Alliance Resource Partners, L.P.

Greetings and welcome to the Alliance Resource Partners, L.P., third quarter 2026 earnings 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 during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I'll now turn the conference over to your host, Cary Marshall, Senior Vice President and Chief Financial Officer. Please go ahead.

Thank you, operator. Good morning and welcome, everyone. Earlier today, Alliance Resource Partners released its third 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 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 third quarter 2026 results, including the first full quarter of contribution from our Alldale 3 and 4 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. Before I get into the numbers, one note on presentation. Beginning this quarter, we redefined how adjusted EBITDA is calculated to include non-controlling interest. And as a result, we'll be reporting adjusted EBITDA attributable to ARLP, which excludes amounts attributable to non-controlling interest in Aldale 3 and 4 and Cavalier Minerals within our oil and gas royalties segment. Prior periods have been adjusted to conform to this presentation. Overall, results for the third 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 5.5% to $603 million. Net income attributable to ARLP increased 46.8% to $139.6 million, or $1.08 per basic and diluted limited partner unit, and adjusted EBITDA attributable to ARLP increased 26.3% to $233.9 million. Compared to the second quarter of 2026, which we refer to as the sequential quarter, Total revenues increased 9.3%, net income attributable to ARLP increased 75.5%, and adjusted EBITDA attributable to ARLP increased 26.4%. Net income in the 2026 quarter benefited from a $16.5 million increase in the fair value of our digital assets. and a $6.3 million non-cash gain from remeasuring our previously held equity interest in Alldale 3 in connection with the Alldale 3 and 4 acquisition. Partially offsetting these items were higher income tax expenses and a $7.3 million loss on derivative instruments assumed in the acquisition of which $6.7 million was unrealized. Income from our equity method investments was $12.8 million in the 2026 quarter compared to $4.5 million in the 2025 quarter and $9.5 million in the sequential quarter. The increase was driven primarily by higher income and valuations by our investments in the Gavin Power Plant and the NGP Fund, both of which continue to perform well. As a reminder, results from these investments can vary from quarter to quarter as valuations change. Turning to coal operations, sales volumes were 9.3 million tons, up 7.4% year-over-year, and 9.2% sequentially. Segment-adjusted EBITDA increased to $186.8 million, up 18.6% year-over-year, and 23.1% sequentially, as higher volumes and lower per-ton expenses more than offset lower average pricing. Our average coal sales price per ton was $53.93 in the 2026 quarter, down 8.3% year-over-year and 1.7% sequentially, primarily due to a higher sales mix of lower-priced tunnel ridge volumes. Segment-adjusted EVA die expense per ton was $35.64, improving 13.1% year-over-year and 7.9% sequentially. The reduction in per ton expense more than offset lower average pricing, increasing the spread between sales price and segment-adjusted EBITDA expense to $18.29 per ton from $16.19 per ton in the sequential quarter. In the Illinois Basin, coal sales volumes were 7 million tons, up 6.4% year-over-year and 10.5% sequentially, driven by the resumption of longwall production at Hamilton. Illinois Basin coal sales price per ton was $51.16 in line with comparable periods, while segment-adjusted EBITDA expense per ton improved to $31.77, down 10.2% year-over-year and 11.1% sequentially due to higher production at Hamilton and improved per ton costs at our Riverview Complex. Illinois Basin segment-adjusted EBITDA was $139.8 million, up 32.6% year-over-year and 34.1% sequentially. In Appalachia, coal sales volumes were 2.3 million tons, up 10.7% compared to the 2025 quarter and up 5.7% compared to the sequential quarter on strong sales at Tunnel Ridge. Apalachic Coal sales price per ton was $62.35, down 25.1% year-over-year and 1.9% sequentially, primarily due to the higher sales mix of lower-priced tunnel ridge volumes that I mentioned a moment ago. Segment-adjusted EBITDA expense per ton was $46.25, improving 19.9% year-over-year and essentially flat sequentially, due to increased production at Tunnel Ridge and a higher sales mix of lower-cost Tunnel Ridge volumes. Shifting to our royalty segments, total royalty revenues were $87.5 million, up 52.5% year-over-year and 26.4% sequentially, and segment-adjusted EBITDA attributable to ARLP was $61.8 million, up 40% year-over-year and 22.8% sequentially. The 2026 quarter was the first full quarter including Alldale 3 and 4 in our oil and gas royalty segment. Oil and gas royalty revenues were a record $59.8 million, and BOE volumes were a record $1.45 million, up 61.3% year-over-year and 54.9% sequentially, primarily due to the acquisition. Average sales price per BOE was $41.21. up 15.5% year-over-year as higher realized crude oil prices more than offset the greater natural gas weighting