Alliance Resource Partners, L.P.

Greetings and welcome to the Alliance Resource Partners first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Carrie Marshall, Chief Financial Officer of Alliance Resource Partners. Thank you, sir. You may begin.

Thank you, Operator. Good morning, and welcome, everyone. Earlier today, Alliance Resource Partners released its first quarter 2026 financial and operating results. We will review the quarter, discuss our perspective on current market conditions and outlook for 2026, and then open the call to answer your questions. Before beginning, a reminder. that some of our remarks today may include forward-looking statements which are 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 that, I will begin with a review of our first quarter 2026 results and discuss our updated outlook for 2026 before turning the call over to Joe Kraft, our Chairman, President, and Chief Executive Officer, for his comments. Overall, the quarterly results came in higher than expected due to record BOE volumes and higher commodity prices that increased oil and gas royalties revenues. Tons produced from our coal operations were on target. However, temporary weather-related disruptions caused approximately 200,000 tons of scheduled shipments to be delayed. For the first quarter of 2026, which we refer to as the 2026 quarter, Adjusted EBITDA was $155 million, which was higher than expected, but 3.1% lower compared to the first quarter of 2025, which we refer to as the 2025 quarter, and down 18.9% compared to the fourth quarter of 2025, which we refer to as the sequential quarter. Net income attributable to ARLP in the 2026 quarter was $9.1 million, or $0.07 per unit, as compared to $74 million or $0.57 per unit in the 2025 quarter. Net income in the 2026 quarter reflected lower coal sales revenue, higher depreciation, an $11.6 million decrease in the fair value of our digital assets, and a $37.8 million non-cash asset impairment charge at our Metiki mine following our decision to cease longwall production on account of uncertainty regarding future operations, as discussed in our January 29th press release. We continue to evaluate the appropriate path forward for Metiki, though meaningful uncertainty remains and greater clarity is not expected until later this year. In the interim, Our priority at Medtiki is to reduce costs while preserving the flexibility and optionality needed to align future operations with customer demand. In the 2026 quarter, total revenues were $516 million, down 4.5% compared to the 2025 quarter, and down 3.6% compared to the sequential quarter. Lower coal sales pricing and volume sequentially primarily drove the decline which was partially offset by higher oil and gas royalty revenues. During the quarter, weather-related river disruptions delayed certain committed deliveries. However, we expect our delayed shipments will be recovered over the balance of the year. Our average coal sales price per ton for the 2026 quarter was $56.40, a 6.5% decrease versus the 2025 quarter, and a 2% decrease sequentially. As noted during prior calls, pricing is normalizing as higher price legacy coal contracts entered into during the 2022 energy crisis continue to roll off and are being replaced at coal pricing levels consistent with our current guidance ranges. Total coal production in the 2026 quarter was 8 million tons compared to 8.5 million tons in the 2025 quarter. Coal sales volumes were 7.9 million tons in the 2026 quarter, up from 7.8 million tons in the 2025 quarter and down from 8.1 million tons in the sequential quarter. In the Illinois Basin, coal sales volumes were 6.1 million tons, up 0.4% compared to the 2025 quarter and down 5.9% compared to the sequential quarter. Volumes declined primarily due to decreased tonne sold from our Hamilton mine as a result of an extended longwall move scheduled during the 2026 quarter. While the longwall move at Hamilton reduced production and shipments during the quarter, increased productivity at Riverview and Gibson South helped offset some of that impact. The longwall at Hamilton is currently anticipated to resume production in the first half of May 2026. Illinois Basin coal sales price per ton was $51.05 in the 2026 quarter, a decrease of 7.4% versus the 2025 quarter, and an increase of 0.4% compared to the sequential quarter. The decrease versus the 2025 quarter was the result of the expiration of higher-priced legacy contracts. Segment-adjusted EBITDA expense per ton in the Illinois Basin was $35.20. an