Alliance Resource Partners, L.P.

reading. Welcome to Alliance Resource Partners second quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce Carrie Marshall, Senior Vice President and Chief Financial Officer. Thank you. You may begin.

Thank you, Operator, and welcome, everyone. Earlier this morning, Alliance Resource Partners released its second quarter 2025 financial and operating results, and we will now discuss those results as well as our perspective on current market conditions and outlook for 2025. Following our prepared remarks, we will open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties, and assumptions, contained in our filings from time to time with the Securities and Exchange Commission, and are also reflected in this morning's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. In providing these remarks, the partnership has no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, unless required by law to do so. Finally, we will also be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures are contained at the end of this morning's press release. which has been posted on our website and furnished to the SEC on form 8K. With the required preliminaries out of the way, I will begin with a review of our second quarter 2025 results, give an update of our 2025 guidance, then turn the call over to Joe Kraft, our chairman, president, and chief executive officer for his comments. For the 2025 second quarter, which we refer to as the 2025 quarter, Total revenues were $547.5 million compared to $593.4 million in the second quarter of 2024, which we refer to as the 2024 quarter. The year-over-year decline was driven primarily by lower coal sales prices and lower transportation revenues, partially offset by higher coal sales volumes. Compared to the sequential quarter, total revenues increased $7 million due primarily to increased coal sales volumes. Our average coal sales price per ton for the 2025 quarter was $57.92, a decrease of 11.3% versus the 2024 quarter and 3.9% on a sequential basis, driven by the continued roll-off of higher-priced legacy contracts from the 2022 energy crisis and a revenue mix with a higher proportion of Illinois Basin tons in the 2025 quarter. As it relates to volumes, Total coal production in the 2025 quarter of 8.1 million tons was 3.9% lower compared to the 2024 quarter, while coal sales volumes increased 6.8% to 8.4 million tons compared to the 2024 quarter. Compared to the sequential quarter, coal sales volumes were up 7.9%. Total coal inventory at quarter end was 1.2 million tons, or 200,000 tons lower than the sequential quarter. In the Illinois Basin, coal sales volumes increased 15.2% and 10.3% compared to the 2024 and sequential quarters, respectively, led by increased volumes from our Riverview and Hamilton mines, who both delivered all-time record monthly shipments in June. Coal sales volumes in Appalachia were down 16.8% and 0.7% compared to the 2024 and sequential quarters, due to continued challenging mining conditions at Tunnel Ridge, which led to lower recoveries. Tunnel Ridge did start its longwall move to a new section of the mine late in the 2025 quarter. The longwall move was completed in mid-July and puts Tunnel Ridge in much more favorable mining conditions moving forward. As a result, we expect second half results from Appalachia to be much better than the first half. Turning to costs, segment-adjusted EBITDA expense per ton sold for our coal operations was $41.27, a decrease of 9% versus the 2024 quarter, and 3.5% as compared to the sequential quarter. The Illinois Basin was the primary driver of the decrease year over year, resulting from lower maintenance and materials and supplies costs at several mines in the region, improved recoveries at our Riverview and Hamilton mines, and reduced long wall move days at Hamilton. In Appalachia, despite the challenging conditions at Tunnel Ridge, segment-adjusted EBITDA expense per ton continued its improvement relative to recent quarters, declining 5.8% sequentially. In our royalty segments, total revenues were $53.1 million in the 2025 quarter, up 0.2% compared to the 2024 quarter. Specifically, oil and gas royalty volumes increased 7.7% year-over-year on a BOE basis due to increased drilling and completion activities on our royalty acreage. However, this was offset by 9.6% lower BOE pricing versus the 2024 quarter. Compared to the sequential quarter, total revenues increased 0.8% due to higher volumes from our coal royalty segment. Coal royalty tons sold increased 10.4% and 8.3% compared to the 2024 quarter and sequential quarter, respectively. Coal royalty revenue per ton for the 2025 quarter was down 3.6% compared to the 2024 quarter and up 3.2% sequentially. Our net income in the 2025 quarter was $59.4 million as compared to $100.2 million in the 2024 quarter and $74 million sequentially. The decrease reflects the previously discussed variances plus higher depreciation expense and a $25 million non-cash impairment on our July 2023 preferred stock investment in a battery materials company following the conversion of all of the company's preferred stock to common stock as a part of a convertible note financing and recapitalization completed during the 2025 quarter. We elected to participate in the recapitalization investing $2 million in the convertible note during the quarter to maintain a senior position within the capital structure with the goal