following the acquisition. Sequentially, average price declined 16.6% primarily due to lower realized crude oil prices and a higher natural gas mix. Oil and gas royalties segment adjusted EBITDA attributable to ARLP was $43.6 million. up 61.4% year-over-year and 16.8% sequentially. Coal Royalties Segment Adjusted EBITDA was $18.2 million, up 6.2% year-over-year and 40% sequentially, driven by higher royalty tons sold, primarily from Tunnel Ridge and Hamilton. As of September 30, 2026, total debt and finance leases outstanding were $679.9 million, and our total and net leverage ratios were 0.89 and 0.78 times debt to trailing 12 months adjusted EBITDA attributable to ARLP. Net debt, which we define as total debt and finance leases less cash, was $595 million at September 30th compared to $479 million on June 30th, 2026. That increase of $116 million is well below the $206.2 million Aldale 3 and 4 purchase price we paid on July 1st. We ended the 2026 quarter with total liquidity of $430.8 million. Additionally, we held 673 Bitcoins valued at $56.3 million at quarter end. Our cash flow trends continued to strengthen during the quarter. Free cash flow was $198.6 million in the 2026 quarter. Distributable cash flow increased to $136.8 million in the 2026 quarter, up approximately 29% year-over-year, and up 27% sequentially. Our distribution coverage ratio increased to 1.76 times, representing a significant improvement relative to comparable periods. Turning to our updated 2026 guidance, With one quarter remaining in the year, we are tightening our guidance ranges. In coal operations, we now expect total coal sales volumes of 34.5 to 35.5 million tons, which raises the midpoint of our prior range, with coal sales price per ton of $54.25 to $54.75, and segment adjusted EBITDA expense per ton of $37.50 to $38.50. In the oil and gas royalty segment, our tightened volume ranges reflect a slightly higher natural gas weighting following the acquisition of the Aldale 3 and 4 acquisition, and we have also tightened our consolidated guidance ranges. Reflecting the consolidation of our Aldale 3 and 4, our consolidated guidance now includes ranges for both net income and adjusted EBITDA attributable to non-controlling interests, which are detailed in our press release. As is our usual practice, we expect to provide 2027 guidance with our fourth quarter results in February. And with that, I'll turn the call over to Joe for his comments. Joe?

Thank you, Cary. Good morning, everyone. Thank you for joining our call today. We had an outstanding third quarter, led by strong shipments from our coal operations. Hamilton's return to long-haul production and Solid Operating Performance at Tunnel Ridge and our Riverview Complex. Segment adjusted EBITDA at our coal operations increased 18.6% year-over-year and 23.1% sequentially, while segment adjusted EBITDA expense per ton sold declined 13.1% year-over-year and 7.9% sequentially. Additionally, as Cary said, our oil and gas royalty segment results benefited from our first full quarter, including Alldale 3 and Alldale 4. Before turning to operations results, I wanted to take a moment to congratulate our mine rescue teams for their exceptional performance at the National Mine Rescue Competition hosted in Tennessee during August. Members from our Alliance Coal Team took the stage 12 times during the awards ceremony this year. including individual recognition for national champion, a national runner-up, and three state team championships. On the production side, our coal operations teams delivered across the board. At Hamilton, the Longwall returned to production following an extended move, set monthly production records in July and August, and was our lowest cost operation in the 2026 quarter. That performance was the primary driver of a 10.2% year-over-year and 11.1% sequential improvement in Illinois Basin segment-adjusted EBITDA expense per ton. Tunnel Ridge continued to deliver strong sales, helping hold Appalachia's segment-adjusted EBITDA expense per ton essentially flat sequentially and lower by 19.9% versus the 2025 quarter. These improvements are the direct result of capital we invested in our operations over the past several years, leading to a lower cost, more reliable platform. One additional development from the quarter involves our Metiki operation. You may recall we issued a warned notice in the first quarter of 2026 and suspended mining operations. We are pleased to announce a new multi-year coal supply agreement with our largest historical customer, that will allow the mine and nearly 150 miners to return to coal production operations. The mine has been transitioning from longwall mining to what we plan to be a two-room and pillar mining sections, two shifts a day by the end of the first quarter of 2027, to better align production with customer demand. As a result of winning this business, 2027 production from the Metiki mine It's expected to be approximately 550,000 tons higher than 2026. EBITDA expense per ton next year should be lower than 2026 as well. On the commercial side, domestic coal burn improved in the third quarter after a soft first half of the year. Sustained late summer heat drove record September power demand. and