Alliance Resource Partners(ARLP) - 2024 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION This section details the unaudited financial statements and management's analysis for Alliance Resource Partners, L.P. for the first quarter ITEM 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Alliance Resource Partners, L.P. and its subsidiaries, including balance sheets, statements of income, comprehensive income, and cash flows, along with detailed notes explaining accounting policies, significant transactions, and financial positions Condensed Consolidated Balance Sheets This section presents the company's financial position, including assets, liabilities, and partners' capital, as of March 31, 2024, and December 31, 2023 Condensed Consolidated Balance Sheets (in thousands): | Metric | March 31, 2024 | December 31, 2023 | | :---------------------------- | :------------- | :---------------- | | Total Assets | $2,965,787 | $2,788,426 | | Total Liabilities | $1,044,383 | $929,829 | | Total Partners' Capital | $1,921,404 | $1,858,597 | | Digital Assets | $30,325 | $9,579 | Condensed Consolidated Statements of Income This section outlines the company's revenues, operating income, and net income for the three months ended March 31, 2024, and 2023 Condensed Consolidated Statements of Income (Three Months Ended March 31, in thousands, except per unit data): | Metric | 2024 | 2023 | | :------------------------------------ | :--------- | :--------- | | Total Revenues | $651,697 | $662,922 | | Income From Operations | $160,295 | $207,326 | | Net Income Attributable to ARLP | $158,057 | $191,185 | | Earnings Per Limited Partner Unit | $1.21 | $1.45 | | Change in Fair Value of Digital Assets | $11,853 | $— | Condensed Consolidated Statements of Comprehensive Income This section details the company's net income and other comprehensive income components for the three months ended March 31, 2024, and 2023 Condensed Consolidated Statements of Comprehensive Income (Three Months Ended March 31, in thousands): | Metric | 2024 | 2023 | | :------------------------------------------------- | :--------- | :--------- | | Net Income | $159,567 | $192,678 | | Other Comprehensive Income | $923 | $565 | | Comprehensive Income Attributable to ARLP | $158,980 | $191,750 | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities for the three months ended March 31, 2024, and 2023 Condensed Consolidated Statements of Cash Flows (Three Months Ended March 31, in thousands): | Metric | 2024 | 2023 | | :------------------------------------ | :--------- | :--------- | | Cash Flows From Operating Activities | $209,673 | $221,688 | | Net Cash Used in Investing Activities | $(120,512) | $(147,148) | | Net Cash Used in Financing Activities | $(15,017) | $(99,313) | | Net Change in Cash and Cash Equivalents | $74,144 | $(24,773) | | Cash and Cash Equivalents at End of Period | $133,957 | $271,250 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the condensed consolidated financial statements, covering accounting policies, significant transactions, and financial positions 1. Organization and Presentation This note describes Alliance Resource Partners, L.P.'s formation, NASDAQ listing, and the basis of presentation for the unaudited interim financial statements - ARLP is a Delaware limited partnership listed on the NASDAQ Global Select Market under the ticker symbol "ARLP", formed in May 1999[17] - The condensed consolidated financial statements are unaudited and prepared pursuant to SEC rules for interim reporting, requiring management to make estimates and assumptions[19][20] 2. New Accounting Standards This note details the adoption of new accounting standards and their expected impact on the financial statements - Adopted ASU 2023-08, Intangibles - Goodwill and Other - Crypto Assets (Subtopic 350-60), effective January 1, 2024, requiring digital assets to be measured at fair value with changes recognized in net income[23] - The adoption of ASU 2023-08 resulted in a cumulative-effect adjustment to increase the opening balance of Partners' Capital by $6.2 million[23] - Currently evaluating ASU 2023-07 (Segment Reporting) and ASU 2023-09 (Income Taxes), but do not expect a material effect on consolidated financial statements[24][25] 3. Acquisitions This note details the company's collaborative agreement for acquiring oil & gas mineral interests and recent property purchases - Renewed a