Decisive actions taken amid the COVID-19 outbreak and market
deterioration to safeguard employee health and safety, support
communities and customers as an essential supplier to critical
infrastructure, protect strong balance sheet and enhance
liquidity
Alliance Resource Partners, L.P. (NASDAQ: ARLP) today reported a
net loss attributable to ARLP of $144.8 million, or $(1.14) per
basic and diluted limited partner unit for the quarter ended March
31, 2020 (the "2020 Quarter"), which included non-cash impairment
charges of $157.0 million. This compares to net income attributable
to ARLP of $276.4 million, or $2.12 per basic and diluted limited
partner unit for the quarter ended March 31, 2019 (the "2019
Quarter"), which included a non-cash net gain of $170.0 million
related to the AllDale Acquisition. Excluding the impact of
non-cash items (each described in more detail below), for the 2020
Quarter Adjusted net income attributable to ARLP and Adjusted
EBITDA decreased to $12.2 million and $98.3 million, respectively,
compared to $106.5 million and $188.8 million for the 2019 Quarter.
(Unless otherwise noted, all references in this release to "net
income" refer to "net income attributable to ARLP." For a
definition of EBITDA, Adjusted net income attributable to ARLP,
Adjusted EBITDA and related reconciliations to comparable GAAP
financial measures, please see the end of this release.)
"ARLP entered the year anticipating challenging coal market
conditions due primarily to low natural gas prices and the overhang
of coal supply caused by the collapse of thermal export prices
during the back half of 2019," said Joseph W. Craft III, Chairman,
President and Chief Executive Officer. "Mid-way through the 2020
Quarter, it became evident that mild winter weather and natural gas
prices falling to twenty-year lows, well below $2.00/mmbtu, were
adding to the pressures on coal demand. The unanticipated
disruptions created by the COVID-19 pandemic caused global energy
demand to plummet, further negatively impacting our results for the
2020 Quarter as well."
Mr. Craft added, "All of our coal mines continued to operate
during the 2020 Quarter given the essential, life-sustaining need
for coal to be available to supply and ensure the reliability of
the electric grid. As our coal inventories expanded, we cut back
production hours while evaluating the needs of our customers. With
a keen focus on our long-established Safety First initiatives, our
mining operations delivered record safety results. Our marketing
teams continued to work closely with customers to ensure safe,
reliable delivery of coal that is vital to the critical
infrastructure supporting the communities we serve. We also took
prudent steps to protect ARLP’s strong balance sheet and enhance
our liquidity. I am extremely grateful for the sacrifices and
tireless efforts of the entire Alliance organization during these
uncertain times.”
Operations Update
The actions taken by world leaders to combat the deadly
coronavirus have caused a precipitous global decline in demand for
coal, oil and natural gas. The price war initiated by Saudi Arabia
and Russia created even more pressure on oil prices. The domestic
coal and oil & gas industries have taken action to reduce
supply in response.
ARLP previously announced it would reduce its coal production to
match existing contracted sales commitments for 2020. Accordingly,
we are now targeting coal sales and production this year of
approximately 28.0 million tons and 27.0 million tons,
respectively, or 25% to 30% lower than originally expected. To
accomplish this objective, ARLP evaluated each of its mining
operations to determine where it was possible to temporarily halt
production while continuing to meet customer requirements from
existing coal inventories. Following that evaluation, ARLP
announced a temporary cessation of coal production at its River
View, Gibson, Hamilton and Warrior mining complexes in the Illinois
Basin and its MC Mining complex in East Kentucky (see March 30,
2020 and April 9, 2020 Press Releases).
To reliably service the needs of its customers, underground
mining operations partially resumed this week at the River View
mine, with six continuous mining units brought back into
production. ARLP will continue to monitor coal inventories and work
closely with customers to determine when coal production will
resume at each of the remaining idled operations. However, as a
result of the continuing impacts of the COVID-19 pandemic on ARLP's
business, not all mines will return to previous production levels.
As a result, on April 15, 2020, 116 employees of the Gibson County
mining complex and 78 employees of the Hamilton mine were given
notice that their employment would be permanently terminated on
April 26, 2020.
In the 2020 Quarter, production volumes from our oil and gas
mineral interests increased 51.4% compared to the 2019 Quarter as a
result of a steady pace of development led by the additional
mineral interests acquired in the Wing Acquisition, which we now
call AR Midland. Segment Adjusted EBITDA for our Minerals segment
increased 50.6% to $13.8 million in the 2020 Quarter compared to
$9.1 million in the 2019 Quarter. A steep drop in crude prices
toward the end of the 2020 Quarter led to a 9.2% reduction in
average sales price per BOE compared to the 2019 Quarter partially
offsetting the financial benefit of increased volumes.
