127,461 ) Interest expense, net 37,035 35,420 72,708 35,420 43,380 78,800 Depreciation, depletion and amortization 55,312 49,537 106,732 49,537 39,298 88,835 Accretion on asset retirement obligations 559 728 1,290 728 710 1,438 Contract amortization and write-off (70,424 ) 8,733 (71,844 ) 8,733 — 8,733 Noncash impact of recording coal inventory to fair value in pushdown accounting 4,562 — 4,562 — 4,562 Equity-based compensation 175 211 352 211 318 529 Long-lived asset impairments 110,689 — 110,689 — — — Loss on commodity derivative contracts — 1,117 — 1,117 1,492 2,609 Settlements of commodity derivative contracts — 444 — 444 3,724 4,168 Change in fair value of warrants — — — — (9,278 ) (9,278 ) Loss on early extinguishment of debt   —   —   —   —   95,510   95,510 Adjusted EBITDA $ 104,124 $ 84,475 $ 169,136 $ 84,475 $ 63,970 $ 148,445   (1) - Included in net loss during the three and six months ended June 30, 2018 and the three months and combined period ended June 30, 2017 was insurance proceeds of $44.1 million and $12.8 million, respectively, from the Hillsboro mine combustion event.                        

Operating Metrics (In Thousands, Except Per Ton Data)

 

(Successor)

Three

Months

Ended

June 30,

2018

(Successor)

Three

Months

Ended

June 30,

2017

(Successor)

Six Months

Ended

June 30,

2018

(Successor)

Period From

April 1, 2017

through

June 30,

2017

(Predecessor)

Period From

January 1,

2017

through

March 31,

2017

Combined -

Period From

January 1,

2017

through

June 30,

2017

Produced tons sold 5,779 4,835 10,978 4,835 5,165 10,000 Purchased tons sold   88   —   129   —   118   118 Total tons sold   5,867   4,835   11,107   4,835   5,283   10,118   Tons produced 5,419 5,660 11,086 5,660 5,267 10,927   Coal sales realization per ton sold(1) $ 46.02 $ 42.30 $ 45.77 $ 42.30 $ 43.12 $ 42.73 Cash cost per ton sold(2) $ 23.70 $ 21.88 $ 23.46 $ 21.88 $ 22.80 $ 22.36 Netback to mine realization per ton sold(3) $ 35.96 $ 36.45 $ 36.27 $ 36.45 $ 35.98 $ 36.21   (1) - Coal sales realization per ton sold is defined as coal sales divided by total tons sold. (2) - Cash cost per ton sold is defined as cost of coal produced (excluding depreciation, depletion and amortization) divided by produced tons sold. (3) - Netback to mine realization per ton sold is defined as coal sales less transportation expense divided by tons sold.  

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Foresight Energy LPCody E. Nett, 740-338-3100Corporate Secretary and Director of Media and Investor RelationsInvestor.relations@foresight.comMedia@coalsource.com