Alliance Resource Partners(ARLP) - 2021 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, and cash flows, for periods ended June 30, 2021 and 2020, highlighting the company's return to profitability in Q2 2021 with $44.2 million net income Condensed Consolidated Financial Statements Total assets decreased to $2.116 billion as of June 30, 2021, from $2.166 billion at year-end 2020, while total liabilities decreased more significantly, leading to increased partners' capital and a return to profitability in Q2 2021 with $44.2 million net income Condensed Consolidated Balance Sheet (in $ thousands) | Balance Sheet Highlights | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Current Assets | $260,953 | $245,774 | | Total Assets | $2,115,513 | $2,166,016 | | Total Current Liabilities | $203,730 | $214,605 | | Total Liabilities | $980,993 | $1,093,749 | | Total Partners' Capital | $1,134,520 | $1,072,267 | Condensed Consolidated Statements of Operations (in $ thousands, except per unit data) | Metric | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $362,443 | $255,202 | $681,065 | $605,965 | | Income (Loss) from Operations | $55,007 | $(35,100) | $91,335 | $(167,780) | | Net Income (Loss) | $44,165 | $(46,679) | $68,991 | $(191,386) | | Net Income (Loss) Attributable to ARLP | $44,035 | $(46,664) | $68,783 | $(191,447) | | EPS - Basic and Diluted | $0.34 | $(0.37) | $0.53 | $(1.51) | Condensed Consolidated Statements of Cash Flows (Six Months Ended June 30, in $ thousands) | Cash Flow Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net Cash from Operating Activities | $158,216 | $170,168 | | Net Cash used in Investing Activities | $(50,247) | $(87,463) | | Net Cash used in Financing Activities | $(125,794) | $(84,081) | | Net Change in Cash | $(17,825) | $(1,376) | | Cash at End of Period | $37,749 | $35,106 | Notes to Condensed Consolidated Financial Statements These notes detail accounting policies and financial items, including $157.0 million in non-cash asset and goodwill impairments in Q1 2020, the Q1 2021 restructuring into a new Coal Royalties segment, and specifics on long-term debt and revenue disaggregation - In the first quarter of 2020, the company recorded $23.5 million in non-cash asset impairment charges in its Illinois Basin segment and a $132.0 million goodwill impairment charge related to the Hamilton mine, driven by adverse market conditions and the impact of the COVID-19 pandemic[23][25][26] Long-Term Debt Summary (in $ thousands) | Debt Component | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Revolving credit facility | $— | $87,500 | | Senior notes | $400,000 | $400,000 | | Securitization facility | $38,100 | $55,900 | | Equipment financings & other | $53,674 | $60,380 | | Total Principal | $491,774 | $603,780 | | Less current maturities | ($55,558) | ($73,199) | | Total Long-Term Debt | $436,216 | $530,581 | - Beginning in Q1 2021, the company restructured its reportable segments to manage its coal royalty activities separately from its coal mining operations, creating a new Coal Royalties segment[89][90] Segment Adjusted EBITDA (in $ thousands) | Segment | Q2 2021 | Q2 2020 | H1 2021 | H1 2020 | | :--- | :--- | :--- | :--- | :--- | | Illinois Basin Coal Operations | $70,623 | $22,667 | $128,296 | $66,000 | | Appalachia Coal Operations | $41,641 | $30,279 | $73,147 | $77,581 | | Oil & Gas Royalties | $15,379 | $6,881 | $27,325 | $20,636 | | Coal Royalties | $6,782 | $3,757 | $14,055 | $10,666 | | Consolidated Segment Adjusted EBITDA | $136,092 | $62,056 | $245,913 | $173,757 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) This MD&A details the company's significant operational and financial recovery in H1 2021, driven by a 51.3% increase in coal sales volume and higher oil & gas prices, leading to a 119.3% increase in Segment Adjusted EBITDA and resumed unitholder distributions Results of Operations ARLP reported $44.0 million net income in Q2 2021, a turnaround from a $46.7 million net loss in Q2 2020, driven by a 42.0% increase in total revenues to $362.4 million and a 51.3% rise in coal sales volume - The company's financial results for Q2 2021 showed significant improvement compared to Q2 2020, benefiting from reduced disruptions from the COVID-19 pandemic which had negatively impacted global energy demand in the prior year[112][113] Q2 2021 vs Q2 2020 Key Operating Metrics | Metric | Q2 2021 | Q2 2020 | | :--- | :--- | :--- | | Coal - Tons sold (thousands) | 7,846 | 5,186 | | Coal - Avg. Sales Price ($/ton) | $41.55 | $45.56 | | Coal - Segment Adj. EBITDA Expense ($/ton) | $27.90 | $36.67 | | Oil & Gas - BOE sold (thousands) | 391 | 411 | | Oil & Gas - Avg. Sales Price ($/BOE) | $43.73 | $18.92 | - Illinois Basin Coal Operations' Segment Adjusted EBITDA surged 211.6% to $70.6 million in Q2 2021, driven by a 61.9% increase in sales volumes as demand recovered from pandemic lows[124][128] - Oil & Gas Royalties' Segment Adjusted EBITDA grew 123.5% to $15.4 million in Q2 2021, primarily due to significantly higher sales price realizations per Barrel of Oil Equivalent (BOE)[124][130] Liquidity and Capital Resources The company maintains strong liquidity with $158.2 million cash from operations in H1 2021, reduced capital expenditures to $55.6 million, $437.7 million available under its Revolving Credit Facility, and resumed unitholder distributions - The company believes existing cash, future cash flows from operations, and borrowing availability will be sufficient to meet working capital, capital expenditures, debt payments, and distribution payments[155] Six-Month Cash Flow and Capex Summary (in $ millions) | Metric | H1 2021 | H1 2020 | | :--- | :--- | :--- | | Cash from Operations | $158.2 | $170.2 | | Cash used in Investing | $(50.2) | $(87.5) | | Cash used in Financing | $(125.8) | $(84.1) | | Capital Expenditures | $55.6 | $84.2 | - As of June 30, 2021, the company had $437.7 million available for borrowing under its Revolving Credit Facility and was in compliance with all debt covenants, with a debt to cash flow ratio of 1.08 to 1.0 (well below the maximum of 2.5 to 1.0)[163][164] - Distributions to unitholders, which had been suspended after February 2020, resumed with a $0.10 per unit payment in May 2021[158] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risks include commodity price fluctuations for coal, oil, and natural gas, credit risk from its customer base, and interest rate risk on variable-rate debt, with minimal exchange rate risk - The company's main market risks are commodity price fluctuations for coal, oil, and gas, credit risk with utility and brokerage customers, and interest rate risk on variable-rate debt under its Revolving Credit and Securitization facilities[178][180][184] - A one percentage point increase in interest rates on the Securitization Facility would result in an annualized increase in interest expense of $0.4 million based on the June 30, 2021 balance[184] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2021, with security enhancements implemented following a non-material cyber incident to strengthen internal controls - The CEO and CFO concluded that disclosure controls and procedures were effective as of June 30, 2021[185] - Following a non-material cyber incident during the quarter, the company implemented security enhancements like two-factor authentication and improved network backup processes to strengthen its internal controls[186] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is defending multiple lawsuits alleging wage and hour law violations, with claims ranging from $22.2 million to $143.7 million, but believes the claims lack merit and expects no material adverse effect - The company is defending multiple lawsuits alleging violations of wage and hour laws, with plaintiffs in two of the cases claiming damages ranging from approximately $22.2 million to $143.7 million[194] Item 1A. Risk Factors This section refers to the risk factors detailed in the 2020 Annual Report on Form 10-K, indicating no material changes to previously disclosed risks that could affect the business - The report refers investors to the risk factors disclosed in the 2020 Annual Report on Form 10-K, stating they could materially affect the business[195] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No common units were repurchased in Q2 2021; since inception, 5,460,639 units have been repurchased for $93.5 million, with $6.5 million remaining under the authorized program - No units were repurchased in Q2 2021[196] - Since inception, the company has repurchased 5,460,639 units for $93.5 million, with $6.5 million remaining under the authorized program[197] Other Items (3, 4, 5, 6) This section confirms no defaults on senior securities, refers to Exhibit 95.1 for mine safety disclosures, reports no other material information, and lists filed exhibits - The company reports no defaults on senior securities[198] - Mine safety disclosures as required by the Dodd-Frank Act are provided in Exhibit 95.1 to the report[198]