A recent Wall Street Journal article read, "As people stay at
home to avoid the new coronavirus, the petroleum business is
experiencing a shock like no other in history. …the world’s thirst
for oil has vanished, creating an unprecedented crisis for one of
the planet’s most powerful industries." As many have said, we are
in uncharted territory. We have seen WTI, the U.S. benchmark oil
price, collapse from above $60 per barrel at the beginning of this
year to briefly turning negative as producers paid purchasers to
move barrels last month ─ causing domestic oil producers to slash
capital budgets and announce plans to curtail production. With
these disruptions, we anticipate earnings from our Minerals segment
will be significantly lower in the near term. With oil prices at
unsustainable levels, however, we expect WTI prices will eventually
return to prices comparable to pre-virus levels. The positive
aspect of lower crude production is the reduction of associated gas
volumes leading many energy analysts to project natural gas prices
around $3.00/mmbtu by the end of this year and possibly to continue
throughout 2021. Not only would such an increase help mitigate
lower BOE volumes and lower oil prices but also coal demand should
increase from gas to coal switching by our utility customers.
While 43 states have announced plans to begin gradually
re-opening the American economy this month, until there is better
visibility into both the degree and the speed of the economic
recovery post lockdown ARLP has withdrawn its initial 2020
operating and financial guidance provided on January 27, 2020,
which of course did not reflect the impact of the COVID-19
pandemic.
We are continuing to monitor and may take further measures to
minimize any adverse impact caused by the COVID-19 pandemic, but
there can be no guarantee the measures will be fully effective.
Financial and Liquidity Update
Responding to the economic disruptions and uncertainties
discussed above, ARLP has taken numerous actions to optimize cash
flows and preserve liquidity. Compared to our initial expectations,
we are reducing ARLP’s 2020 capital budget by 20.0% to 30.0%.
Working capital requirements are expected to fall approximately
$35.0 million by reducing coal inventories. General and
administrative expenses will also be 20.0% to 25.0% lower this year
due to reduced incentive compensation, stringent cost control and
adjusting our corporate support structure to better align with
current operating levels.
During the 2020 Quarter, ARLP completed an amendment of its
revolving credit facility, expanding liquidity over the next four
quarters and extending the maturity of this facility to March 2024.
ARLP ended the 2020 Quarter with liquidity of $258.4 million and
remained comfortably in compliance with its debt covenants,
including total debt of approximately 1.6 times trailing twelve
months Adjusted EBITDA.
As previously announced the Board of Directors of ARLP’s general
partner (the "Board") decided to suspend the cash distribution to
unitholders for the 2020 Quarter. At its quarterly meeting
yesterday, the Board extended the suspension of distributions
through the quarter ending June 30, 2020. We view the suspension of
unitholder distributions as temporary and continue to believe that
a sustainable distribution is an important contributor to long-term
value for ARLP’s unitholders. The Board will continue to evaluate
rapidly evolving economic conditions and intends to reassess its
distribution decision following the second quarter.
Consolidated Financial Results
Three Months Ended March 31, 2020 Compared to Three Months Ended
March 31, 2019
Weak coal market conditions, lower commodity prices, and the
recent lockdown of the global economy due to the COVID-19 pandemic
significantly impacted our financial and operating results for the
2020 Quarter. Lower coal sales and transportation revenues,
partially offset by increased oil & gas royalty and other
revenues, resulted in total revenues for the 2020 Quarter of $350.8
million compared to $526.6 million for the 2019 Quarter. Operating
expenses of $234.3 million for the 2020 Quarter were also lower
compared to $302.7 million in the 2019 Quarter.
Coal Operations –
Due to reduced coal sales volumes and prices,
coal sales revenues for the 2020 Quarter decreased 33.9% to $314.6
million, compared to $476.0 million for the 2019 Quarter. Coal
sales volumes declined 29.7% to 7.3 million tons in the 2020
Quarter due to weak market conditions and uncertainty caused by the
COVID-19 pandemic. Primarily due to reduced shipments of thermal
and metallurgical coal to international markets, coal sales price
realizations declined 5.9% in the 2020 Quarter to $43.39 per ton
sold, compared to $46.12 per ton sold during the 2019 Quarter,
while transportation revenues and expenses decreased to $4.7
million from $30.2 million. Other revenues in the 2020 Quarter
increased by $7.5 million to $17.1 million due to a customer
buy-out of certain coal contracts at our Tunnel Ridge mine.
Compared to the 2019 Quarter, operating
expenses for our coal operations decreased 22.6% to $232.9 million,
primarily as a result of lower coal volumes. Segment Adjusted
EBITDA Expense per ton increased 10.6% in the 2020 Quarter to
$32.25 per ton, compared to $29.17 per ton in the 2019 Quarter. The
increase is attributed primarily to the per ton cost impact of
curtailed coal production in response to reduced demand, a longwall
move at our Hamilton mine in the 2020 Quarter and a $0.60 per ton
government-imposed increase in the federal black lung excise tax,
effective January 1, 2020. Lower coal sales revenues, partially
offset by lower expenses, caused total Segment Adjusted EBITDA from
our coal operations to decline 46.9% to $97.9 million in the 2020
Quarter, compared to $184.6 million for the 2019 Quarter.
Minerals –
For the 2020 Quarter, our mineral interests
contributed total revenues of $14.3 million from oil & gas
royalties and lease bonuses, compared to $10.7 million for the 2019
Quarter. The increase in revenues is primarily due to higher
volumes resulting from the Wing Acquisition in August 2019 as well
as drilling and development activity on our mineral interests,
partially offset by lower oil & gas sales price realizations.