Cold Fire Generation in September was up more than 40% year-over-year in PJN and roughly 25 to 33% across the southeast, the Carolinas and Tennessee. That burn drew eastern U.S. domestic coal inventories down to slightly below last year's levels. Near-term solicitation activity remains measured as customers take a wait-and-see excuse me, approach heading into winter. But we view that as a matter of timing, not a change in underlying demand. We continue to convert this constructive market into contracted volumes. During the 2026 quarter, we added 4.2 million committed and priced tons through 2028, and we remain essentially fully committed at the midpoint of our 2026 sales volume guidance. with 31.7 million tons committed in price for 2027, which includes 700,000 tons to be shipped to meet Metiki's new sales commitment I just talked about. We expect to enter next year with substantial visibility and the operating capacity to capture additional demand as commercial opportunities develop. Export markets have become a more meaningful component of our sales portfolio. with 3.7 million tons committed and priced for 2026 and 3 million tons for 2027. Export volumes have come in well above our expectations entering this year. Seabourn thermal prices strengthened through the quarter with API2 rising from about $105 per ton at the start of the quarter to about $140 per ton by the end of September. and industry analysts have raised their outlook for U.S. thermal coal exports for both this year and next. Market conditions remain dynamic and we remain cautiously optimistic that additional export opportunities could provide upside to our sales volumes next year. Turning to the broader markets, we believe the fundamentals supporting coal demand continue to build. Electricity load in the markets we serve is growing. while permitting interconnection and supply chain constraints are slowing the pace at which new generation can come online. According to Inverness, GE Brnova, the leading gas turbine manufacturer, is now sold out of new turbine deliveries until 2031. We believe this dynamic will extend the runway for the existing coal fleet. On data center demand specifically, the market is becoming more disciplined, and we think that is a healthy development. Utilities and grid operators are increasingly counting only contracted, financially committed data center load in their forecast. Even on the stricter basis, the market still expects demand growth to be substantial, and new generation is taking years longer to build than planned. Both trends point to the same conclusion. The existing coal fleet will be needed longer, and running it harder is the fastest and most affordable way to serve that load. We expect the impact to become increasingly visible in our customers' coal burn as data center-driven demand materializes, with the more meaningful impact beginning in late 2027 and into 2028. Affordability is central to this discussion. We continue to see evidence that existing coal generation remains cost-competitive. One example is a recent Indiana study by Always On Energy Research. which concluded that existing coal plants become increasingly cost competitive the harder they run, and 75% of the state's coal plants could produce electricity more cheaply than the new combined cycle gas. The same analysis found that Indiana's existing combined cycle gas fleet already ran at 83% utilization in 2024, leaving limited room to serve new load, which makes the existing coal fleet well-suited to meet incremental demand. Federal policy continues to recognize the value of the existing coal fleet, and the administration continues to take the steps necessary to protect it. In September, the EPA finalized a rule repealing most of the 2024 greenhouse gas standards for power plants, including the carbon capture requirements for existing coal units, and proposed repealing the remaining standards. More broadly, there is growing recognition among all stakeholders that leadership in artificial intelligence and the security of the grid are national security priorities for our country, and both depend on abundant, reliable, and affordable electricity. Taken together, we believe these actions support extending the operating lives of existing coal plants as critical grid resources. Turning to oil and gas royalties, I want to briefly highlight our record results, which included the first full quarter with the Aldell 3 and 4 acquisition. As we continue to scale the portfolio, oil and gas royalties is contributing a more meaningful share of ARLP's consolidated free cash flow, highlighting the growing importance of the segment within our overall business. If today's higher crude oil prices remain elevated, We could be in a position to have another record quarter to finish the year. We are also excited to increase our exposure to gas-weighted resource plays in the Hainesville given the long-term tailwinds from LNG exports and power demand. Going forward, we will remain disciplined in reinvesting the after-tax cash flows generated by the oil and gas business in existing regions that meet our risk-adjusted return thresholds. That concludes our prepared comments. and I'll now ask the operator to open the call for questions.