Alliance Resource Partners, L.P.

Greetings. Welcome to Alliance Resource Partners' third quarter 2025 earnings conference call. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone today should require operator assistance during the conference, please press star zero from your telephone keypad. Please note that this conference is being recorded. At this time, I'll turn the conference over to Carrie Marshall, Senior Vice President and Chief Financial Officer. Thank you. You may now begin.

Thank you operator and welcome everyone. Earlier this morning, Alliance Resource Partners released its third 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 the remainder of 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 ARLP'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 third 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 third quarter of 2025, which we refer to as the 2025 quarter, total revenues were $571.4 million compared to $613.6 million in the third 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 second quarter of 2025, which we refer to as the sequential quarter, total revenues increased by 4.4% due to higher coal sales volumes and prices. Our average coal sales price per ton for the 2025 quarter was $58.78, a decrease of 7.5% versus the 2024 quarter, but an increase of 1.5% on a sequential basis. The year-over-year decline was primarily due to higher-priced legacy contracts entered into during the energy crisis of 2022 that expired in 2024. As it relates to volumes, total coal production in the 2025 quarter of 8.4 million tons was 8.5% higher compared to the 2024 quarter while total coal sales volumes increased 3.9% to 8.7 million tons compared to the 2024 quarter. Compared to the sequential quarter, total coal sales volumes were up 3.8%. Total coal inventory at quarter end was approximately 950,000 tons, down 1.1 and 0.2 million tons compared to the 2024 quarter and sequential quarter respectively. In the Illinois Basin, coal sales volumes increased by 10.8% as compared to the 2024 quarter, led by increased volumes from our Hamilton, Warrior, and Riverview mines, but were down 0.8% versus the sequential quarter due to timing of delivery for contracted tons. Coal sales volumes in Appalachia were down 13.3% compared to the 2024 quarter due to lower production year-to-date at our Tunnel Ridge mine but were up 21.8% versus the sequential quarter as we successfully transitioned the longwall at Tunnel Ridge to a new longwall district during the 2025 quarter, which was the primary driver for the increased volumes. As anticipated, the new district has delivered improved geology and mining conditions compared to the challenges we experienced over the last several quarters. Segment adjusted EBITDA expense per ton sold in Appalachia improved 11.7% compared to the 2024 quarter, as all mines in Appalachia achieved lower cost in the 2025 quarter. And sequentially, better results from NC Mining and Tunnel Ridge contributed to a 12.1% improvement in the 2025 quarter. In the Illinois Basin, segment adjusted Our expense per ton decreased 6.4% compared to the 2024 quarter, primarily as a result of increased regional production, lower longwall move days at Hamilton, and improved recoveries at our Riverview and Hamilton mining operations. Expenses in the 2025 quarter included a $4.4 million unfavorable contingent consideration liability adjustment at our Hamilton mine related to our original acquisition based upon a revised outlook that anticipates increased production in the future at Hamilton. But for this adjustment, segment adjusted EBITDA expense per ton in the 2025 quarter in the Illinois Basin would have been flat with the sequential quarter. Turning to our royalties segments, total revenues were $57.4 million in the 2025 quarter, up 11.9% compared to the 2024 quarter. The year-over-year increase in revenues primarily reflects higher coal royalties tons and revenue per ton sold, partially offset by lower average oil and gas price per BOE. Specifically, coal royalty tons sold during the 2025 quarter increased 38.1% compared to the prior year and 28.5% sequentially, primarily due to higher tunnel ridge volumes. which drove coal royalty segment-adjusted EBITDA up 54.5% compared to the 2024 quarter and 44.6% higher compared to the sequential quarter. Oil and gas royalty BOE volumes during the 2025 quarter increased 4.1% year over year. However, a lower mix of oil volumes and lower realized crude oil pricing resulted in a 10.5% decline in average oil and gas sales price per BOE compared to the 2024 quarter. Our net income attributable to ARLP in the 2025 quarter was 95.1 million. This included a 3.7 million favorable increase in the fair value of our digital assets and 4.5 million in investment income from previous growth investments. Adjusted EBITDA for the quarter was 185.8 million, up 9% from the 2024 quarter, and up 14.8% sequentially. Now turning to our balance sheet and uses of cash, as of September 30, 2025, our total and net leverage ratios were 0.75 times and 0.6 times debt to trailing 12 months adjusted EBITDA, respectively. Total liquidity was $541.8 million at quarter end, which included $94.5 million of cash on the balance sheet. Additionally, We held approximately 568 Bitcoin on our balance sheet, valued at 64.8 million at the end of the 2025 quarter, based upon a price of approximately 114,000 per Bitcoin. For the 2025 quarter, Alliance generated free cash flow of 151.4 million after investing 63.8 million in our coal operations. Distributable cash flow for the 2025 quarter was 106.4 million, up 17% sequentially, leading to a calculated distribution coverage ratio of 1.37 times based on a quarterly cash distribution of $0.60 per unit or $2.40 per unit on an annualized basis. Turning to our updated 2025 guidance detailed in this morning's release, favorable weather for most of this past cooling season and rising electricity demand drove increased coal consumption in the eastern United States, helping further reduce customer inventories. Long-term demand forecasts continue to be revised higher across the country. As the more favorable regulatory environment continues, we are observing a steady stream of domestic customer solicitations for long-term supply contracts. During the 2025 quarter and subsequent to its end, ARLP has remained active in domestic utility solicitations for 2026 and beyond. Our teams have been successful in securing additional contract commitments as customers continue to value our product quality, reliability of service, and financial strength. Our contracted position for 2025 is up slightly to 32.8 million tons committed and priced, including 29.8 million tons for the domestic market and 3 million tons for exports. We have elected to tighten our full-year sales guidance to 32.5 to 33.25 million tons, with