Comparative results between the 2020 and 2019 Quarters were also
impacted by a non-cash acquisition gain of $177.0 million, of which
$7.1 million was attributable to non-controlling interest, recorded
in the 2019 Quarter associated with the AllDale Acquisition to
reflect the fair value of the interests in AllDale I and II we
already owned at the time of the acquisition. Our Minerals segment
contributed net income of $2.4 million to the 2020 Quarter,
compared to $171.8 million for the 2019 Quarter, which included the
acquisition gain. Excluding the gain, Segment Adjusted EBITDA
related to our Minerals segment increased to $13.8 million for the
2020 Quarter, compared to $9.1 million for the 2019 Quarter.
(Please see ARLP Press Releases dated January 3, 2019 and August 2,
2019 for full descriptions of the AllDale and Wing Acquisitions,
respectively.)
During the 2020 Quarter, we recorded $157.0 million of non-cash
impairment charges, which included a $132.0 million goodwill
impairment charge associated with our Hamilton mine and a $25.0
million asset impairment charge due to the permanent closure of our
Gibson North mine and a decrease in the fair value of certain
mining equipment and greenfield coal reserves. These non-cash
charges reflect the impact of weak coal market conditions and low
energy demand caused by the COVID-19 pandemic.
As a result of the redemption by Kodiak Gas Services, LLC of our
preferred equity interest for $135.0 million cash in the 2019
Quarter, ARLP did not realize equity securities income in the 2020
Quarter, compared to $12.9 million in the 2019 Quarter.
Segment Results and Analysis
% Change
2020 First
2019 First
Quarter /
2019 Fourth
% Change
(in millions, except per ton and per
BOE data)
Quarter
Quarter
Quarter
Quarter
Sequential
Coal
Operations
Illinois
Basin
Tons sold
5.056
7.673
(34.1)
%
6.687
(24.4)
%
Coal sales price per ton (1)
$
39.38
$
41.35
(4.8)
%
$
37.84
4.1
%
Segment Adjusted EBITDA Expense per ton
(2)
$
29.67
$
25.73
15.3
%
$
26.46
12.1
%
Segment Adjusted EBITDA (2)
$
50.0
$
122.7
(59.2)
%
$
78.6
(36.4)
%
Appalachia
Tons sold
2.195
2.648
(17.1)
%
2.745
(20.0)
%
Coal sales price per ton (1)
$
52.64
$
59.46
(11.5)
%
$
54.89
(4.1)
%
Segment Adjusted EBITDA Expense per ton
(2)
$
36.31
$
37.67
(3.6)
%
$
40.35
(10.0)
%
Segment Adjusted EBITDA (2)
$
47.5
$
58.7
(19.0)
%
$
48.3
(1.7)
%
Total
Coal
Tons sold
7.251
10.321
(29.7)
%
9.432
(23.1)
%
Coal sales price per ton (1)
$
43.39
$
46.12
(5.9)
%
$
42.95
1.0
%
Segment Adjusted EBITDA Expense per ton
(2)
$
32.25
$
29.17
10.6
%
$
30.92
4.3
%
Segment Adjusted EBITDA (2)
$
97.9
$
184.6
(46.9)
%
$
129.4
(24.3)
%
Minerals
(3)
Volume – BOE
0.495
0.327
51.4
%
0.498
(0.6)
%
Volume - oil percentage of BOE
50.8
%
40.9
%
24.2
%
45.2
%
12.4
%
Average sales price per BOE (3)
$
28.79
$
31.70
(9.2)
%
$
31.11
(7.5)
%
Segment Adjusted EBITDA Expense (2)
$
0.88
$
1.83
(51.7)
%
$
1.70
(48.1)
%
Segment Adjusted EBITDA (2)
$
13.8
$
9.1
50.6
%
$
14.6
(5.6)
%
Consolidated
Total (4)
Total revenues
$
350.8
$
526.6
(33.4)
%
$
453.3
(22.6)
%
Segment Adjusted EBITDA Expense (2)
$
234.7
$
302.9
(22.5)
%
$
293.4
(20.0)
%
Segment Adjusted EBITDA (2)
$
111.7
$
206.6
(45.9)
%
$
143.9
(22.4)
%
______________________ (1) Coal sales price per ton is
defined as total coal sales divided by total tons sold.
(2) For definitions of Segment Adjusted EBITDA Expense and
Segment Adjusted EBITDA and related reconciliations to comparable
GAAP financial measures, please see the end of this release.
Segment Adjusted EBITDA Expense per ton is defined as Segment
Adjusted EBITDA Expense – Coal (as reflected in the reconciliation
table at the end of this release) divided by total tons sold.
(3) Average sales price per BOE is defined as royalty revenues
excluding lease bonus revenue divided by total barrels of oil
equivalent ("BOE"). BOE for natural gas volumes is calculated on a
6:1 basis (6,000 cubic feet of natural gas to one barrel).
(4) Total reflects consolidated results, which include our
other and corporate category and eliminations in addition to the
Illinois Basin, Appalachia and Minerals segments highlighted
above.
