May 2, 2022 - Alliance Resource Partners, L.P. (NASDAQ: ARLP) today reported increased financial and operating results for the quarter ended March 31, 2022 (the "2022 Quarter"). Total revenues in the 2022 Quarter increased 44.6% to $460.9 million compared to $318.6 million for the quarter ended March 31, 2021 (the "2021 Quarter") as a result of higher coal sales volumes and prices, which rose 19.5% and 13.0%, respectively, and higher oil & gas royalty volumes and prices, which increased by 26.3% and 74.9%, respectively. Total operating expenses increased to $373.0 million in the 2022 Quarter, compared to $282.3 million in the 2021 Quarter, due primarily to increased coal sales volumes and inflationary cost pressures. Income before income taxes increased 221.0% to $79.7 million in the 2022 Quarter as compared to $24.8 million in the 2021 Quarter. As previously reported, during the 2022 Quarter, ARLP recognized a one-time non-cash deferred income tax charge of $37.3 million and a current income tax expense of $4.8 million associated with its election to have our oil & gas royalty activities treated as a taxable entity for federal and state income tax purposes, which collectively reduced net income by $0.33 per basic and diluted limited partner unit. This election effectively reduces the total income tax burden on our oil & gas royalties, as ARLP will pay entity-level taxes at corporate tax rates that are well below the individual tax rates that would otherwise be paid by our unitholders. Reflecting higher revenues, partially offset by increased total operating and income tax expenses, net income for the 2022 Quarter increased to $36.7 million, or $0.28 per basic and diluted limited partner unit, compared to $24.7 million, or $0.19 per basic and diluted limited partner unit, for the 2021 Quarter. EBITDA also increased 61.5% in the 2022 Quarter to $152.3 million compared to $94.3 million in the 2021 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 throughout this release, please see the end of this release.)
Compared to the quarter ended December 31, 2021 (the "Sequential Quarter"), total revenues decreased by 2.7% primarily as a result of lower coal sales volumes due to previously reported coal shipment delays, partially offset by higher coal sales price realizations and increased oil & gas royalty volumes and prices. Total operating expenses decreased 9.5% to $373.0 million due primarily to lower coal sales volumes in the 2022 Quarter and expenses incurred in the Sequential Quarter related to an $11.8 million buy-out of a coal contract and $6.8 million of unfavorable year end non-cash actuarial and accrual adjustments. Lower total operating expenses more than offset reduced revenues leading income before income taxes higher by 52.5% to $79.7 million in the 2022 Quarter compared to $52.2 million for the Sequential Quarter. Although income before income taxes was higher in the 2022 Quarter, net income decreased to $36.7 million compared to $51.8 million in the Sequential Quarter due to the impact of income tax expense attributable to the above discussed change in tax status of our oil & gas royalty segment. EBITDA increased 16.9% in the 2022 Quarter to $152.3 million compared to $130.2 million in the Sequential Quarter.
As previously announced on April 26, 2022, the Board of Directors of ARLP’s general partner (the "Board") increased the cash distribution to unitholders for the 2022 Quarter to $0.35 per unit (an annualized rate of $1.40 per unit), payable on May 13, 2022, to all unitholders of record as of the close of trading on May 6, 2022. The announced distribution represents a 250.0% increase over the cash distribution of $0.10 per unit for the 2021 Quarter and a 40.0% increase over the cash distribution of $0.25 per unit for the Sequential Quarter.
"Buoyed by robust energy market fundamentals during the 2022 Quarter, ARLP delivered strong operating and financial performance with coal and oil & gas sales volumes, total revenues, net income and EBITDA all increasing significantly over the 2021 Quarter," said Joseph W. Craft III, Chairman, President and Chief Executive Officer. "Our coal operations performed exceptionally well, particularly in light of the transportation challenges experienced during the 2022 Quarter, which resulted in delayed shipments of approximately 1.1 million tons. Through the efforts of our marketing teams, ARLP continued to benefit from rising coal markets as coal price realizations per ton increased $5.48 and $2.39 compared to the 2021 and Sequential Quarters, respectively. We also further strengthened our contract book during the 2022 Quarter, securing new agreements for the delivery of approximately 8.7 million tons through 2025 at prices well above our initial expectations. Higher energy prices and increased royalty volumes also drove strong performance by our royalties businesses, with both oil & gas royalties and coal royalties achieving a record EBITDA during the 2022 Quarter."