the midpoint coming in within 1% of our previous guidance in July. Perhaps more importantly, strong demand for our supply allowed us to add to our 2026 order book once again. We have now contracted and priced 29.1 million sales tons for 2026, up 9% from last quarter, putting us in a good position for this time of year for prompt year shipments. With respect to pricing, we increased the low end of our coal sales pricing guidance ranges for both the Illinois Basin and Appalachia. And on the cost side, we expect full year 2025 segment adjusted EBITDA expense per ton to be in a range of $60 to $62 per ton in Appalachia and $34 to $36 per ton in the Illinois Basin. In our oil and gas royalties business, we are adjusting our full year 2025 oil volume guidance to account for a timing delay and a high royalty interest multi-well development pad in the Delaware Basin of the Permian, which is now expected to come online in early 2026. As it relates to all our other guidance ranges, they are largely unchanged from our previous expectations. 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, and good morning, everyone. Our operations deliver another solid quarter of performance, tracking consistently with our operating plan thanks to the dedication and hard work of our entire team. As Kerry described, the significant infrastructure investments we have made in our co-operations over the past three years are beginning to pay off. Our Illinois Basin operations are performing well, led by Hamilton, which benefited from new automated longwall shields, commencing operation immediately after a successful longwall move in early August. Looking forward, the combination of shield and shear automation is expected to enhance productivity, reduce the number of personnel required on the face, and minimize maintenance demands. At our Riverview complex, the Henderson County mine achieved a key infrastructure milestone in late August with the opening of its new portal facility. Equipment and personnel transitions to better mining conditions are planned to be in place early next year when six units are scheduled to be operating at the Henderson County mine and three units are scheduled to remain operating at the Riverview mine. Atalachia operations improvements were led by Tunnel Ridge, which successfully transitioned to a new longwall district in the 2025 quarter. As expected, the move has resulted in significantly improved mining conditions, dropping the mine's cost per ton sold by 8.8% compared to the 2024 quarter and 19.3% to the sequential quarter. With both regions performing well, our total cost expectations for 2025 are on track to fall within the updated guidance range. Looking at the coal market, U.S. coal demand is continuing to experience strong fundamentals, supported by a combination of favorable federal energy and environmental policy to preserve America's coal fleet plus rapid electricity demand growth. Compared to last year, Year-to-date utility coal consumption has increased by 15% in MISO and 16% in PJN. This surge reflects not only favorable natural gas pricing, but more importantly, a realization of the dramatic load growth required by artificial intelligence and data centers. Natural gas fundamentals remain supportive of coal dispatch economics. Henry Hub has averaged over $3.50 per million BTU in 2025, and the current forward strip is averaging higher pricing in 2026 and 2027. Rising electricity demand combined with expected growth of LNG export capacity should keep upward pressure on natural gas prices, further enhancing coal's competitiveness in power generation dispatch. Furthermore, utility coal stockpiles have normalized at healthy levels, supporting more robust term contracting activity. With normalized utility inventories and unprecedented demand growth from data centers, analysts we follow are projecting 4% to 6% annual growth in electricity demand in PJM and other markets we serve over the next several years. As a result, We believe Alliance is well positioned to increase production at Tunnel Ridge and in the Illinois Basin in 2026 to meet this demand. Market signals are validating the need to keep baseload power plants online to meet this anticipated electricity demand, including coal-fired power plants previously planned for decommissioning. The recent PJM capacity auction cleared at maximum allowable prices with every megawatt of coal capacity selected, while reserve margins fell below reliability targets, clearly demonstrating that the grid needs every available megawatt of dispatchable generation. During the quarter, as I mentioned in our last earnings call, to assist in extending the lives of coal plants in our marketing footprint, We invested $22.1 million as part of a $25 million commitment in a limited partnership that indirectly acquired a coal-fired plant in the PJM service area, positioning Alliance to directly benefit from the tightening power markets and growing demand for a reliable baseload generation. We expect this investment to generate attractive cash-on-cash returns during 2026 and beyond. In conclusion, our priorities remained unchanged, maintaining a strong balance sheet, investing prudently in our core operations, and positioning Alliance for long-term growth while delivering attractive after-tax returns to our unit holders. With the completion of several major capital projects at our minds, sustaining capital needs in our coal segment are expected to decline meaningfully, which enhances free cash flow visibility for 2026 and beyond. In our oil and gas royalties business, we continue to pursue disciplined, accretive growth opportunities. Although lower commodity pricing has limited investment opportunities in 2025, the segment remains unlevered and we strive to reinvest internally generated cash flow to expand our minerals position where we see attractive economics and high-quality operator activity. Returning capital to our unit holders remains a key component of our strategy. During the 2025 quarter, we declared a quarterly distribution of $0.60 per unit, equating to an annualized rate of $2.40 per unit and unchanged from the sequential quarter. As Kerry said, distributable cash flow for the 2025 quarter was $106.4 million, up 17% sequentially, leading to a calculated distribution coverage ratio of 1.37 times for the 2025 quarter. We expect the operating and financial results for the fourth quarter to equal our outstanding 2025 quarter results. At Alliance, we remain laser-focused on delivering what America needs most, reliable, affordable base load generation. With supportive policy, improving market fundamentals, and disciplined execution, we believe we are well-positioned for the balance of 2025 and beyond. That concludes our prepared comments, and I will now ask the operator to open the call for questions. Operator?