In the 2020 Quarter, total coal sales volumes decreased 29.7%
and 23.1% compared to the 2019 Quarter and the quarter ended
December 31, 2019 (the "Sequential Quarter"), respectively, due to
curtailed production in both the Illinois Basin and Appalachian
regions as a result of weak coal market conditions and uncertainty
caused by the COVID-19 pandemic. Compared to both the 2019 and
Sequential Quarters, export shipments were down 1.7 million tons
and 1.0 million tons, respectively. ARLP ended the 2020 Quarter
with total coal inventory of 2.6 million tons, an increase of 0.9
million tons and 0.8 million tons compared to the end of the 2019
and Sequential Quarters, respectively.
Coal sales price per ton sold in the 2020 Quarter decreased in
both regions compared to the 2019 Quarter reflecting weakened
market conditions as discussed above. Compared to the Sequential
Quarter, total coal sales prices were higher, as increased coal
sales price per ton sold in the Illinois Basin, primarily due to
higher price realizations at our Hamilton and Warrior mines, more
than offset lower price realizations in Appalachia. Reduced
metallurgical coal price realizations and volumes at our Mettiki
mine in the 2020 Quarter impacted comparisons to both the 2019 and
Sequential Quarters in the Appalachian region.
In the Illinois Basin, Segment Adjusted EBITDA Expense per ton
in the 2020 Quarter increased 15.3% and 12.1% compared to the 2019
and Sequential Quarters, respectively, primarily as a result of
reduced coal sales and production volumes and increased coal
inventory charges. Reduced production in the 2020 Quarter reflects
curtailed production due to reduced work schedules at all
operations and a longwall move at our Hamilton mine. The added cost
to reclaim equipment and permanently close the Gibson North mine
also contributed to higher per ton costs in the 2020 Quarter. In
Appalachia, Segment Adjusted EBITDA Expense per ton decreased 3.6%
and 10.0% compared to the 2019 and Sequential Quarters,
respectively, as a result of fewer longwall move days at both our
Tunnel Ridge and Mettiki mines, reduced subsidence expense per ton
and lower selling expense per ton due primarily to lower average
coal sales prices and reduced export tons.
In the 2020 Quarter, production from our mineral interests
increased 51.4% compared to the 2019 Quarter as a result of volumes
from the additional mineral interests acquired in the Wing
Acquisition as well as continued drilling and development activity
across our entire mineral position as a whole. Segment Adjusted
EBITDA for our Minerals segment increased 50.6% to $13.8 million in
the 2020 Quarter compared to $9.1 million in the 2019 Quarter as a
result of increased volumes, partially offset by a reduced average
sales price per BOE. Sequentially, Segment Adjusted EBITDA fell
5.6% due to lower sales price realizations per BOE.
Outlook
The severity and duration of the COVID-19 pandemic is unknown,
creating uncertainties around economic and market conditions and
the potential impact on ARLP’s business, operating results and
financial condition. We are not alone. With the American economy
shutdown by governors implementing and enforcing stay-at-home
orders, many businesses have seen their revenues decimated by
demand destruction. News outlets have reported more energy
companies have suspended or cancelled their dividends year to date
than in the previous 10 years combined. Even more have suspended
guidance.
Americans are hoping the re-opening of the U.S. economy will be
swift and that a second wave of the virus will not be in our
future. With each passing day, we will know more but today there is
more unknown than known.
In these circumstances, our planning has centered on the health,
safety and wellbeing of employees and the needs of our customers
who, thus far, have indicated their intentions to take delivery of
the minimum requirements under ARLP’s sales contracts this year.
Due to the demand destruction caused by the pandemic, our second
quarter results will suffer as production and Segment Adjusted
EBITDA from our coal operations are expected to be less than half
of our results in the 2020 Quarter and the contribution from our
Minerals segment most likely will be impacted even more severely.
In both the coal and the oil & gas industries supply overall
needs to come down and demand needs to rise ─ the timing and extent
of which will determine the speed of recovery for market
participants in both sectors.
"I caution that ARLP’s expected first-half results are
unrepresentative of the strength of our Partnership. Assuming a
rebound of the economy moving forward, even if gradual, our outlook
will be brighter. The second half of this year should be better
than the first half and 2021 should be better than 2020," said Mr.
Craft. "While current circumstances are certainly unprecedented,
ARLP has successfully managed through challenging cycles in the
past and we are prepared to do so today. Coal remains an essential
part of the critical infrastructure necessary to meet the power
generation needs of this country. Our low-cost,
strategically-located operations have us positioned to both
reliably service the needs of our existing customers and to expand
our market presence as weaker competitors fall away. Although lower
commodity prices, reduced drilling activity and production
curtailments will impact ARLP’s cash flows from its Minerals
segment in the near term, our oil & gas mineral interests have
us well positioned in the core development areas of the most
attractive basins in the United States. We continue to believe the
Minerals segment will generate increasing cash flows over the
long-term and provide ARLP with opportunities to create meaningful
growth for unitholders."
Mr. Craft concluded, "Looking ahead, ARLP will continue to
execute at the highest level in the most prudent manner possible in
every aspect of our business ─ focusing on safety, controlling
costs, servicing customers, managing for cash and protecting our
balance sheet. We believe our efforts should allow ARLP to navigate
an undetermined period of market weakness and emerge with strength.