ARLP's coal sales prices per ton increased in all regions compared to both the 2021 and Sequential Quarters as a result of favorable market conditions. In the Illinois Basin, increased domestic prices and significantly higher export prices during the 2022 Quarter drove coal sales prices higher by 12.5% and 3.7% compared to the 2021 and Sequential Quarters, respectively. In Appalachia, sales prices increased by 16.3% and 10.6% compared to the 2021 and Sequential Quarters, respectively, primarily due to significantly higher export price realizations at our Mettiki and MC Mining operations. Coal sales volumes were higher by 23.6% in the Illinois Basin compared to the 2021 Quarter as a result of increased sales volumes across all mines in the region. In Appalachia, coal sales volumes increased 10.3% compared to the 2021 Quarter as a result of higher export volumes. Compared to the Sequential Quarter, shipment delays resulted in reduced coal sales volumes in both the Illinois Basin and Appalachian regions, which fell 7.1% and 17.7%, respectively, during the 2022 Quarter. ARLP ended the 2022 Quarter with total coal inventory of 1.6 million tons, representing a decrease of 0.2 million tons compared to the end of the 2021 Quarter and an increase of 1.0 million tons compared to the end of the Sequential Quarter.
Segment Adjusted EBITDA Expense per ton increased by 14.4% and 3.0% in the Illinois Basin and Appalachia, respectively, compared to the 2021 Quarter as a result of inflationary pressures on numerous expense items, including labor-related expenses and supply and maintenance costs, as well as longwall moves at our Hamilton, Tunnel Ridge and Mettiki mines. Lower recoveries at our Illinois Basin mines also contributed to increased per ton expenses in that region compared to the 2021 Quarter. Compared to the Sequential Quarter, Segment Adjusted EBITDA expense per ton decreased 3.5% and 2.0% in the Illinois Basin and Appalachia, respectively, primarily due to the previously discussed contract buy-out expense and unfavorable non-cash actuarial and accrual adjustments recognized in the Sequential Quarter.
For our Oil & Gas Royalties segment, significantly higher sales price realizations per BOE and increased volumes in the 2022 Quarter drove Segment Adjusted EBITDA higher by 139.0% to a record $28.6 million compared to $11.9 million for the 2021 Quarter. Compared to the Sequential Quarter, Segment Adjusted EBITDA increased by $6.2 million in the 2022 Quarter due to higher volumes, which increased 10.3%, and increased oil & gas prices, which rose by 18.3%.
Segment Adjusted EBITDA for our Coal Royalties segment increased 42.3% to a record $10.3 million for the 2022 Quarter compared to $7.3 million for the 2021 Quarter as a result of increased royalty tons sold and higher average royalty rates per ton.
Matrix and Alliance Technologies Group High Level Strategy
Matrix Design Group, LLC ("Matrix") is a wholly owned subsidiary of ARLP created in 2006 as a technical service group focused on deploying technology in domestic underground coal operations in response to the passage of The MINER Safety Act by the United States Congress. The Matrix strategy evolved over the last decade with a primary focus on supporting U.S. based coal mining operations with proximity detection equipment and other products and services. The customer base has grown to include international coal mining operations and expanded into non-coal mining applications. In 2021 Matrix had revenue of $22.7 million and EBITDA of $4.7 million. As factored into our 2022 consolidated guidance, we estimated revenue of approximately $35.0 million and EBITDA of $8.0 million for Matrix. Matrix is and always has been a cash flow positive business growing organically with limited capital investment to date.
We have more recently been developing Matrix as an incubator as a key component of our diversification strategy. Matrix and its subsidiaries today employ over 100 professionals covering hardware and software development, data analytics and AI technologies. There are many "AI companies" and many "software development" companies that exist but we believe Matrix has attributes which distinguish it from many of its peers. Matrix combines hardware, software and analytics in one platform, which is a powerful combination. Moreover, we believe the investments we are making into Francis Energy and Infinitum Electric (discussed below) have the potential to significantly benefit from the growing skills base, analytics and AI opportunities being developed by Matrix. These three companies are all focused in strong growth sectors aligned with the broader energy transition. Our long-term goals for these companies are to provide tangible offerings which are enhanced by this transition, rather than being dependent on it.
Over the past year, Matrix has embarked on a new strategy, which aims to position the company to compete in the energy transition space, while at the same time remaining committed to the markets they already serve. The reduction of base load coal powered generation resources from our country’s electrical grid combined with the anticipated growth of renewable power sources and the electric vehicle ("EV") market are changing how electricity is generated, consumed and priced in the United States. As intermittent resources become a more significant portion of the energy mix, the market value of power will become more correlated with generation capacity in real time. This transition creates additional challenges for the electrical infrastructure in America, which was not designed to accommodate this load. ARLP’s relationships with electric utilities, industrial customers, and federal and state governments, along with our technology and manufacturing capabilities give us confidence that these challenges will provide growth opportunities for our Partnership.