increase of 1.3% compared to the 2025 quarter, and up 3.4% sequentially due primarily to the extended longwall move at our Hamilton mine this quarter. In our Appalachia region, coal sales volumes were 1.8 million tons in the 2026 quarter, up 3.6% compared to the prior year due to a longwall move at our Tunnel Ridge mine in the 2026 quarter. Appalachia cold sales price per ton was $74.51, reflecting an expected decrease of 4.8% versus the 2025 quarter and 11.1% versus the sequential quarter, as the percentage of higher-priced Metiki sales volumes were lower and tunnel ridge sales volumes increased during the 2026 quarter. Segment-adjusted EBITDA expense per ton in Appalachia was $62.19. a decrease of 10.8% versus the 2025 quarter, and a decrease of 1.8% versus the sequential quarter. The year-over-year improvement was driven primarily by increased production at our tunnel ridge operation. ARLP ended the 2026 quarter with total coal inventory of 1.2 million tons, down 0.2 million tons year-over-year, and up 0.1 million tons sequentially. In our royalty segments, we delivered strong results during the 2026 quarter. Total royalty revenues were $61.2 million, up 16.1% year-over-year, and up 7.7% sequentially. In our oil and gas royalty segment, we achieved another record quarter. Oil and gas royalty revenues were $41.3 million in the 2026 quarter, up 14.6% year-over-year. We reported record BOE volumes of $1 million, up 16.1% year-over-year and 3.3% sequentially. Commodity pricing increased sequentially and segment-adjusted EBITDA for the oil and gas royalty segment increased to $34.6 million in the 2026 quarter, up over 15% compared to both the 2025 quarter and sequential quarter. Segment adjusted EBITDA for our coal royalty segment was $12.3 million in the 2026 quarter, up 30.6% compared to the 2025 quarter due to higher royalty tons sold primarily from Tunnel Ridge. This was partially offset by lower average royalty rates per ton sold. Our balance sheet continues to be strong. As of March 31, 2026, Total debt and finance leases were outstanding in the amount of $507.7 million, and our total and net leverage ratios were 0.73 and 0.69 times debt to trailing 12 months adjusted EBITDA. Total liquidity was $431.2 million, which included $28.9 million of cash and cash equivalents on hand, and $402.3 million of borrowings available under our revolving credit and accounts receivable securitization facilities. We also held 618 Bitcoin, valued at $42.2 million at quarter end, based on $68,233 per coin. For the 2026 quarter, we invested $95.7 million in capital expenditures and $16.2 million in total oil and gas minerals acquisitions. We reported distributable cash flow of 77.8 million. Based on our 60 cent per unit quarterly cash distribution, distributions paid to partners were 78 million, and our distribution coverage ratio for the quarter was one times. Turning to our updated 2026 guidance, I will highlight three items. First, we are maintaining our overall guidance ranges for coal sales volumes, coal sales price, and segment-adjusted EBITDA expense per ton. We will complete planned long-law move activity for the year during the upcoming quarter, and with no additional long-law moves anticipated until the first quarter of 2027, we expect better operational visibility in the second half of 2026. As usual, we plan to update investors again when we release second-quarter earnings. Second, contracting activity has remained constructive. We layered on 2.6 million net contracted tons for delivery in 2026 and 2027. As a result, our 2026 expected coal sales volumes are now more than 95% committed and priced at the midpoint of our guidance ranges. The remaining open position is concentrated in the second half of 2026 and dependent upon summer burn and customer requirements. Finally, the most notable changes to our guidance are in the oil and gas royalty segment, where year-to-date volumes have exceeded our initial expectations. Based on that outperformance, we are increasing our 2026 volume guidance by approximately 5% on a BOE basis. We now estimate 1.6 to 1.7 million barrels of oil, 6.6 to 7 million MCF of natural gas, and 875,000 to 925,000 barrels of natural gas liquids. Latest trends in crude oil pricing have improved the near-term outlook, and if current strip pricing is realized, we expect realized BOE prices to be higher than last year, supporting stronger segment-adjusted EBITDA. And with that, I'll turn the call back to Joe for his comments on the market environment and our outlook.

