May 2, 2023 - Alliance Resource Partners, L.P. (NASDAQ: ARLP) ("ARLP" or the "Partnership") today reported substantial increases to financial and operating results for the quarter ended March 31, 2023 (the "2023 Quarter") compared to the quarter ended March 31, 2022 (the "2022 Quarter"). Total revenues in the 2023 Quarter increased 43.0% to $662.9 million compared to $463.4 million for the 2022 Quarter driven primarily by significantly higher coal sales price per ton, which rose by 43.6%. Increased revenues and lower income tax expense, partially offset by higher total operating expenses, led to net income for the 2023 Quarter of $191.2 million, or $1.45 per basic and diluted limited partner unit, compared to $38.1 million, or $0.28 per basic and diluted limited partner unit, for the 2022 Quarter. EBITDA also increased 75.2% in the 2023 Quarter to $270.9 million compared to $154.6 million in the 2022 Quarter. (Unless otherwise noted, all references in the text of this release to "net income" refer to "net income attributable to ARLP." For a definition of EBITDA and related reconciliation to its comparable GAAP financial measure, please see the end of this release.)
Compared to our record setting quarter ended December 31, 2022 (the "Sequential Quarter"), total revenues decreased by 5.9% primarily as a result of lower coal sales volumes due to extraordinarily strong shipments during the Sequential Quarter and reduced oil & gas royalties revenues due to lower price realizations. Total operating expenses decreased 6.0% to $455.6 million due primarily to lower coal sales volumes. Lower revenues, partially offset by decreased total operating expenses, reduced net income to $191.2 million compared to $216.9 million in the Sequential Quarter. EBITDA also decreased by 8.8% in the 2023 Quarter to $270.9 million compared to $296.9 million in the Sequential Quarter.
"ARLP delivered impressive results during the first quarter of 2023," commented Joseph W. Craft III, Chairman, President and Chief Executive Officer. "Relying upon a solid coal sales contract book, we were able to achieve significantly higher realized pricing per ton sold relative to the prior year. Additionally, our coal operations were able to keep our operating costs per ton in-line with the Sequential Quarter despite a difficult inflationary environment and unexpected operating challenges in the 2023 Quarter."
Mr. Craft added, "We remain optimistic our 2023 financial results will be at record levels. Even though recent mild weather and lower natural gas prices have softened the near-term domestic utility markets, we expect export demand to be sufficient to allow us to increase sales compared to last year."
Segment Results and Analysis
ARLP's coal sales prices per ton increased significantly compared to the 2022 Quarter as improved price realizations in both the domestic and export markets drove coal sales prices higher by 26.1% and 80.0% in the Illinois Basin and Appalachia, respectively. Compared to the Sequential Quarter, lower export prices led to a decrease of 5.3% in coal sales prices in the Illinois Basin. In Appalachia, coal sales prices increased by 18.7% as a result of higher price realizations across all mines in the region. Tons sold increased by 5.2% in the Illinois Basin compared to the 2022 Quarter due primarily to increased sales volumes from the Gibson South and River View mines. Compared to the Sequential Quarter, reduced domestic sales volumes across the region resulted in 24.6% lower tons sold in Appalachia. ARLP ended the 2023 Quarter with total coal inventory of 1.3 million tons, representing a decrease of 0.3 million tons compared to the end of the 2022 Quarter and an increase of 0.8 million tons compared to the end of the Sequential Quarter.
Segment Adjusted EBITDA Expense per ton increased by 10.8% and 50.3% in the Illinois Basin and Appalachia, respectively, compared to the 2022 Quarter, resulting from inflationary pressures on certain expense items, most notably labor-related expenses and maintenance costs, and increased sales-related expenses due to higher price realizations. Appalachia also experienced higher per ton costs compared to the 2022 Quarter due to higher materials and supplies costs, increased longwall move days at the Tunnel Ridge mine, and reduced recoveries at the MC Mining and Mettiki operations. Compared to the Sequential Quarter, Segment Adjusted EBITDA Expense decreased 11.9% in the Illinois Basin primarily due to increased production across the region. In Appalachia, Segment Adjusted EBITDA Expense per ton increased 30.0% compared to the Sequential Quarter as a result of increased labor-related expenses, higher materials and maintenance costs, increased sales-related expenses due to higher price realizations, two longwall moves at Tunnel Ridge during the 2023 Quarter, and reduced recoveries across the region.