of recouping all or part of Alliance's total invested capital upon a future liquidity event or repayment of the convertible note. This charge was partially offset by a $16.6 million increase in the fair value of our digital assets compared to the end of the 2024 quarter. Adjusted EBITDA for the quarter was $161.9 million, which was down 10.8% compared to the 2024 quarter and up 1.2% sequentially. Now turning to our balance sheet and uses of cash. Total debt was $477.4 million at the end of the 2025 quarter. Our total and net leverage ratios finished the quarter at 0.77 and 0.69 times, respectively, total debt to 12 months adjusted EBITDA. Total liquidity was $499.2 million at quarter end, which included $55 million of cash on the balance sheet. Additionally, we held approximately 542 Bitcoin on our balance sheet valued at $58 million at the end of the 2025 quarter at a price of approximately $107,000 per Bitcoin. At this morning's price of $118,000 per Bitcoin, 542 Bitcoin would be valued at $63.9 million or $5.9 million higher than the end of the 2025 quarter. For the 2025 quarter, Alliance generated free cash flow of $79 million after investing $65.3 million in our coal operations. Turning to our updated 2025 guidance detailed in this morning's release, Favorable weather for most of this past season and increased demand for electricity drove natural gas prices higher and increased coal consumption in the eastern United States, helping further reduce customer inventories and increase domestic coal burn compared to 2024. With long-term demand forecasts being ramped up across the country in a more favorable regulatory environment, we are seeing multiple domestic customer solicitations for long-term supply contracts. During the 2025 quarter and subsequent to its end, we have been active in several domestic utility solicitations for 2026 and beyond, having been mostly sold out for this year as customers continue to value our product quality, reliability of service, and counterparty financial strength. During the 2025 quarter, we committed an additional 17.4 million tons over the 2025 to 2029 time period, which included 1.1 million option tons subject to our customers' election. Our contracted position for 2025 is 32.3 million tons committed in price. It includes 29.5 million tons for the domestic market and 2.8 million tons for export. In the Illinois Basin, we are increasing our volume guidance ranges to 25 to 25.75 million tons based on solid domestic demand. In Appalachia, Lower volumes at Tunnel Ridge and a customer default at MC Mining during the first half of the year are leading us to reduce our volume expectations for the year to 7.75 to 8.25 million tons. Looking at 2026, strong demand for term supply and an active contracting season allowed us to add significantly to our order book. Assuming estimated full-year sales of 33.4 million tons, which is the midpoint of our 2025 full-year guidance range, of 32.75 to 34 million tons, we are now 97% committed for 2025 and 80% committed in price for 2026, up from 61% committed last quarter for 2026, putting us in good position for this time of year. We have the capacity to flex additional tons to domestic or export customers should market conditions warrant additional sales. With a more constructive regulatory backdrop, our customers are responding, running their assets harder to meet the heightened demand while extending the planning life of those same assets. All told, we believe this is the most encouraging outlook we've seen for the domestic market since the beginning of 2023, more than making up for persistent weakness in the seaborne thermal and metallurgical markets. We increased sales pricing guidance ranges in Appalachia to $79 to $83 per ton. Our expected full-year 2025 price is unchanged at $57 to $61 per ton based on a combination of our committed order book and our expectations for any additional commitments, both domestic and export, for the open position. As we discussed last quarter, we anticipate that our 2026 average coal sales price per ton to be approximately 5% below the midpoint of our 2025 guidance range. And like this year, we remain optimistic we can maintain margins with cost savings, though current trade policy does make these costs, sales opportunities, and pricing hard to predict. On the cost side, we are reducing our full year 2025 segment adjusted EBITDA expense per ton to be in a range of $39 to $43, primarily due to better-than-expected costs in the Illinois Basin. As I mentioned earlier, we completed a scheduled longwall move earlier this month at Tunnel Ridge, and we have a move scheduled at Hamilton in the third quarter. In our oil and gas royalties business, volumes have exceeded our expectations year-to-date, and we are increasing our guidance for all three commodity streams with ranges of 1.65 to 1.75 million barrels of oil, 6.3 to 6.7 million MCF of natural gas, and 825 to 875,000 barrels of natural gas liquids. On a BOE basis, our updated full-year guidance midpoint is approximately 5% above our prior guidance. Segment-adjusted EBITDA expense is expected to be approximately 14% of oil and gas royalty revenues for the year. Other than a slight improvement to our estimate for net interest expense, all remaining guidance ranges, including total capital expenditures, are unchanged. And with that, I will turn the call over to Joe for comments on the market and his outlook for ARLP. Joe?

