Alliance Resource Partners, L.P.

Greetings and welcome to the Alliance Resource Partners second 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, Cary Marshall, Senior Vice President and Chief Financial Officer. Thank you, sir. You may begin.

Thank you, operator. Good morning and welcome, everyone. Earlier today, Alliance Resource Partners released its second quarter 2026 financial and operating results. We will review the quarter, discuss our outlook for the remainder of 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, In the most directly comparable gap, 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 second quarter 2026 results, expand on our recently closed oil and gas royalties acquisition, and discuss our updated guidance for 2026. before turning the call over to Joe Craft, our chairman, president, and chief executive officer for his comments. Overall, results for the second quarter of 2026, which we refer to as the 2026 quarter, were higher on a year-over-year and sequential basis. Compared to the prior year, which we refer to as the 2025 quarter, total revenues increased to $551.6 million, Net income attributable to ARLP increased 33.9% to $79.6 million, or $0.61 per basic and diluted limited partner unit. And adjusted EBITDA increased 14.7% to $185.7 million. Compared to the first quarter of 2026, which we refer to as the sequential quarter, total revenues increased 6.9%. Net income increased $70.5 million. and adjusted EBITDA increased 19.8%. These results were driven primarily by higher coal sales volumes, improved coal operating cost performance, record results from our oil and gas royalties segment and higher income from our equity method investments with net income comparisons also affected by impairment charges recorded in the prior periods. Turning to our coal operations segment, Total coal sales volumes were 8.6 million tons in the 2026 quarter, up 2.1% compared to the 2025 quarter, and up 8.9% compared to the sequential quarter. Total coal production was 8.2 million tons, up 1.5% year over year, and 3% sequentially. Segment adjusted EBITDA from coal operations was $151.7 million, up 6.9% year over year, and 21.3% sequentially. Our average coal sales price per ton was $54.87 in the 2026 quarter, down 5.3% year-over-year and 2.7% sequentially, reflecting the expected roll-off of higher-priced legacy contracts at Tunnel Ridge and a lower percentage of Medtiki sales in Appalachia. Segment-adjusted EBITDA expense per ton was $38.68. improving 6.3% year-over-year and 6.6% sequentially. This cost improvement was a key contributor to the quarter's stronger coal operating results and reflects the significant investments we have made in our mines over the past few years to ensure they can operate efficiently and at lower costs. In the Illinois Basin, coal sales volumes were 6.4 million tons, down 4.5% year-over-year and up 4.9% sequentially. Our Riverview complex delivered strong productivity and sales performance, helping partially offset lower Hamilton shipments associated with our planned extended longwall move during the 2026 quarter. Illinois Basin coal sales price per ton was $51.87, up modestly year over year and sequentially, while segment adjusted EBITDA expense per ton was $35.99. In Appalachia, coal sales volumes were 2.2 million tons, up 27.6% compared to the 2025 quarter, and up 22.3% compared to the sequential quarter, primarily due to increased production at Tunnel Ridge. Appalachia coal sales price per ton declined to $63.57, reflecting the expected roll-off of higher-priced legacy contracts at Tunnel Ridge. One of the most notable highlights in the region was segment adjusted EBITDA expense per ton at $46.22, which improved 29.7% year over year and 25.7% sequentially due to higher productivity and improved recoveries at Tunnel Ridge. ARLP ended the 2026 quarter with total coal inventory of 0.8 million tons, down 0.3 million tons from both the 2025 quarter and the sequential quarter. Shifting to our royalty segments, total royalties revenues were $69.3 million and segment adjusted EBITDA was $51 million in the 2026 quarter. Our oil and gas royalty segment delivered record quarterly revenue of $46.5 million, up 31.1% year-over-year, and record segment adjusted EBITDA of $38 million, up 27.2% year-over-year. While BOE volumes of $936,000 were up 6.4% year-over-year and down 8.4% sequentially, higher average realized sales price per BOE was the main driver to the favorable variances during the 2026 quarter, increasing 22.7% year-over-year and 22.1% sequentially. Coal royalty segment adjusted EBITDA was $13 million. up 9.7% year-over-year and 5.7% sequentially, driven by higher royalty tons sold, primarily from Tunnel Ridge and the Riverview Complex. As it relates to our balance sheet and cash flow, as of June 30, 2026, total debt and finance leases outstanding were $590.2 million, and we had $111.2 million of cash. In anticipation of the closing of the Aldale 3 and 4 acquisition on July 1st, we drew $56 million on our revolving credit facility at Quarter Inn to fund part