Hello. And welcome to the Alliance Resource Partners Third Quarter 2023 Earnings Conference [Operator Instructions] As a reminder, this conference is being recorded. It’s now my pleasure to turn the floor to Senior Vice President and CFO, Cary Marshall. Please go ahead, sir.

Thank you, operator, and welcome, everyone. Earlier this morning, Alliance Resource Partners released its third quarter 2023 financial and operating results, and we will now discuss those results as well as our perspective on current market conditions and outlook for the balance of 2023. Following our prepared remarks, we will open the call to answer your questions. Before beginning, a reminder that some of our remarks today may include forward-looking statements subject to a variety of risks, uncertainties and assumptions contained in our filings from time to time with the Securities and Exchange Commission and are also reflected in this morning's press release. While these forward-looking statements are based on information currently available to us, if one or more of these risks or uncertainties materialize or if our underlying assumptions prove incorrect, actual results may vary materially from those we projected or expected. And in providing these remarks, the partnership has no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by law to do so. Finally, we will also be discussing certain non-GAAP financial measures. Definitions and reconciliations of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures are contained at the end of ARLP's press release, which has been posted on our website and furnished to the SEC on Form 8-K. With the required preliminaries out of the way, I will begin with a review of our results for the third quarter, then turn the call over to Joe Craft, our Chairman, President and Chief Executive Officer, for his comments. Total revenues in the 2023 quarter increased slightly to $636.5 million compared to $632.5 million in the 2022 quarter. The modest year-over-year improvement was driven primarily by higher transportation…

Thank you, Cary and good morning, everyone. I want to begin my comments by thanking the entire Alliance organization for their continued hard work and dedication. I am proud of all that has been accomplished through the first three quarters of the year as we are on track to achieve another record year, beating last year's full year’s revenue and net income numbers. Our well contracted coal order book enabled us to navigate an otherwise challenging operating environment during the 2023 quarter. Our Coal segment achieved higher realized pricing per ton sold relative to both the 2022 and sequential quarters. A theme that continues to favorably impact year-to-date results, particularly with regards to EBITDA and net income. However, we did face some difficult mining conditions in Appalachia at all three mines during the 2023 quarter, which resulted in higher operating cost and fewer tons produced versus previous expectations. Mild weather experienced in the first half of the year, combined with lower natural gas prices throughout the year, have impacted coal consumption in 2023, preventing us from topping last year's record coal sales volumes. As we look to next year, we have seen a recent increase in the natural gas forward curve, as well as a jump in API 2 pricing, due in large part to the conflict in the Middle East. At projected pricing levels, we believe that our export potential in 2024 will improve markedly as compared to the back half of 2023. Our Oil and Gas Royalty segment reported continued growth in the 2023 quarter, resulting in record production volumes, underscoring the success of recent acquisitions in core parts of the prolific Permian basin. All those averages realized that pricing per BOE during the 2023 quarter was lower compared to near record levels in the 2022 quarter. Our…

[Operator Instructions] Our first question is coming from Nathan Martin from Benchmark Company.

Hey, thanks operator. Good morning, Joe, Cary. Appreciate you taking my questions. Just maybe a quick clarification to start. Cary, you mentioned Appalachian cost for ton could be up 8% to 10% in the fourth quarter. Just want to confirm that versus the 3Q ‘23 results, that's 54, 84. And you also said a minute ago that IB costs, Illinois Basin costs should be flat. Was that also with the third quarter ‘23?

Yes, that's right, Nate.

Okay, perfect. Thanks for that. And kind of moving on. I think when we talked last quarter, obviously the expectation was sales would outpace production in the second half draw down inventories, I think to around 0.5 million tons or so by the year end. Unfortunately, that didn't really work out here in the third quarter, because in the items you guys mentioned, I think it was only about 100,000 ton draw. What do you need from a logistic standpoint to kind of get you to the high or the low end of your revised for your guidance? Are there any carryover effects from some of those 3Q items you guys mentioned, like the lock outage, customer maintenance, et cetera?