collaborative agreement for an additional one-year term, committing up to $25.0 million for the acquisition of oil & gas mineral interests in the Midland and Delaware Basins[27] - During the three months ended March 31, 2024, purchased $0.3 million in proved and $0.1 million in unproved oil & gas mineral interests under the collaborative agreement, and an additional $0.3 million in proved and $1.2 million in unproved properties[29][30] 4. Contingencies This note discloses the accrual for a settlement agreement related to Fair Labor Standards Act litigation - Accrued $15.3 million as of March 31, 2024, for a settlement agreement (subject to court approval) related to Fair Labor Standards Act and state law litigation concerning alleged failure to compensate for "donning and doffing" equipment and overtime rates[30] 5. Inventories This note provides a breakdown of inventory components and adjustments made due to changes in coal sale prices and costs Inventories, net (in thousands): | Category | March 31, 2024 | December 31, 2023 | | :--------------- | :------------- | :---------------- | | Coal | $88,108 | $56,549 | | Finished goods | $4,174 | $3,908 | | Work in process | $562 | $791 | | Raw materials | $2,097 | $2,144 | | Supplies | $67,256 | $64,164 | | Total inventories, net | $162,197 | $127,556 | - Recorded lower of cost or net realizable value adjustments of $7.3 million to coal inventories due to lower coal sale prices and higher cost per ton[32] 6. Digital Assets This note details the company's digital asset holdings, specifically Bitcoin, and the reconciliation of their fair values Digital Assets (Bitcoin) as of March 31, 2024 (in thousands, except unit data): | Metric | Value | | :--------- | :------ | | Units | 425.10 | | Cost Basis | $12,769 | | Fair Value | $30,325 | Reconciliation of Fair Values of Digital Assets (Three Months Ended March 31, 2024, in thousands): | Activity | Amount | | :------------------------ | :------- | | Beginning balance | $15,811 | | Additions | $3,604 | | Dispositions | $(943) | | Change in fair value gains | $11,853 | | Ending balance | $30,325 | - The beginning balance is inclusive of a cumulative-effect adjustment of $6.2 million as of January 1, 2024, due to the adoption of ASU 2023-08[40] 7. Fair Value Measurements This note presents fair value measurements for financial instruments, including long-term debt, and discusses the approximation of fair value for other assets and liabilities Fair Value Measurements (in thousands): | Instrument | March 31, 2024 (Level 2) | December 31, 2023 (Level 2) | | :--------------- | :----------------------- | :-------------------------- | | Long-term debt | $440,659 | $347,116 | - The carrying amounts for cash equivalents, accounts receivable, accounts payable, accrued and other liabilities approximate fair value due to their short maturity[41] 8. Long-Term Debt This note provides a detailed breakdown of the company's long-term debt, including new financing arrangements and compliance with credit agreement covenants Long-Term Debt (in thousands): | Debt Type | March 31, 2024 (Principal) | December 31, 2023 (Principal) | | :------------------------------------ | :------------------------- | :-------------------------- | | Revolving credit facility | $— | $— | | Term loan | $56,250 | $60,938 | | Senior notes | $284,607 | $284,607 | | Securitization facility | $45,000 | $— | | June 2020 equipment financing | $1,028 | $2,039 | | February 2024 equipment financing | $53,662 | $— | | Total long-term debt (net) | $363,674 | $326,795 | - Entered into a February 2024 Equipment Financing arrangement for $54.6 million, maturing February 28, 2028, with an implicit interest rate of 8.29%[52][53] - As of March 31, 2024, the company was in compliance with all covenants of the Credit Agreement, with a consolidated debt to cash flow ratio of 0.59 to 1.0 (limit 2.5 to 1.0) and an interest coverage ratio of 59.18 to 1.0 (limit 3.0 to 1.0)[48] 9. Income Taxes This note outlines the components of income tax expense and explains the effective income tax rates for the reporting periods Components of Income Tax Expense (Three Months Ended March 31, in thousands): | Category | 2024 | 2023 | | :--------- | :--------- | :--------- | | Current | $5,056 | $4,613 | | Deferred | $(107) | $(372) | | Total Income Tax Expense | $4,949 | $4,241 | - The effective income tax rates are less than the federal statutory rate, primarily