ARLP Financial Analysis

Analysis Date: 2/4/2025

Business Model

Alliance Resource Partners (ARLP) generates revenue primarily from coal sales, oil & gas royalties, and transportation services. Coal operations involve mining and marketing coal to major domestic and international utilities and industrial users. Royalty income is derived from mineral interests in coal, oil, and gas producing regions. Transportation revenues are generated from moving coal for customers.

Revenue Sources

• Coal Sales: Majority of revenue comes from the sale of coal to domestic and international customers.
• Oil & Gas Royalties: Generates revenue from royalty interests in oil and gas properties, primarily in the Permian Basin.
• Transportation Revenues: Revenue from transportation of coal for customers, although these are largely pass-through expenses.
• Other Revenues: Includes activities like Bitcoin mining and other miscellaneous income.

Income Statement Analysis

• Revenue decreased by 5.6% year-over-year, primarily due to reduced coal sales volumes and lower transportation revenues. Sequentially, revenue decreased by 3.8% due to lower coal sales prices.
• Operating expenses (excluding DD&A) increased by 14.2% year-over-year and 5.8% sequentially, driven by reduced production, higher labor costs, and lower recoveries in coal operations.
• Transportation expenses decreased significantly by 34.5% year-over-year and 25.6% sequentially, contributing positively to the expense profile but reflecting lower transportation revenue as well.
• Depreciation, depletion, and amortization increased by 17.6% year-over-year and 10.3% sequentially.
• Net Income Attributable to ARLP decreased significantly by 85.9% year-over-year and 81.1% sequentially, primarily due to lower revenues, increased operating expenses, and asset impairments.

Balance Sheet Analysis

• Cash and Cash Equivalents significantly increased by 129% year-over-year, indicating improved liquidity.
• Trade Receivables decreased by 41% year-over-year, which could indicate better collection or lower sales at the end of the period.
• Digital Assets increased substantially by 370.2% reflecting the increase in value of Bitcoin holdings.
• Long-term debt increased by 42.3% year-over-year, likely due to the issuance of Senior Notes in June 2024.
• Total Liabilities increased by 14.2% year-over-year, primarily driven by the increase in long-term debt.
• Partners' Capital remained relatively stable year-over-year.

Capital Allocation

ARLP maintains a consistent quarterly cash distribution of $0.70 per unit, demonstrating a commitment to returning capital to unitholders. In 2024, distributions paid to partners amounted to $363.4 million. The company is also reinvesting in its business through capital expenditures, which increased in 2024, primarily in coal operations infrastructure projects. They are actively pursuing growth in oil & gas royalties segment, favoring its cash flow generation profile and ability to self-fund growth. While share repurchases are not explicitly detailed in recent results, the distribution policy and reinvestment strategy are clear priorities.

Management Commentary

Full year 2024 was one of our safest periods ever with safety statistics 34% below 2023.

We entered 2025 with high expectations. We expect improved coal production cost to counterbalance lower market prices, keeping coal segment margins near 2024 full year levels.

We are seeing significant customer solicitations for both near term and long term supply contracts and anticipate our contracted book to more closely approximate typical contracted levels in the coming weeks.

Both the Q4 and the full year of 2024 presented many challenges beyond our control.

Difficult mining conditions at our Appalachian operations also adversely impacted our results for the full year.

Lower sales volumes, higher operating costs and several non-cash accruals caused 2024 Full Year financial results to fall short of last year’s record revenues and net income.

Overall Sentiment: Cautiously optimistic. Management acknowledges the challenges faced in 2024 but expresses confidence in improved performance in 2025 due to completed infrastructure projects, better cost management, and a potentially more favorable regulatory environment. They are positive about long-term demand for coal and growing electricity needs, while also emphasizing their commitment to oil & gas royalties growth and shareholder returns.

Recommendation

Rating: Hold

Reason for Rating: Based on the analysis, a Hold recommendation is appropriate for ARLP. While the company faces near-term headwinds reflected in decreased revenues and net income for Q4 2024 and full year 2024 compared to previous periods, there are positive aspects and future potentials to consider.

Disclaimer: This report is for informational purposes only and not investment advice. The analysis is based on limited information and subject to change. Investing in securities involves risks, including potential loss of principal. Past performance doesn't guarantee future results. Always conduct your own research, understand the risks, and consult a financial professional before making investment decisions.

Generated on: 2/4/2025, 9:06:55 AM