Yes, so when you look at the sales range, we show that our contracted position for 2023 is 35 million. That's what we are targeting to ship in for the full year. There could be logistical impacts that could drop that to the 34.5 tons are sold, whatever would not be delivered would be really primarily driven by making sure that we have the proper transportation and deliveries, vessel loadings, et cetera occurring during the fourth quarter. Whatever doesn't occur in the fourth quarter, we'll roll over into 2025. So part of our mix, when you get into sales price and you get into the volume, it does try to focus on what will be the specific contracts that are being served in the particular years. So, when you think in terms of the pricing, it's really not from one quarter to the next. I mean, the revenue is going to be basically the same. It's just a timing issue. Cary mentioned in his prepared remarks that there is potential that we could pick up some additional export tons sells in the fourth quarter. If that were to happen, those would be at a little lower price than what our contract tons that would be rolled over into 2024. So that's the issue. So from a volume perspective, if we can ship what we want to ship and what we plan to ship, we will be in inventory levels near where we talked about last quarter, I believe. If for some reason we get delayed and we go to the 34.5 and that's going to push those inventory levels up. So it's a matter of the logistics on shipping. I think from a production standpoint, our production impact for the quarter in both Mettiki and MC Mining is going to continue into the fourth quarter so we've had some people trying to retain sufficient people and our MC Mining has been a challenge for us so we had to reduce a unit of production at MC Mining Towards the back end of the last quarter that's going to continue into the fourth quarter and then at Mettiki as Cary mentioned the longwall is not expected to start until the end of November. So we'll pick up a little bit of tons with the longwall production, but still we are, our production is limiting our ability to ship some export tons coming out of those two operations.

I think the only other thing I would add to that Nate is when I made reference to the lock outages and the customer maintenance issues, those are flowing now the customer that we were referring to and in our comments are back online now and the tons there are flowing as well.

Very helpful guys, appreciate that. And then maybe continue the export theme for a second you mentioned improving export cold demand then you're based on our recent trends in the API 2 price as well as emerging opportunities in the markets. Can you talk about what those emerging opportunities entail and then second you mentioned ‘24 export potentially should improve markedly versus ‘23. So how many export tons do you expect this year and then how should we think about ARLP's export tonnage over the next few years

So right now we're targeting 5.3, which is what we've got contracted. We could pick up another couple of vessels in 2023. So that number could go up a little bit. It's also possible that number could slide a little bit depending on vessels for this particular year. As we looked at next year as we've said previously, we believe we have a strong domestic market share for right at 30 million tons. We do think, however, in 2024 that there's still continuing overhang of inventory at our utilities. And we expect that the market pricing for exports going to be better than the domestic market. So we may be a tad lower than the 29.7. Maybe it's 28, don't know for sure. And whatever that would be, it would flow into the export market as we think of our sales for 2024. Right now, I think a conservative estimate is consistent with what we're doing in 2023. But we do have, we believe we would have the potential based on what we're seeing in the export market right now to possibly expand that to 36 million. If the export market opportunities do, in fact, occur as we're projecting. So there could be that spread of maybe going as high as 7.5 million to 8 million tons in the export market next year. It's going to be depended between the domestic and export opportunities that are presented to us in 2024.

Got it, Joe. Thanks. And then just maybe wrapping up with a question on the domestic side. I think you mentioned last quarter there were a number of customers out with RFPs looking to fill their books up for ‘24 and beyond. I think many for multiyear periods. You mentioned some of the issues we've had this year with high utility stockpiles and net gas prices. But it should be great to get your updated thoughts on what you guys are seeing in the market and how that demand looks for the next couple of years.

Yes, we are seeing a couple of, we're participating in a couple of solicitations right now for tonnage in the 2025 to 2028 time period. Again, for 2024 there is some solicitations also, there are more volumes in the out years than it is in 2024. When we look at the tonnage, we were able to book in the third quarter, we actually booked 1.1 million tons of opportunity, but it's mostly in 2023. And then that has allowed for some rollover into 2024 as we look at that position. So again, we're very comfortable that 2025 the market reopens to where we will be at that 30 million ton level at least on domestic sales. And we would like to expect that that's going to continue through the balance of this decade that we would be at that 30 million ton level domestically and feel that the contracts will definitely be there for us as we progress looking forward for the next decade, until the end of the decade. And then the export market we'll just have to read that and see if it's going to be in that 7 to 8 million ton level, slide back, slide it up. It just depends on whatever the market's going to be at the time.

Next question is coming from Mark Reichman from Noble Capital Markets.

Thank you and good morning. So just continuing that discussion on 2024. So I mean for 2023 from the last quarter, it looked like you picked up 500,000 tons in the export market. And for 2024, you picked up an additional 400,000 tons kind of split evenly between domestic and export. And that's a little slower than where you were last year third quarter, compared to the second quarter. So is this just a timing or do you think, I mean, are you looking at it from a standpoint that, yes, this overhang, it's slowing things down a little bit. Good way on domestic pricing, but you'll make some of that up in the export market or do you feel like the domestically, it's just kind of a timing that you would, at the kind of -- at the very least be kind of even for with 2023 levels.

We think consumption in the U.S. domestic market for coal in ‘24 will be very comparable to ‘23. And we know that was impacted by natural gas prices. We are seeing natural gas prices rise compared to where it's been in 2023, so there could be some upside to that, but there is still the increased inventory that the utilities have to, they would like to work down, and maybe that's 20-day supply at both the Illinois Basin and Northern App. So we're not anticipating the increase in sales, as I just mentioned to the domestic market. So we do believe we will be selling more tons in the export market in ‘24 than ‘23 as we look at our book of business today. So again, we're looking at 35 million tons sales this year, 35 million next year, possibly going to 36, depending on what the demand is for coal.