due to the portion of income not subject to income taxes[56] 10. Variable Interest Entities This note identifies and discusses the consolidation status of various entities as Variable Interest Entities (VIEs) - AllDale I & II and Cavalier Minerals are consolidated as Variable Interest Entities (VIEs) because ARLP is the primary beneficiary with power to direct activities and substantial equity ownership[59] - AllDale III, Francis, and NGP ET IV are determined to be VIEs but are not consolidated, as ARLP is not the primary beneficiary and does not have the power to direct their most significant economic activities[64][66][67] 11. Equity Investments This note details the company's equity method investments and other investments accounted for using a measurement alternative Equity Method Investments (Three Months Ended March 31, in thousands): | Investment | Beginning Balance (2024) | Equity Method Income (Loss) (2024) | Distributions Received (2024) | Ending Balance (2024) | | :--------------- | :----------------------- | :--------------------------------- | :---------------------------- | :-------------------- | | AllDale III | $23,933 | $507 | $(882) | $23,558 | | Francis | $16,487 | $(1,097) | $— | $15,390 | | NGP ET IV | $6,083 | $37 | $— | $6,745 | - Investments in Infinitum Electric, Inc. and Ascend Elements, Inc. are accounted for using a measurement alternative other than fair value due to the lack of a readily determinable fair value and quoted market prices[76][77] 12. Partners' Capital This note presents changes in partners' capital, including limited partner units, net income, and distributions, for the reporting period Partners' Capital (in thousands, except unit data): | Metric | January 1, 2024 | March 31, 2024 | | :------------------------------------ | :-------------- | :------------- | | Number of Limited Partner Units | 127,125,437 | 128,061,981 | | Limited Partners' Capital | $1,896,027 | $1,958,382 | | Total Partners' Capital | $1,858,597 | $1,921,404 | | Cumulative-effect adjustment (ASU 2023-08) | $— | $6,232 | | Net income attributable to ARLP | $— | $158,057 | | Distributions to Partners | $— | $(88,985) | - No units were repurchased under the unit repurchase program during the three months ended March 31, 2024[79][83] Cash Distributions Paid to Partners: | Payment Date | Per Unit Cash Distribution | | :---------------- | :------------------------- | | February 14, 2024 | $0.7000 | | May 15, 2024 (declared) | $0.7000 | 13. Revenue from Contracts with Customers This note provides a breakdown of total revenues by segment and details unsatisfied coal supply contracts Total Revenues by Segment (Three Months Ended March 31, 2024, in thousands): | Segment | Coal Sales | Oil & Gas Royalties | Transportation Revenues | Other Revenues | Total Revenues | | :----------------------------- | :--------- | :------------------ | :---------------------- | :------------- | :------------- | | Illinois Basin Coal Operations | $370,630 | $— | $24,476 | $2,735 | $397,841 | | Appalachia Coal Operations | $191,249 | $— | $6,277 | $487 | $198,013 | | Oil & Gas Royalties | $— | $37,030 | $— | $315 | $37,345 | | Coal Royalties | $— | $— | $— | $6 | $18,708 | | Other, Corporate & Elimination | $— | $— | $— | $18,492 | $(210) | | Consolidated | $561,879 | $37,030 | $30,753 | $22,035 | $651,697 | Unsatisfied Coal Supply Contracts as of March 31, 2024 (in thousands): | Segment | 2024 | 2025 | 2026 | 2027 and Thereafter | Total | | :----------------------------- | :--------- | :--------- | :--------- | :-------------------- | :---------- | | Illinois Basin Coal Operations | $951,283 | $525,584 | $280,755 | $291,000 | $2,048,622 | | Appalachia Coal Operations | $606,498 | $352,175 | $31,400 | $9,000 | $999,073 | | Total coal revenues | $1,557,781 | $877,759 | $312,155 | $300,000 | $3,047,695 | 14. Earnings per Limited Partner Unit This note calculates basic and diluted earnings per limited partner unit, showing net income attributable to ARLP and weighted-average units outstanding Earnings Per Limited Partner Unit (Three Months Ended March 31, in thousands, except per unit data): | Metric | 2024 | 2023 | | :---------------------------------------------------- | :--------- | :--------- | | Net income attributable to ARLP | $158,057 | $191,185 | | Net income attributable to ARLP available to limited partners | $154,929 | $184,390 | | Weighted-average limited partner