Matrix is currently delivering products focused on data networking, communication and tracking systems, mining proximity detection systems, industrial collision avoidance systems, and data and analytics software. Future areas of potential investment by Matrix and ARLP’s broader management team focused on technology development (our "Alliance Technologies Group") include smart cameras, energy storage, energy efficiency, renewable power generation, EV charging, smart metering and energy demand management.
Earlier today Francis Renewable Energy, LLC ("Francis Energy"), an Oklahoma-based owner and operator of a leading comprehensive statewide network of EV fast charging infrastructure, with plans to service states across the Midwest and Eastern U.S., announced an equity investment by ARLP to help propel Francis Energy’s future growth. To date, Francis Energy has built a network with hundreds of fast chargers across Oklahoma and several other states, with a goal of providing EV drivers convenient, affordable, easy to use public access to charging stations.
The $1.2 trillion infrastructure bill that President Biden signed into law in November 2021 includes a large federal investment in electric vehicle charging infrastructure. The law authorizes $7.5 billion in federal spending available through two new programs to incentivize the buildout of EV infrastructure to eliminate range anxiety for EV drivers and support the booming growth of the U.S. electric vehicle market. The money will be allocated to private sector companies by federal, state and local governments creating opportunities for project developers and equipment manufacturers, like Matrix and Francis Energy.
Infinitum Electric Inc.
ARLP has also agreed to an equity investment in Infinitum Electric, Inc. ("Infinitum"), a Texas-based startup developer and manufacturer of electric motors featuring printed circuit board stators which have the potential to result in motors that are smaller, lighter, quieter, more efficient and capable of operating at a fraction of the carbon footprint of conventional electric motors. Infinitum’s products are supported by multiple patents and patent applications, which may have broad application across multiple industries.
"Much has changed since we last released earnings in January," said Mr. Craft. "We are excited to share our current energy transition strategy and the announcement of our investment in two entrepreneurial companies that we believe will provide significant returns for our unitholders within four to seven years. We are equally excited to continue supporting Matrix efforts to develop new product offerings that have the potential to grow their sales by 5 to 10 times over the same time period."
Addressing ARLP’s current outlook, Mr. Craft added, "Commodity price realizations escalated dramatically during the 2022 Quarter, reflecting systemic supply shortages due, in part, to the impact of governmental policies over the last fifteen years and exacerbated by uncertainties created by Russia’s invasion of Ukraine in February of this year. Energy supplies have also been impacted by labor shortages along with supply chain and transportation disruptions. Demand has remained surprisingly strong despite Covid-19 related cases still impacting economies around the world, sanctions imposed on Russia and inflationary cost pressures in the United States not seen in 40 years."
Mr. Craft added, "Forward pricing for worldwide commodities also rose dramatically during the 2022 Quarter, well above our initial expectations earlier this year. As a result, we updated 2022 full year guidance on April 26, 2022 (as shown below) as well as released our Board’s decision to increase ARLP’s cash distribution to unitholders by 40.0% to $0.35 for the 2022 Quarter. Future distributions will be considered by our Board on a quarterly basis. Consistent with our full-year guidance, management anticipates current market conditions continuing for the foreseeable future, which supports ARLP targeting increases to unitholder distributions of 10.0% to 15.0% per quarter over the balance of this year."
About Alliance Resource Partners, L.P.
ARLP is a diversified energy company that is currently the second largest coal producer in the United States. ARLP also generates operating and royalty income from mineral interests it owns in strategic coal and oil & gas producing regions in the United States. In addition, ARLP is positioning itself as an energy provider for the future by leveraging its core technology and operating competencies to make strategic investments in the fast-growing energy and infrastructure transition.
About Matrix Design Group, LLC
Matrix is an ISO 9001 certified designer, developer and marketer of safety and productivity technology for use in mining and industrial applications. Its innovative, industry-leading systems include products focused on data networking, communication and tracking systems, mining proximity detection systems, industrial collision avoidance systems, and data and analytics software. Headquartered in Newburgh, Indiana, Matrix has offices in Lexington, KY, Johannesburg and Pretoria, South Africa and service locations throughout its mining regions.
The statements and projections used throughout this release are based on current expectations. These statements and projections are forward-looking, and actual results may differ materially. These projections do not include the potential impact of any mergers, acquisitions or other business combinations that may occur after the date of this release. We have included more information below regarding business risks that could affect our results.
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