Thank you, Kerry. Good morning, everyone. Our Illinois basin operations ran well again in the second quarter. highlighted by record shipment volumes in June at two of our operations. These results are a direct result of the hard work and dedication of our entire team. While our financial results for the quarter continue to reflect some of the lingering issues at Tunnel Ridge and Appalachia, in lower realized coal and oil and gas royalties pricing, we are encouraged by signs of improvement in the coal market fundamentals. With supportive actions by the current administration, we believe our long-term outlook for ARLP is as strong as it has been in years. The domestic coal market continues to demonstrate exceptionally strong fundamentals driven by AI data center expansion and increased domestic manufacturing. June temperatures were warmer than normal across our key operating regions, driving significant increases in coal generation compared to last year. This weather-driven demand surge, combined with natural gas prices that remain elevated, has reinforced coal's competitive advantage in the power generation mix. Year-to-date, electricity generation in key eastern regions was up over 18% compared to last year, and eastern utility inventories are 18% below prior year, nearing equilibrium for the first time since the summer of 2023. This inventory tightness paired with robust summer demand, is creating a significant, more supportive demand environment as utilities prioritize energy security and grid reliability. Given our success this year in securing a significant volume of committed tons for delivery over the next three to four years, we are cautiously optimistic that there will be opportunities to grow sales volumes next year. While the average coal sales price per ton may trend lower than this year, we expect the increased production, along with our recently completed capital projects, will drive costs per ton lower so margins can be maintained around this year's level. On the oil and gas royalties front, higher volumes this quarter helped offset lower oil prices year over year. As Kerry said earlier, our strong volume performance is expected to continue leading us to increase the midpoint of our 2025 BOE volume guidance by approximately 5%, demonstrating the high quality of our acreage position and organic growth potential embedded in our existing portfolio. Looking forward, while the volatility of oil prices related to geopolitical tensions has impacted deploying capital this year, our strategy for oil and gas royalties business is unchanged. aiming to recycle segment cash flows to acquire minerals in high-quality basins with top-tier operators when those opportunities meet our disciplined underwriting standards. From a macro perspective, the ongoing shift in our country's energy policy has been a complete reversal from the prior administration. In July, the Department of Energy released their Resource Adequacy Report, which provides compelling federal validation for this shift. consistent with what our industry has stated ever since President Obama was elected. The current administration has taken many supportive actions to ensure the United States is a global leader in artificial intelligence. To achieve this aim, America needs vast amounts of affordable, reliable energy. That is why President Trump signed four executive orders in April of this year specifically addressing grid reliability concerns and the necessity to delay premature coal power plant retirements. That is, in part, why on July 4th he signed into law the One Big Beautiful Bill Act, which included phasing out renewable tax credits in favor of baseload generation, including coal, which is essential for America's energy security. That's why President Trump announced on July 17 a two-year reprieve from certain regulatory rules for coal-fired power plants and other industries he terms, quote, vital to national security, end quote. The White House said in a fact sheet that President Trump's actions will ensure that, quote, critical industries can continue to operate uninterrupted to support national security without incurring substantial cost, end quote. As recent as last week, President Trump said the U.S. will do, quote, whatever it takes, end quote, to lead the world in artificial intelligence as he signed three executive orders that laid out his administration's plans to advance AI leadership by accelerating data center development and related energy infrastructure. In conclusion, each quarter, The Board considers multiple factors when determining the appropriate distribution levels, including, but not limited to, expected operating cash flows generated by our businesses, capital needed to maintain our operations, distribution coverage levels, debt service costs, trade policy uncertainty, and any other potential investment opportunities. Today's announced quarterly distribution rate of 60 cents per unit or $2.40 on an annualized basis, was based upon all these factors, as well as our increased visibility in 2025 and 2026 expected cash flows and committed tons. It's also worth noting that maintaining an attractive after-tax distribution is one of our primary capital allocation objectives. With passage of the One Big Beautiful Bill Act, which restored 100% bonus depreciation and extended the 20% qualified business income deduction under Tax Code Section 199A, the after-tax distribution in 2025 for the majority of units outstanding is expected to be higher than what the previous distribution rate of $0.70 per unit would have delivered under the prior tax code. As Kerry said earlier, this is the most encouraging outlook we've seen for the domestic coal market since the early 2023. We are also operating in the most favorable regulatory environment for coal in decades. We are optimistic about the future coal potential across all areas. Excuse me. We're also optimistic about the future growth potential across all areas of our businesses. This also includes Examples such as our recent $25 million commitment to a private investment vehicle that will fund the acquisition of the Gavin Coal Power Plant located in the PJM market. While the transaction was pending FERC approval as of the quarter end, we are pleased to report that the approval was received on July 23rd and is expected to close during August. The welcome news came one day after PJM announced the results of their auction, the price generating capacity for the delivery year June 1, 2026 to May 31, 2027. The price came in at the FERC-approved cap of $329.17 per megawatt day for the entire PJM footprint, a new record for most of PJM, the nation's largest grid operator. Demonstrating its importance, coal was the second largest source of generating capacity that cleared the auction. So as you consider why the Board adjusted the distribution at this time, I want to assure you it is not related to declining fortunes, but instead to strengthen our balance sheet and provide additional financial flexibility to pursue growth opportunities to maximize unit owner value. That concludes our prepared comments, and I will now ask the operator to open the call for questions. Operator?