units outstanding | 127,671 | 127,289 | | Earnings per limited partner unit - basic and diluted | $1.21 | $1.45 | 15. Workers' Compensation and Pneumoconiosis This note details changes in workers' compensation liability and the components of net periodic benefit cost for black lung benefits Changes in Workers' Compensation Liability (in thousands): | Metric | Three Months Ended March 31, 2024 | | :-------------------- | :-------------------------------- | | Beginning balance | $47,975 | | Changes in accruals | $3,125 | | Payments | $(4,048) | | Interest accretion | $509 | | Ending balance | $47,561 | Components of Net Periodic Benefit Cost for Black Lung Benefits (Three Months Ended March 31, in thousands): | Metric | 2024 | 2023 | | :---------------------- | :--------- | :--------- | | Service cost | $861 | $669 | | Interest cost | $1,558 | $1,238 | | Net amortization | $839 | $346 | | Net periodic benefit cost | $3,258 | $2,253 | 16. Common Unit-Based Compensation Plans This note describes activity under the Long-Term Incentive Plan (LTIP) and expenses for other compensation plans Long-Term Incentive Plan (LTIP) Non-Vested Grants Activity: | Metric | Number of Units (March 31, 2024) | | :--------------------------------- | :------------------------------- | | Non-vested grants at January 1, 2024 | 2,710,344 | | Granted | 455,574 | | Vested | (1,582,422) | | Forfeited | (22,958) | | Non-vested grants at March 31, 2024 | 1,560,538 | - LTIP expense for restricted units was $2.0 million for Q1 2024, down from $2.3 million for Q1 2023[98] - Total Supplemental Executive Retirement Plan (SERP) and Directors' Deferred Compensation Plan expense was $0.7 million for Q1 2024, up from $0.6 million for Q1 2023[100] 17. Components of Pension Plan Net Periodic Benefit Cost This note outlines the components contributing to the net periodic benefit credit for the company's pension plan Components of Pension Plan Net Periodic Benefit Credit (Three Months Ended March 31, in thousands): | Metric | 2024 | 2023 | | :-------------------- | :--------- | :--------- | | Interest cost | $1,259 | $1,295 | | Expected return on assets | $(1,765) | $(1,598) | | Net amortization | $84 | $220 | | Net periodic benefit credit | $(422) | $(83) | 18. Segment Information This note provides financial and operational data for the company's reportable segments, including Adjusted EBITDA and coal tons sold - Operates in four reportable segments: Illinois Basin Coal Operations, Appalachia Coal Operations, Oil & Gas Royalties, and Coal Royalties, plus an "Other, Corporate and Elimination" category[104] Segment Adjusted EBITDA (Three Months Ended March 31, in thousands): | Segment | 2024 | 2023 | Increase (Decrease) | Change (%) | | :----------------------------- | :--------- | :--------- | :------------------ | :--------- | | Illinois Basin Coal Operations | $140,278 | $132,008 | $8,270 | 6.3% | | Appalachia Coal Operations | $74,235 | $116,550 | $(42,315) | (36.3)% | | Oil & Gas Royalties | $31,402 | $30,045 | $1,357 | 4.5% | | Coal Royalties | $12,444 | $10,125 | $2,319 | 22.9% | | Other, Corporate & Elimination | $2,195 | $3,219 | $(1,024) | (31.8)% | | Total Segment Adjusted EBITDA | $260,554 | $291,947 | $(31,393) | (10.8)% | Coal - Tons Sold (Three Months Ended March 31, in thousands): | Segment | 2024 | 2023 | Increase (Decrease) | Change (%) | | :----------------------------- | :--------- | :--------- | :------------------ | :--------- | | Illinois Basin Coal Operations | 6,437 | 6,190 | 247 | 4.0% | | Appalachia Coal Operations | 2,237 | 2,279 | (42) | (1.8)% | | Total tons sold | 8,674 | 8,469 | 205 | 2.4% | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial performance, condition, and future outlook for the three months ended March 31, 2024, compared to the same period in 2023. It covers consolidated results, segment performance, and liquidity and capital resources Overview and Strategy This section outlines ARLP's business model, strategic focus, and key investments in the energy sector - ARLP is a diversified natural resource company generating operating and royalty income from coal production/marketing and oil & gas mineral interests[120] - Strategy focuses on providing reliable baseload fuel, positioning as an energy partner for the future, and pursuing strategic investments in energy and related infrastructure[120] - Investments include Francis Renewable Energy (EV charging), Infinitum