DALLAS, TX -- February 4th, 2024 -- Alliance Resource Partners, L.P. (NASDAQ: ARLP): Stonegate Capital Partners updates coverage on Alliance Resource Partners, L.P. ARLP reported a challenging 4Q24, impacted by lower coal sales pricing and higher operating expenses. Total revenues for the quarter decreased by 5.6% year-over-year to $590.1M, primarily due to a 2.3% decline in coal sales volumes. Net income for the quarter was down to $16.3M compared to $115.4M in 4Q23, reflecting higher operating costs and non-cash impairment charges of $31.1M related to the MC Mining operation. Adj. EBITDA came in at $124.0M, a 27.2% decline sequentially. Despite these headwinds, ARLP remains committed to its FY25 guidance, expecting improvements driven by efficiency realizations in its operations, a strengthening order book, and declining domestic inventories. 

Company Updates:

• Quarterly Results – ARLP reported revenue, adj EBITDA, and adj EPS of $590.1M, $170.4M, and $0.66, respectively. This compares to our/consensus estimates of $618.9M/$635.6M, $187.4M/$182.8M, and $0.76/$0.67, respectively. Pricing remained relatively stable due to ARLP’s well-contracted order book, which continues to expand, heading into FY25. G&A expenses remained relatively unchanged y/y at $17.7M. Outside coal purchases were significantly lower y/y, down 61.4% to $7.9M. OPM declined to 7.4% due to increased cost pressures, particularly in the Appalachia segment, which experienced challenging mining conditions.
• Coal Operations – In 4Q24, ARLP reported coal sales revenue of $504.6M, a 3.3% y/y decline. Coal sales volumes totaled 8.4 million tons, down 2.3% y/y, while pricing decreased by 1.0% to $59.97 per ton. The Illinois Basin segment saw sales volumes rise 2.8% y/y to 6.6 million tons, while Appalachia’s volumes fell 17.1% y/y to 1.8 million tons due to lower production at Tunnel Ridge. Pricing in the Illinois Basin declined 1.2% y/y to $54.38 per ton, while Appalachian pricing increased 4.4% y/y to $80.23 per ton, benefiting from stronger domestic contract realizations. Lastly, we note that Management reached its inventory goal for FY24, reaching 0.6 million tons. This is down from 1.4 million tons at the end of FY23. We expect the Company to continue reducing its inventory through FY25.
• Royalty Business – Total royalty revenues decreased 8.6% y/y to $48.5M. Oil & Gas royalty volumes increased slightly by 1.7% y/y to 0.82M BOE, though pricing per BOE dropped 17.2% y/y to $36.94. Coal royalty tons sold rose 9.4% y/y, but coal royalty revenue per ton declined 3.0% y/y to $3.23. The Partnership continued to expand its O&G royalties’ business, completing $9.6M in mineral interest acquisitions during the quarter.
• Strong Liquidity and Cash Flow Position – ARLP ended 4Q24 with a solid liquidity position of $593.9M, consisting of $137.0M in cash and $456.9M in available credit. FCF for the quarter was $75.2M, bringing YTD FCF to $383.5M. The Company also maintained its quarterly cash distribution at $0.70 per unit, or $2.80 per unit annualized, consistent with prior quarters. Overall, ARLP faces near-term headwinds, but management’s cost initiatives and a growing order book position the company well for FY25.
• Valuation – We are using an EV/EBITDA framework to inform our ARLP valuation. We are using our F25 expected EBITDA, and an EV/EBITDA range of 5.0x to 5.5x with a midpoint of 5.25x. This arrives at a valuation range of $27.89 to $30.97 with a mid-point of $29.43.

About StonegateStonegate Capital Partners is a leading capital markets advisory firm providing investor relations, equity research, and institutional investor outreach services for public companies. Our affiliate, Stonegate Capital Markets (member FINRA) provides a full spectrum of investment banking, equity research and capital raising for public and private companies.

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