When conditions begin to improve, we will stand ready and prepared
to take advantage of the growth opportunities that will
follow."
A conference call regarding ARLP's 2020 Quarter financial
results is scheduled for today at 10:00 a.m. Eastern. To
participate in the conference call, dial (877) 506-1589 and request
to be connected to the Alliance Resource Partners, L.P. earnings
conference call. Canadian callers should dial (855) 669-9657 and
all other international callers should dial (412) 317-5240 and
request to be connected to the same call. Investors may also listen
to the call via the "investor information" section of ARLP's
website at http://www.arlp.com.
An audio replay of the conference call will be available for
approximately one week. To access the audio replay, dial US Toll
Free (877) 344-7529; International Toll (412) 317-0088; Canada Toll
Free (855) 669-9658 and request to be connected to replay access
code 10142437.
About Alliance Resource Partners, L.P.
ARLP is a diversified natural resource company that generates
income from coal production and oil & gas mineral interests
located in strategic producing regions across the United
States.
ARLP operates seven coal mining complexes in Illinois, Indiana,
Kentucky, Maryland and West Virginia. ARLP also operates a coal
loading terminal on the Ohio River at Mount Vernon, Indiana. ARLP
markets its coal production to major domestic and international
utilities and industrial users and is currently the second largest
coal producer in the eastern United States.
ARLP generates royalty income from mineral interests it owns in
premier oil & gas producing regions in the United States,
primarily the Permian, Anadarko and Williston basins.
In addition, ARLP also generates income from a variety of other
sources.
News, unit prices and additional information about ARLP,
including filings with the Securities and Exchange Commission
("SEC"), are available at http://www.arlp.com. For more
information, contact the investor relations department of ARLP at
(918) 295-7674 or via e-mail at investorrelations@arlp.com.
***
The statements and projections used throughout this release are
based on current expectations. These statements and projections are
forward-looking, and actual results may differ materially. These
projections do not include the potential impact of any mergers,
acquisitions or other business combinations that may occur after
the date of this release. We have included more information below
regarding business risks that could affect our results.
FORWARD-LOOKING STATEMENTS: With the exception of historical
matters, any matters discussed in this press release are
forward-looking statements that involve risks and uncertainties
that could cause actual results to differ materially from projected
results. Those forward-looking statements include optimizing cash
flows, reducing operating and capital expenditures, preserving
liquidity and maintaining financial flexibility, among others.
These risks to our ability to achieve these outcomes include, but
are not limited to, the following: the impact of COVID-19 both to
the execution of our day to day operations including potential
closures, as well as to the pandemic's broader impact on demand for
coal, oil and natural gas, the financial condition of our customers
and suppliers, available liquidity and credit sources and broader
economic disruption that is evolving. In addition, the actions of
Saudi Arabia and Russia to decrease oil prices may have direct and
indirect impacts over the near and long term to our Minerals
segment. These risks compound the ongoing risks to our business,
including decline in the coal industry's share of electricity
generation, including as a result of environmental concerns related
to coal mining and combustion and the cost and perceived benefits
of other sources of electricity and fuels, such as oil & gas,
nuclear energy, and renewable fuels; changing global economic
conditions or in industries in which our customers operate; changes
in coal prices and/or oil & gas prices, demand and availability
which could affect our operating results and cash flows; changes in
competition in domestic and international coal markets and our
ability to respond to such changes; potential curtailment of oil
& gas production by operators of the properties in which we
hold mineral interests due to lack of downstream demand or storage
capacity; risks associated with the expansion of our operations and
properties; our ability to identify and complete acquisitions;
dependence on significant customer contracts, including renewing
existing contracts upon expiration; adjustments made in price,
volume, or terms to existing coal supply agreements; recent action
and the possibility of future action on trade made by United States
and foreign governments; the effect of new tariffs and other trade
measures; legislation, regulations, and court decisions and
interpretations thereof, both domestic and foreign, including those
relating to the environment and the release of greenhouse gases,
mining, miner health and safety, hydraulic fracturing, and health
care; deregulation of the electric utility industry or the effects
of any adverse change in the coal industry, electric utility
industry, or general economic conditions; liquidity constraints,
including those resulting from any future unavailability of
financing; customer bankruptcies, cancellations or breaches to
existing contracts, or other failures to perform; customer delays,
failure to take coal under contracts or defaults in making
payments; our productivity levels and margins earned on our coal
sales; disruptions to oil & gas exploration and production
operations at the properties in which we hold mineral interests;
changes in raw material costs; changes in the availability of
skilled labor; our ability to maintain satisfactory relations with
our employees; increases in labor costs including costs of health
insurance and taxes resulting from the Affordable Care Act, adverse
changes in work rules, or cash payments or projections associated
with workers' compensation claims; increases in transportation
costs and risk of transportation delays or interruptions;
operational interruptions due to geologic, permitting, labor,
weather-related or other factors; risks associated with major
mine-related accidents, mine fires, mine floods or other
interruptions; results of litigation, including claims not yet
asserted; foreign currency fluctuations that could adversely affect
the competitiveness of our coal abroad; difficulty maintaining our
surety bonds for mine reclamation as well as workers' compensation
and black lung benefits; difficulty in making accurate assumptions
and projections regarding post-mine reclamation as well as pension,
black lung benefits, and other post-retirement benefit liabilities;
uncertainties in estimating and replacing our coal reserves;
uncertainties in estimating and replacing our oil & gas
reserves; uncertainties in the amount of oil & gas production
due to the level of drilling and completion activity by the
operators of our oil & gas properties; the impact of current
and potential changes to federal or state tax rules and
regulations, including a loss or reduction of benefits from certain
tax deductions and credits; difficulty obtaining commercial
property insurance, and risks associated with our participation in
the commercial insurance property program; evolving cybersecurity
risks, such as those involving unauthorized access,
denial-of-service attacks, malicious software, data privacy
breaches by employees, insiders or others with authorized access,
cyber or phishing-attacks, ransomware, malware, social engineering,
physical breaches or other actions; and difficulty in making
accurate assumptions and projections regarding future revenues and
costs associated with equity investments in companies we do not
control.