of that purchase price. As a result, our total and net leverage ratios were .82 and .67 times debt to trailing 12 months adjusted EBITDA. We ended the 2026 quarter with total liquidity of $424 million, which also included $312.8 million of borrowings available under our revolving credit facilities. In addition, we held 646 bitcoins valued at $37.8 million based upon a bitcoin price of $58,559 per coin as of June 30, 2026. which was down 14.1% sequentialing and resulted in a 6.3 million decrease in the fair value of digital assets and an impact of 5 cents per basic and diluted limited partner unit for the 2026 quarter. For the 2026 quarter, distributable cash flow was 108.2 million and our distribution coverage ratio was 1.39 times, representing a 39% increase compared to the sequential quarter. Turning to our oil and gas minerals acquisition, subsequent to quarter end on July 1, 2026, we completed the previously announced acquisition of certain general partner and limited partner interests in Alldale Minerals III L.P. and Alldale Minerals IV L.P. for $206.2 million, subject to customary post-closing adjustments. As described in our June press release, The transaction implied an aggregate gross valuation for the Alldale 3 and Alldale 4 funds of $410 million and involved the acquisition of $306.2 million of third-party interest across the two funds, with the difference between the gross valuation and the $306.2 million of third-party interest acquired reflecting existing interest already owned by ARLP and Craft-related parties. ARLP acquired $206.2 million of the third-party interest, while Craft-related parties separately acquired $100 million of the Alldale III limited partner interest, and both ARLP and the Craft-related parties rolled forward their existing ownership interest. After closing the transaction, Alliance owns and controls 100% of the non-economic general partner interest, and has an approximate 61% economic interest across the two funds. ARLP did not acquire interest from the craft related parties and the entire transaction structure was reviewed and approved by our conflicts committee, which is comprised entirely of independent directors. The net benefit of the transaction structure to ARLP is twofold. First, participation by the craft related parties allowed us to complete the acquisition at its full scale while maintaining a disciplined investment level and improving our expected returns on investment capital. And second, it preserves liquidity and financial flexibility for our team to continue advancing our ground game acquisition efforts where we remain active with acquisitions exceeding $15 million in each of the last three quarters. We funded our $206.2 million acquisition using a combination of cash on hand Borrowings under our revolving credit facility, and a new $150 million term loan at Alliance Minerals, LLC. The term loan has an 18-month maturity, scheduled amortization, and bears interest at SOFR plus a pricing grid ranging from 175 to 225 basis points, based on the amount of the loan outstanding. Looking forward? We expect to prioritize reducing leverage and maintaining financial flexibility while continuing to evaluate disciplined minerals acquisition opportunities. Turning to our updated 2026 guidance, we are maintaining our overall coal sales volume guidance of 33.75 to 35.25 million tons, coal sales price guidance of $54 to $56 per ton, and total segment adjusted EBITDA expense guidance of $37 to $39 per ton. We view these ranges as balanced with any upside continuing to depend largely on summer burn activity and the pace of utility inventory draws over the remainder of the year. Contracting activity was a significant positive during the quarter, which Joe will discuss in more detail in a moment. but in short, we're essentially fully committed and priced for 2026 at the midpoint of guidance with strong momentum already building for 2027. In the oil and gas royalty segment, we are increasing full year volume guidance to reflect the Aldale 3 and 4 acquisition beginning in the third quarter of 2026. We now estimate 1.95 to 2.05 million barrels of oil, 10 to 10.5 million MCF of natural gas, and 1.1 to 1.2 million barrels of natural gas liquids for the full year. Because the Alldale 3 and 4 acquisition closed on July 1, 2026, production, revenue and income will be reported on a consolidated basis beginning in the third quarter, with amounts attributable to the craft-related parties' ownership reflected as non-controlling interest. Combining that interest and the existing non-controlling interest in Cavalier Minerals JV, our guidance includes an estimated $13 to $15 million of net income attributable to non-controlling interest, reflecting six months of Aldale 3 and 4 and a full year of Cavalier. Please note, the Aldale 3 and 4 acquisition did include hedges related to oil and gas, So we have also included a summary of the commodity derivatives that were assumed as a part of the acquisition in our earnings release. And with that, I'll turn the call over to Joe for his comments. Joe?