Electric (electric motors), NGP Energy Transition (private equity in lower carbon economy), and Ascend Elements (battery materials)[122] Consolidated Results This section summarizes the company's overall financial performance, highlighting key revenue, income, and EBITDA trends for the quarter - Total revenues decreased slightly to $651.7 million in Q1 2024 from $662.9 million in Q1 2023, primarily due to lower average coal sales prices, partially offset by higher oil & gas royalties and other revenues[129] - Net income attributable to ARLP decreased to $158.1 million ($1.21 EPU) in Q1 2024 from $191.2 million ($1.45 EPU) in Q1 2023, due to lower revenues and increased operating expenses, partially offset by an increase in the fair value of digital assets[132] - Coal sales decreased by $16.9 million (2.9%) to $561.9 million in Q1 2024, driven by a 5.2% decrease in average coal sales prices, partially offset by a 2.4% increase in tons sold to 8.7 million tons[133][139] - Segment Adjusted EBITDA decreased by $31.3 million (10.8%) to $260.6 million in Q1 2024 from $291.9 million in Q1 2023[137][139] Segment Performance This section analyzes the financial performance of each operating segment, detailing revenue and EBITDA contributions and key drivers - Illinois Basin Coal Operations Segment Adjusted EBITDA increased 6.3% to $140.3 million, driven by 10.0% higher coal sales due to improved domestic pricing and 4.0% increase in tons sold[139][143] - Appalachia Coal Operations Segment Adjusted EBITDA decreased 36.3% to $74.2 million, primarily due to 20.9% lower coal sales and a 19.4% decrease in average coal sales prices[139][144] - Oil & Gas Royalties Segment Adjusted EBITDA increased to $31.4 million, with record oil & gas volumes rising 18.3% to 898 MBOE due to increased drilling and acquisitions[139][145] - Coal Royalties Segment Adjusted EBITDA increased to $12.4 million, benefiting from higher average royalty rates and increased royalty tons sold[139][145] Liquidity and Capital Resources This section discusses the company's ability to generate and manage cash, including operating cash flows, investing activities, financing, and future capital expenditure plans - Anticipates sufficient cash flow from existing balances, operations, credit facilities, and potential debt/equity issuances to meet 2024 cash requirements[147][156] - Cash provided by operating activities decreased to $209.7 million in Q1 2024 from $221.7 million in Q1 2023[153] - Net cash used in investing activities decreased to $120.5 million in Q1 2024 from $147.1 million in Q1 2023, primarily due to lower acquisition spending[154] - Net cash used in financing activities significantly decreased to $15.0 million in Q1 2024 from $99.3 million in Q1 2023, driven by increased borrowings and reduced debt payments[155] - Total capital expenditures for 2024 are estimated in a range of $450.0 million to $500.0 million[156] ITEM 3. Quantitative and Qualitative Disclosures about Market Risk This section outlines the company's exposure to various market risks, including commodity price risk for coal, oil, and natural gas, credit risk from customers, exchange rate risk, and interest rate risk from variable-rate debt - Significant exposure to commodity price risk for coal, oil, and natural gas, and supply costs; manages risk through strategic sourcing but has not historically used commodity price hedges[162][163] - Credit risk is primarily with domestic electric utilities and global brokerage firms, managed by evaluating creditworthiness and securing letters of credit or cash collateral[164] - Minimal direct exchange rate risk as most transactions are USD denominated, but foreign currency fluctuations can affect the competitiveness of coal in international markets[165] - Interest rate risk exists on variable-rate borrowings under the Revolving Credit Facility and Securitization Facility; historically, earnings have not been materially affected, and no interest rate derivatives have been used[166] ITEM 4. Controls and Procedures Management, including the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, and no material changes to internal control over financial reporting occurred during the quarter - Disclosure controls and procedures were evaluated and concluded to be effective as of March 31, 2024[169] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the quarter ended March 31, 2024[170] FORWARD-LOOKING