Additional information concerning these and other factors can
be found in ARLP's public periodic filings with the SEC, including
ARLP's Annual Report on Form 10-K for the year ended December 31,
2019, filed on February 20, 2020 with the SEC. Except as required
by applicable securities laws, ARLP does not intend to update its
forward-looking statements.
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS AND OPERATING DATA
(In thousands, except unit and
per unit data)
(Unaudited)
Three Months Ended
March 31,
2020
2019
Tons Sold
7,251
10,321
Tons Produced
8,021
11,323
Mineral Interest Volumes (BOE)
495
327
SALES AND OPERATING REVENUES:
Coal sales
$
314,637
$
476,016
Oil & gas royalties
14,239
10,393
Transportation revenues
4,739
30,238
Other revenues
17,148
9,955
Total revenues
350,763
526,602
EXPENSES:
Operating expenses (excluding
depreciation, depletion and amortization)
234,342
302,728
Transportation expenses
4,739
30,238
General and administrative
13,438
17,812
Depreciation, depletion and
amortization
73,921
71,139
Asset impairments
24,977
—
Goodwill impairment
132,026
—
Total operating expenses
483,443
421,917
(LOSS) INCOME FROM OPERATIONS
(132,680)
104,685
Interest expense, net
(12,279)
(11,422)
Interest income
52
91
Equity method investment income
451
324
Equity securities income
—
12,906
Acquisition gain
—
177,043
Other expense
(356)
(129)
(LOSS) INCOME BEFORE INCOME
TAXES
(144,812)
283,498
INCOME TAX BENEFIT
(105)
(106)
NET (LOSS) INCOME
(144,707)
283,604
LESS: NET INCOME ATTRIBUTABLE TO
NONCONTROLLING INTEREST
(76)
(7,176)
NET (LOSS) INCOME ATTRIBUTABLE TO
ARLP
$
(144,783)
$
276,428
EARNINGS PER LIMITED PARTNER UNIT -
BASIC AND DILUTED
$
(1.14)
$
2.12
WEIGHTED-AVERAGE NUMBER OF UNITS
OUTSTANDING – BASIC AND DILUTED
127,072,308
128,149,791
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands, except unit
data)
(Unaudited)
March 31,
December 31,
2020
2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents
$
29,623
$
36,482
Trade receivables
137,261
161,679
Other receivables
322
256
Inventories, net
124,516
101,305
Advance royalties
1,085
1,844
Prepaid expenses and other assets
14,685
18,019
Total current assets
307,492
319,585
PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment, at cost
3,621,062
3,684,008
Less accumulated depreciation, depletion
and amortization
(1,662,335)
(1,675,022)
Total property, plant and equipment,
net
1,958,727
2,008,986
OTHER ASSETS:
Advance royalties
59,626
52,057
Equity method investments
28,114
28,529
Goodwill
4,373
136,399
Operating lease right-of-use assets
16,334
17,660
Other long-term assets
21,755
23,478
Total other assets
130,202
258,123
TOTAL ASSETS
$
2,396,421
$
2,586,694
LIABILITIES AND PARTNERS'
CAPITAL
CURRENT LIABILITIES:
Accounts payable
$
63,107
$
80,566
Accrued taxes other than income taxes
21,598
15,768
Accrued payroll and related expenses
35,718
36,575
Accrued interest
13,037
5,664
Workers' compensation and pneumoconiosis
benefits
11,175
11,175
Current finance lease obligations
7,043
8,368
Current operating lease obligations
2,264
3,251
Other current liabilities
21,687
21,062
Current maturities, long-term debt,
net
71,727
13,157
Total current liabilities
247,356
195,586
LONG-TERM LIABILITIES:
Long-term debt, excluding current
maturities, net
731,004
768,194
Pneumoconiosis benefits
95,089
94,389
Accrued pension benefit
43,361
44,858
Workers' compensation
44,999
45,503
Asset retirement obligations
135,232
133,018
Long-term finance lease obligations
2,039
2,224
Long-term operating lease obligations
13,991
14,316
Other liabilities
15,846
23,182
Total long-term liabilities
1,081,561
1,125,684
Total liabilities
1,328,917
1,321,270
PARTNERS' CAPITAL:
ARLP Partners' Capital:
Limited Partners - Common Unitholders
127,195,219 and 126,915,597 units outstanding, respectively
1,132,836
1,331,482
Accumulated other comprehensive loss
(77,055)
(77,993)
Total ARLP Partners' Capital
1,055,781
1,253,489
Noncontrolling interest
11,723
11,935
Total Partners' Capital
1,067,504
1,265,424
TOTAL LIABILITIES AND PARTNERS'
CAPITAL
$
2,396,421
$
2,586,694
ALLIANCE RESOURCE PARTNERS,
L.P. AND SUBSIDIARIES
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
March 31,
2020
2019
CASH FLOWS FROM OPERATING
ACTIVITIES
$
78,719
$
143,706
CASH FLOWS FROM INVESTING
ACTIVITIES:
Property, plant and equipment:
Capital expenditures
(50,364)
(84,043)
(Decrease) increase in accounts payable
and accrued liabilities
(3,612)
6,470
Proceeds from sale of property, plant and