Thank you, Cary, and good morning, everyone. Thank you for joining our call today. Alliance delivered a superb second quarter, highlighted by coal's improved operating performance, record oil and gas royalties results, and meaningful commercial transactions. Headlined by our minerals acquisitions and another exceptional quarter of booking sales by our marketing team who secured 21.2 million tons of new commitments. New domestic sales commitments totaled 18.5 million tons spread out over the next five years. There was a brief period of time during this 2026 quarter when export pricing presented attractive opportunities and we secured 2.7 million tons of export commitments over the 2026 to 2028 time period. On the production side, I want to give a shout out to all of our coal operations teams whose performance was stellar across the board. At Tunnel Ridge, our long wall moved from panel 27 to panel 28 was the second fastest 1,200-foot face-to-face move in the mine's history, and the operation closed June with its highest shipping month since 2023. Hamilton brought its long wall back online in mid-May and has shown consistent improvements in key operating metrics, and recovery yields this month have been at record levels for that coal mine. At our Riverview complex, strong productivity at both the Henderson Mine and the Riverview Mine have positioned us ahead of our internal production targets for both the 2026 quarter and year to date. Gibson South and Warrior continue to be steady performers, contributing to our outstanding results in the Illinois Basin. At MC Mining, we moved from a four-day to a five-day production schedule on the strength of new business secured by our marketing team. A good example of our commercial and operating teams working in tandem. With 2026 Longwall moves behind us and no additional moves expected until 2027, we believe our co-operations are well positioned to meaningfully increase production and cash flow generation during the second half of the year. We also expect to see cost improvements across the portfolio as productivity gains flow through the system and our key mines operate at more normalized run rates. Our strong contracted sales book helped limit the impact of lower domestic coal demand in the first half of this year that was caused by mild weather and lower natural gas prices. As Cary mentioned, we are essentially fully committed at the midpoint of guidance and we now have 29.4 million tons committed and priced for 2027 delivery. We believe this level of forward commitment reflects both the strategic importance of our coal supply and the confidence customers place in ARLP's ability to deliver. Turning to the broader markets, PJM capacity auction results earlier this month serve as another important reminder of the structural tightness developing in power markets. The 2028-2029 base residual auction cleared at the $325 per megawatt day cap for the third consecutive auction, while total cleared capacity remained well short of PJM's reliability requirement. We believe these results reinforce the value of dispatchable coal-fired generation needed to maintain system reliability. Recent operating conditions have already put that scarcity to the test. On July 1st, PJM served a preliminary hourly peak of 161.9 gigawatts and had to invoke top weather maximum generation and load management procedures. It posted another maximum generation alert on July 15th and MISO was under a similar alert that same day with demand above 120 gigawatts. The Department of Energy has continued to lean on its Section 202C emergency authority to keep generation available in both markets, and separately authorized PJM to draw on backup generation at data centers and other large facilities as an emergency reliability resource. In our view, these events reinforce the point we have been making. As electricity demand grows, the grid needs reliable, dispatchable baseload capacity from all existing resources. Federal policy is also acknowledging that preserving and modernizing existing coal generation can be a faster and more cost-effective way to support reliability. The DOE recently announced up to $500 million of Defense Production Act Title III funding for 13 coal-fired plants, six of which we sell to, aimed at improving efficiency and extending plant life. Last week, President Trump announced a major expansion of the Voluntary Ratepayer Protection Pledge, which has been signed onto by most electric utilities that serve the data center build-out. The pledge is intended to prevent other electricity ratepayers from bearing the costs of electricity for data centers. Voting America's power, one of the best ways to provide power for data centers is to take advantage of the existing coal fleet. They went on to say the existing coal fleet is being underutilized and can generate more of the electricity that is needed by data centers without incurring the cost of new power plants and expensive infrastructure that can take years to build. Turning to oil and gas royalties, the segment delivered another record quarter, and the July 1st closing of the Aldell 3 and 4 acquisition marks the next phase of growth for this platform. With this transaction, our cumulative investment in oil and gas royalties now exceeds $1 billion, a significant milestone in the evolution of this platform. To repeat what I stated when we announced the transaction in June, this acquisition accelerates the continued growth of our oil and gas royalty segment, adds scale and development upside across multiple U.S. basins, is anchored by a meaningful Permian position, and expands our natural gas footprint with entry into the Haynesville, a resource play well-positioned to benefit from the long-term LNG export demand growth. We expect this acquisition to be immediately accretive to ARLP's free cash flow per unit, increasing our estimated distributable cash flow per unit by 8% to 9% next year. Looking ahead, our strategic priorities remain unchanged. Maintaining a strong, conservatively managed balance sheet, investing with discipline in our core businesses, and positioning Alliance for continued growth while delivering attractive after-tax returns to our unit holders. That concludes our prepared comments, and I'll now ask the operator to open the call for questions.