Joe? Thank you, Kerry. Good morning, everyone. Thank you for joining the call today. Alliance delivered a solid first quarter with adjusted EBITDA exceeding our internal target due to record BOE volumes and higher commodity prices that increased oil and gas royalties revenues. Our cooperation's results were generally in line with our expectations despite weather-related shipment disruptions and the planned extended longwall move at Hamilton. As Kerry said earlier, we expect the first quarter shipment disruptions tied to winter storm burn and subsequent high water conditions to be recovered over the balance of the year. During the quarter, our teams executed well across the portfolio, including health and safety results that rank as one of our best quarters over the past five years. In the Illinois Basin, increased production at Riverview and Gibson South helped offset the lower production we expected at Hamilton as a result of the planned extended longwall move. In late March, we also successfully completed the final phase of our multi-year Riverview to Henderson County minor unit transition, bringing the Henderson County mine up to its planned full production capacity of six supersections, and Riverview is now positioned to operate three supersections moving forward. And Appalachia Tunnel Ridge returned to steady longwall production, with production increasing approximately 28% compared to both the 2025 quarter and the sequential quarter. Operationally, These results reflect the value of the recapitalization work we've done across the portfolio over the past several years. Those investments are helping us realize productivity gains, access new reserves efficiently, and maintain a low-cost operating base to serve our customers' needs well into the next decade. Looking more broadly at the market, several themes shaped conditions during the quarter. Winter storm Fern and the extended freezing weather across the eastern United States once again highlighted the critical role coal plays in maintaining grid reliability during extreme weather. According to America's Power, coal-fired generation in several eastern regions operated at capacity factors approaching 80% during peak periods, materially outperforming natural gas and renewable resources when electricity demand was highest. While storm-related incremental coal burn didn't fully offset milder conditions throughout the quarter, utility stockpiles generally remain aligned with our burn projections entering the year. And summer weather will ultimately drive spot market activity for the balance of 2026. Second, the conflict involving Iran briefly improved a previously quiet export market. In the weeks following the conflict, traders reacted quickly to dislocations in API2 pricing, allowing Alliance to capitalize on a narrow window for export sales by securing 2 million tons of commitments to be delivered over 2026 and 2027. While API2 prices have since softened, The conflict has contributed to higher global oil prices, which continues to be supportive of our oil and gas royalty segment. Beyond these shorter-term market dynamics, we continue to see longer-term structural support for coal-fired generation. Load growth remains one of the most significant forces reshaping U.S. power markets, and importantly, it is becoming more tangible. According to S&P, over 100 gigawatts of data center demand is now under contract, with a significant concentration in the eastern United States. Execution and timing remain the key variables. The magnitude of this commitment represents a clear inflection point. The need for reliable, fuel-secure generation is becoming better understood across the grid, emphasizing the importance of cogeneration capacity and justifying the decisions to invest capital in the existing coal fleet to keep that capacity running for much longer than anticipated three years ago. Additionally, I would highlight that we are encouraged by a few recent policy developments that also improve the outlook for coal-fired generation. EPA actions on CCR and MATS during the quarter moved the regulatory framework in a more practical direction. lowering compliance costs, increasing operating flexibility, and reducing uncertainty for coal plants. We believe these changes support the reliability and affordability of dispatchable power and are constructive for our utility customers and for ARLP. We applaud these and the administration's continued deregulation efforts. Turning our attention to our royalty segments, our oil and gas business delivered another record quarter driven by growth in volumes from increased drilling and completion activity by our operating partners and contributions from recent acquisitions. With the portfolio unhedged, changes in commodity prices directly impact our realized pricing, underscoring the segment's operating leverage and cash flow potential. We also continue to grow the portfolio through disciplined capital deployment, investing $16.2 million and acquisitions during the 2026 quarter, and we remain encouraged by a constructive pipeline of additional opportunities. Taken together, these factors continue to support demand for reliable, dispatchable generation, an environment that favors coproducers with scale, contracted volumes, and low-cost reserves. Importantly, our oil and gas royalty segment gives us a second earnings engine that's not weighed down by drilling and operating capital costs, and benefits directly from changes in commodity prices. Demand growth for natural gas and stable demand for domestic oil production continue to reinforce our strategy of reinvesting all after-tax cash generation by our oil and gas royalties into expanding our minerals position. In closing, we believe Alliance is well-positioned as we invest in this growing energy landscape. Reliable baseload generation, disciplined capital allocation, and operational execution remain at the heart of our strategy. We are committed to investing in opportunities that are strategic to our core businesses, maintaining a strong balance sheet, and returning capital to our unit holders. That concludes our prepared comments, and I will now ask the operator to open the call for questions. Operator?