equipment
2,500
103
Distributions received from investments in
excess of cumulative earnings
142
2,260
Payments for acquisitions of businesses,
net of cash acquired
—
(175,060)
Cash received from redemption of equity
securities
—
134,288
Net cash used in investing activities
(51,334)
(115,982)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Borrowings under securitization
facility
12,800
108,000
Payments under securitization facility
(28,200)
(110,000)
Payments on equipment financings
(3,225)
—
Borrowings under revolving credit
facilities
70,000
—
Payments under revolving credit
facilities
(25,000)
(150,000)
Payments on finance lease obligations
(1,510)
(7,341)
Payment of debt issuance costs
(5,758)
—
Payments for purchases of units under unit
repurchase program
—
(5,251)
Net settlement of withholding taxes on
issuance of units in deferred compensation plans
(1,310)
(7,817)
Distributions paid to Partners
(51,753)
(69,011)
Other
(288)
(262)
Net cash used in financing activities
(34,244)
(241,682)
NET CHANGE IN CASH AND CASH
EQUIVALENTS
(6,859)
(213,958)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD
36,482
244,150
CASH AND CASH EQUIVALENTS AT END OF
PERIOD
$
29,623
$
30,192
Reconciliation of GAAP "net (loss) income
attributable to ARLP" to non-GAAP "Adjusted net income attributable
to ARLP" (in thousands).
Adjusted net income attributable to ARLP is defined as net
(loss) income attributable to ARLP modified for certain items that
may not reflect the trend of future results, such as asset and
goodwill impairments and acquisition gains.
Adjusted net income attributable to ARLP should not be
considered as an alternative to net (loss) income attributable to
ARLP or any other measure of financial performance presented in
accordance with GAAP. Adjusted net income attributable to ARLP
excludes certain items that management believes affect the
comparability of our operating results. This adjusted financial
measure is used by our management and external users of our
financial statements, such as investors, commercial banks, research
analysts and others, to assess:
- our operational trends and performance relative to other coal
and mineral companies;
- the comparability of our performance to earnings estimates
provided by security analysts; and
- our performance excluding items which are generally
nonrecurring in nature or whose timing or amount cannot be
reasonably estimated.
We believe Adjusted net income attributable to ARLP is a useful
measure for investors because it further demonstrates our financial
performance without regard to items that may not reflect the trend
of future results.
Three Months Ended
Three Months Ended
March 31,
December 31,
2020
2019
2019
Net (loss) income attributable to ARLP
$
(144,783)
$
276,428
$
25,832
Asset impairments
24,977
—
—
Goodwill impairment
132,026
—
—
Acquisition gain
—
(177,043)
—
Acquisition gain attributable to
noncontrolling interest
—
7,083
—
Adjusted net income attributable to
ARLP
$
12,220
$
106,468
$
25,832
Reconciliation of GAAP "net (loss) income
attributable to ARLP" to non-GAAP "EBITDA," "Adjusted EBITDA" and
"Distributable Cash Flow" (in thousands).
EBITDA is defined as net (loss) income attributable to ARLP
before net interest expense, income taxes and depreciation,
depletion and amortization and Adjusted EBITDA is EBITDA modified
for certain items that may not reflect the trend of future results,
such as asset and goodwill impairments and acquisition gains.
Distributable cash flow ("DCF") is defined as Adjusted EBITDA
excluding interest expense (before capitalized interest), interest
income, income taxes and estimated maintenance capital
expenditures. Distribution coverage ratio ("DCR") is defined as DCF
divided by distributions paid to partners.
Management believes that the presentation of such additional
financial measures provides useful information to investors
regarding our performance and results of operations because these
measures, when used in conjunction with related GAAP financial
measures, (i) provide additional information about our core
operating performance and ability to generate and distribute cash
flow, (ii) provide investors with the financial analytical
framework upon which management bases financial, operational,
compensation and planning decisions and (iii) present measurements
that investors, rating agencies and debt holders have indicated are
useful in assessing us and our results of operations.