Segment Adjusted EBITDA for the Oil & Gas Royalties segment decreased to $30.0 million in the 2023 Quarter compared to $30.8 million and $35.3 million in the 2022 and Sequential Quarters, respectively, primarily due to lower average sales prices per BOE, partially offset by higher BOE sold. Higher BOE volumes during the 2023 Quarter resulted from increased drilling and completion activities on our interests and the acquisition of additional oil & gas mineral interests.
Segment Adjusted EBITDA for the Coal Royalties segment decreased 2.2% to $10.1 million for the 2023 Quarter compared to $10.3 million for the 2022 Quarter as a result of lower royalty tons sold and increased selling expenses, partially offset by higher average royalty rates per ton received from the Partnership's mining subsidiaries. Compared to the Sequential Quarter, Segment Adjusted EBITDA increased 23.9% due to higher average royalty rates per ton, which increased 14.6%, partially offset by lower royalty tons.
Balance Sheet and Liquidity
In January 2023, ARLP entered into a new $425.0 million senior secured revolving credit facility and $75.0 million term loan (the "Credit Agreement"), which will mature in March 2027, and renewed its $60.0 million accounts receivable securitization facility. The Credit Agreement replaced the previous credit agreement, which was set to mature in March 2024.
During the 2023 Quarter, ARLP purchased $26.6 million of its $400 million senior notes due May 1, 2025. As of March 31, 2023, total debt and finance leases outstanding were $472.2 million, including $373.4 million in ARLP's 2025 senior notes. The Partnership's total and net leverage ratio was 0.44 times and 0.19 times, respectively, as of March 31, 2023. ARLP ended the 2023 Quarter with total liquidity of $703.6 million, which included $271.3 million of cash and cash equivalents and $432.3 million of borrowings available under its revolving credit and accounts receivable securitization facilities.
Unit Repurchase Program
ARLP repurchased and retired 860,060 units at an average unit price of $21.15 for an aggregate purchase price of $18.2 million during the 2023 Quarter under its recently expanded unit repurchase program. ARLP has $81.8 million of available capacity under the program as of the end of the 2023 Quarter. The unit repurchase program has no time limit and ARLP may repurchase units from time to time in the open market or in other privately negotiated transactions. The unit repurchase program authorization does not obligate ARLP to repurchase any dollar amount or number of its units and repurchases may be commenced or suspended from time to time without prior notice.
As previously announced on April 28, 2023, the Board of Directors of ARLP's general partner (the "Board") approved a cash distribution to unitholders for the 2023 Quarter of $0.70 per unit (an annualized rate of $2.80 per unit), payable on May 15, 2023, to all unitholders of record as of the close of trading on May 8, 2023. The announced distribution represents a 100.0% increase over the cash distribution of $0.35 per unit for the 2022 Quarter and is consistent with the Sequential Quarter cash distribution.
2023 Quarter Acquisitions of Oil & Gas Royalties
On February 22, 2023, ARLP closed on the previously announced acquisition of mineral interests in approximately 2,682 oil & gas net royalty acres in the Delaware Basin for $72.3 million (the "JC Resources Acquisition"), which was funded with cash on hand. During the 2023 Quarter, ARLP also separately purchased mineral interests in the Permian Basin for $2.8 million.
"Our contracted coal sales book positions us well to deliver strong results for 2023 despite natural gas prices being materially below what we projected at the beginning of the year," commented Mr. Craft. "Entering the summer peak demand months, we continue to have a small, uncontracted tonnage position that we plan to sell into international markets for delivery in the second half of this year. We also expect several domestic customers will be actively seeking sizeable commitments for coal to be delivered in 2024 and 2025."
Mr. Craft added, "OPEC's recent decision to reduce supply is expected to favorably impact oil pricing compared to the 2023 Quarter, which should benefit our Oil & Gas Royalties segment where we have increased our full year 2023 oil & gas volume guidance. While lower natural gas prices also impact our royalty revenue, it is important to note that our trailing three-month cash flow by product consisted of 75% oil, 10% NGL, and 15% natural gas."
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