STATEMENTS This section provides a cautionary statement regarding forward-looking statements, highlighting that such statements are based on current beliefs and assumptions and are subject to numerous uncertainties and business risks that could cause actual results to differ materially from expectations - Forward-looking statements are identified by words like "anticipate," "expect," "plan," and are based on current expectations and beliefs, subject to numerous uncertainties and business risks[172] - Factors that could cause actual results to differ include declines in the coal industry, macroeconomic and market conditions, changes in commodity prices, geopolitical conflicts, regulatory changes (environmental, mining, health care, taxes), liquidity constraints, customer issues, operational interruptions, and cybersecurity risks[172][173][175] PART II OTHER INFORMATION This section provides additional disclosures beyond the financial statements, covering legal proceedings, risk factors, equity sales, defaults, mine safety, and other pertinent information ITEM 1. LEGAL PROCEEDINGS This section discloses a settlement agreement reached in April 2024 for $15.3 million, subject to court approval, to resolve six lawsuits related to alleged Fair Labor Standards Act violations - Entered into a settlement agreement in April 2024 to resolve six lawsuits for $15.3 million, related to alleged violations of the Fair Labor Standards Act concerning compensation for "donning and doffing" equipment and overtime rates[179] ITEM 1A. RISK FACTORS This section refers readers to the comprehensive risk factors detailed in the company's Annual Report on Form 10-K for the year ended December 31, 2023, and acknowledges the potential for additional, currently unknown or immaterial risks to adversely affect the business - Readers should carefully consider the risk factors discussed in Part I - Item 1A. "Risk Factors" in the Annual Report on Form 10-K for the year ended December 31, 2023[180] - Additional risks and uncertainties not currently known or deemed immaterial could also materially adversely affect the business, financial condition, and/or operating results[180] ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS This section details the company's unit repurchase program, which was increased by $93.5 million in January 2023 to a total authorization of $100.0 million. No units were repurchased during the first quarter of 2024 - The unit repurchase program was increased by $93.5 million in January 2023, authorizing repurchases up to a total of $100.0 million of ARLP common units[181] - No units were repurchased and retired during the three months ended March 31, 2024[182] - Since inception, 6,390,446 units have been repurchased and retired at an average unit price of $17.67 for an aggregate purchase price of $112.9 million[182] ITEM 3. DEFAULTS UPON SENIOR SECURITIES This section states that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities occurred[182] ITEM 4. MINE SAFETY DISCLOSURES This section indicates that information regarding mine safety violations and other regulatory matters is provided in Exhibit 95.1 of this Quarterly Report - Information concerning mine safety violations and other regulatory matters is included in Exhibit 95.1[183] ITEM 5. OTHER INFORMATION This section confirms that no director or officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024 - No director or officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements during the three months ended March 31, 2024[185] ITEM 6. EXHIBITS This section provides a comprehensive list of all exhibits filed as part of this Quarterly Report on Form 10-Q, including organizational documents, agreements, certifications, and interactive data files - The exhibits include various organizational documents, amendments to partnership agreements, credit agreements, and certifications required by the Sarbanes-Oxley Act[186][191][192][193][194][195] - Interactive Data Files (XBRL) for the quarterly period ended March 31, 2024, are also included as exhibits[198] SIGNATURES This section confirms the official signing of the report by authorized executives on May 9, 2024 - The report was signed on May 9, 2024, by Joseph W. Craft, III, Chairman, President and Chief Executive Officer of Alliance Resource Management GP, LLC, and Megan J. Cordle, Vice President, Controller and Chief Accounting Officer[200]