EBITDA, Adjusted EBITDA, DCF and DCR should not be considered as
alternatives to net (loss) income attributable to ARLP, net (loss)
income, (loss) income from operations, cash flows from operating
activities or any other measure of financial performance presented
in accordance with GAAP. EBITDA, Adjusted EBITDA and DCF are not
intended to represent cash flow and do not represent the measure of
cash available for distribution. Our method of computing EBITDA,
Adjusted EBITDA, DCF and DCR may not be the same method used to
compute similar measures reported by other companies, or EBITDA,
Adjusted EBITDA, DCF and DCR may be computed differently by us in
different contexts (i.e. public reporting versus computation under
financing agreements).
Three Months Ended
Three Months Ended
March 31,
December 31,
2020
2019
2019
Net (loss) income attributable to ARLP
$
(144,783)
$
276,428
$
25,832
Depreciation, depletion and
amortization
73,921
71,139
88,675
Interest expense, net
12,784
11,585
12,407
Capitalized interest
(557)
(254)
(421)
Income tax expense (benefit)
(105)
(106)
(341)
EBITDA
(58,740)
358,792
126,152
Asset impairments
24,977
—
—
Goodwill impairment
132,026
—
—
Acquisition gain
—
(177,043)
—
Acquisition gain attributable to
noncontrolling interest
—
7,083
—
Adjusted EBITDA
98,263
188,832
126,152
Interest expense, net
(12,784)
(11,585)
(12,407)
Income tax (expense) benefit
105
106
341
Estimated maintenance capital expenditures
(1)
(38,982)
(63,069)
(47,629)
Distributable Cash Flow
$
46,602
$
114,284
$
66,457
Distributions paid to partners
$
51,753
$
69,011
$
69,772
Distribution Coverage Ratio
0.90
1.66
0.95
____________________ (1) Maintenance capital expenditures are
those capital expenditures required to maintain, over the
long-term, the existing infrastructure of our coal assets. We
estimate maintenance capital expenditures on an annual basis based
upon a five-year planning horizon. For the 2020 planning horizon,
average annual estimated maintenance capital expenditures are
assumed to be $4.86 per ton produced compared to the estimated
$5.57 per ton produced in 2019. Our actual maintenance capital
expenditures fluctuate depending on various factors, including
maintenance schedules and timing of capital projects, among others.
We annually disclose our actual maintenance capital expenditures in
our Form 10-K filed with the SEC.
Reconciliation of GAAP "Operating
Expenses" to non-GAAP "Segment Adjusted EBITDA Expense" and
Reconciliation of non-GAAP "Adjusted EBITDA" to "Segment Adjusted
EBITDA" (in thousands).
Segment Adjusted EBITDA Expense includes operating expenses,
coal purchases and other expense. Segment Adjusted EBITDA Expense –
Coal excludes expenses of our Minerals segment. Transportation
expenses are excluded as these expenses are passed through to our
customers and, consequently, we do not realize any margin on
transportation revenues. Segment Adjusted EBITDA Expense is used as
a supplemental financial measure by our management to assess the
operating performance of our segments. Segment Adjusted EBITDA
Expense is a key component of EBITDA and Adjusted EBITDA in
addition to coal sales, royalty revenues and other revenues. The
exclusion of corporate general and administrative expenses from
Segment Adjusted EBITDA Expense allows management to focus solely
on the evaluation of segment operating performance as it primarily
relates to our operating expenses.
Three Months Ended
Three Months Ended
March 31,
December 31,
2020
2019
2019
Operating expense
$
234,342
$
302,728
$
286,845
Outside coal purchases
—
—
7,447
Other expense (income)
356
129
(931)
Segment Adjusted EBITDA Expense
234,698
302,857
293,361
Minerals expenses
(883)
(1,827)
(1,702)
Segment Adjusted EBITDA Expense - Coal
$
233,815
$
301,030
$
291,659
Divided by tons sold
7,251
10,321
9,432
Segment Adjusted EBITDA Expense per
ton
$
32.25
$
29.17
$
30.92
Segment Adjusted EBITDA is defined as net (loss) income
attributable to ARLP before net interest expense, income taxes,
depreciation, depletion and amortization, general and
administrative expenses, asset and goodwill impairments and
acquisition gain. Segment Adjusted EBITDA – Coal excludes the
contribution of our Minerals segment and equity securities income
to allow management to focus solely on the operating performance of
our coal segments.
Three Months Ended
Three Months Ended
March 31,
December 31,
2020
2019
2019
Adjusted EBITDA (See reconciliation to
GAAP above)
$
98,263
$
188,832
$
126,152
General and administrative
13,438
17,812
17,779
Segment Adjusted EBITDA
111,701
206,644
143,931
Minerals segment
(13,755)
(9,132)
(14,565)
Equity securities income
—
(12,906)
—
Segment Adjusted EBITDA – Coal
$
97,946
$
184,606
$
129,366
Divided by tons sold
7,251
10,321
9,432
Segment Adjusted EBITDA per ton
$
13.51
$
17.89
$
13.72
View source
version on businesswire.com: https://www.businesswire.com/news/home/20200508005069/en/
Brian L. Cantrell Alliance Resource Partners, L.P. (918)
295-7673
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