Alliance Resource Partners(ARLP) - 2025 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total revenues for Q2 2025 were $547.5 million, down from $593.4 million in Q2 2024, primarily due to lower coal sales prices and transportation revenues, partially offset by higher coal sales volumes [4] - Average coal sales price per ton decreased by 11.3% year-over-year to $57.92, driven by the roll-off of higher-priced legacy contracts and a higher proportion of Illinois Basin tons [4] - Net income for Q2 2025 was $59.4 million, compared to $100.2 million in Q2 2024, reflecting variances in revenues and higher depreciation expenses [9] - Adjusted EBITDA for the quarter was $161.9 million, down 10.8% year-over-year but up 1.2% sequentially [10] Business Line Data and Key Metrics Changes - Coal production in Q2 2025 was 8.1 million tons, a 3.9% decrease compared to Q2 2024, while coal sales volumes increased by 6.8% to 8.4 million tons [4] - In the Illinois Basin, coal sales volumes increased by 15.2% year-over-year, driven by record shipments from Riverview and Hamilton mines [5] - Coal sales volumes in Appalachia decreased by 16.8% year-over-year due to challenging mining conditions at Tunnel Ridge [5][6] - Royalty segment revenues were $53.1 million, up 0.2% year-over-year, with oil and gas royalty volumes increasing by 7.7% [8] Market Data and Key Metrics Changes - Eastern utility inventories were 18% below the prior year, indicating a tightening market [18] - Year-to-date electricity generation in key Eastern regions was up over 18% compared to last year, driven by warmer temperatures and increased coal generation [18] - The company is seeing multiple domestic customer solicitations for long-term supply contracts, indicating strong demand for coal [11][12] Company Strategy and Development Direction - The company is optimistic about the long-term outlook due to supportive regulatory actions and strong domestic coal market fundamentals [18][21] - The company is increasing its volume guidance for the Illinois Basin to 25 to 25.75 million tons based on solid domestic demand [12] - The company is exploring opportunities in energy infrastructure related to data centers and evaluating investments in coal power plants [37] Management's Comments on Operating Environment and Future Outlook - Management noted that the current regulatory environment is the most favorable for coal in decades, with actions taken to support coal-fired power plants [21][22] - The company expects second-half results from Appalachia to improve following the completion of a longwall move at Tunnel Ridge [7] - Management expressed cautious optimism about growth opportunities in sales volumes next year, despite potential lower average coal sales prices [19] Other Important Information - The company generated free cash flow of $79 million after investing $65.3 million in coal operations [11] - The quarterly distribution rate was adjusted to $0.60 per unit, reflecting a strategic decision to strengthen the balance sheet and provide flexibility for growth opportunities [22][33] Q&A Session Summary Question: Can you provide more details on the $25 million investment for the acquisition of the Gavin Power plant? - The investment allows participation as an LP investor in a fund set up for the acquisition, which is expected to be accretive upon closing [28] Question: Can you clarify the board's decision to lower the distribution despite a strong outlook? - The adjustment aligns with a more sustainable operating margin and allows for additional cash flow to pursue growth opportunities [32][33] Question: What are the potential growth opportunities being considered? - The company is looking at investments in minerals, energy infrastructure for data centers, and potential acquisitions of coal plants [36][37] Question: How do you see the impact of the recent trade deal on guidance? - There is potential for increased manufacturing demand in the Eastern U.S., which could benefit coal demand [62] Question: How do you anticipate demand growth pacing? - Demand is expected to stabilize as utilities maintain inventory levels, correlating with coal purchases [67][70] Question: Has the decline in Chinese demand for seaborne coal impacted U.S. pricing? - Domestic pricing remains prioritized, but there are signs of improved pricing for exports, which could increase next year [75] Question: Will there be continued investments in royalty assets? - The company plans to invest in its royalty segment, primarily targeting the Permian and Delaware Basins [77]