Okay, no, that's very helpful. And then also, this quarter, I had not assumed any outside coal purchases during the quarter and you had some in the second quarter. Do you expect any in the fourth quarter?

So those purchases were really caused by our longwall not producing in the third quarter. So when we look at the fourth quarter, Cary, do we, I don't think we have very much.

Maybe just a modest amount. It's not very much at Illinois.

Okay, great. And then just lastly, on capital allocation. Joe, you did a very articulated kind of your capital allocation strategy on the last quarter call. But the company is finding some very promising investments outside its traditional businesses. So, I mean, if you were to wanting to increase, let's say the amount of investments outside the traditional businesses, how are you thinking about claims on cash flow for 2024 being the debt repayment, the dividend or the distribution versus growth expenditures?

Yes. I think when we're to respond to that question, we have been evaluating opportunities to refinance some of the senior notes as opposed to paying them off. It would free that cash flow up. So there's about four different avenues we're evaluating and we find that they're promising that it's more likely than not we'll be able to do that. So that's going to free up. So we're 285 today, Cary.

That's right.

Yes. So assuming that we can refinance that 285, that's going to free up some capital that allows us to follow the path that I talked about last quarter on our capital allocations.

Next question is coming from David Marsh from Singular Research.

Hi, guys. Thanks for taking questions. I just wanted to follow up actually on kind of where that last line of question was going with regard to the acquisitions outside of the coal space into some of the newer ventures. Could you just talk about kind of a long-term plan and thought process in terms of how large these external investments could grow? And obviously, I think it's pretty exciting that the acquisition into the electric vehicle battery or recycling space, could just talk about any other spaces that you're looking at outside of the traditional coal and oil and gas spaces that could be potentially on the horizon.

Yes. So I think we mentioned in our release as well as in Cary's comments and mine as well that both of our investments, in the investment in Ascend as well as the investment that we made Infinitum, we believe not only are the investments in those companies but we believe that they'll provide strategic opportunities for us that we could invest. And it's a little premature to give you exact dollar amounts as to what that could be, but it could be sizable. So what we're looking for with those relationships are the ability to invest in businesses that we can bring online that would be sustainable for many years, and that can generate cash flow that actually can be financeable as well. So that's our goal within those two investments. We have focused within our technology group at Matrix to focus on the battery space, and that battery space can be anything from what we're talking about with Ascend, it could be with battery recycling. It can also be in battery storage, whether it be for industrial, whether it be for commercial, whether it be for utility grade, battery storage that we think is necessary. There could be, in addition to the recycling, other aspects of battery technology, we're looking at some manufacturing work that can apply to the transmission area and the build-out of the grid, utilizing our machine shops that we have within, that are being managed by the Matrix group as well. We're also looking at Matrix and their products that they're developing. We've talked in the past about them growing their cash flow with innovative products that they are bringing to market specifically, they're in Telezone, which is the product that we have now that has been providing the cash flow. That's being broadened internationally and we believe that has growth potential and we're booking orders for 2024 and that specific area of Matrix. In addition, they've got OmniPro, which we've talked about. It's also going to be rolling out in 2024, which is a collision of when it's camera type technology for the forklift industry. We think that within that technology company we have, there are a lot of exciting things that there are indeed group are looking at that we think will be adding meaningfully as we look over the next five to six years, meaningfully growing that particular segment to hopefully it will be large enough to be a segment in three to four years if we can bring these things to market like we're currently anticipating. So those are some of the ideas that we have. And obviously we're continuing to believe in our mineral segment and continuing to want to invest in that so that that can continue to grow as well as the other new venture concepts that I just outlined.

That's certainly very compelling for divesting away from the core business and making it a little bit more interesting with some potential upside kickers. So that's compelling. With regard to the distribution, which you guys continue to maintain, very solid distribution, obviously where the units are trading now, dividend yield is very attractive. With the cash flow at this point in time and the outlook, support possibly an increase in that distribution as we start to head into next year or given where the units are trading is the board perhaps evaluating maybe repurchasing some of the units.

I think that as we look to next year, we're still in our planning process. However, sort of given you some indication that we're looking at next year pretty much being a mirror of this year as far as where we are right now thinking that our cash flow would be. And so when we think of distributions, we have the capability to maintain or grow. I think that right now we're focused on finishing out this year strong and we are committed, as I've repeated the last two calls with our distribution at the level it is this year, we to be frank we're a little disappointed that the market hasn't appreciated those by. The unit price not reflecting to where we've got to yield. It's probably higher than it should be. In other words, our unit price should be higher than where it is. But the board will, once we finalize our plan, present that to them. We'll have a preliminary review with them in December, but the final plan will be approved in January and we'll be in a position to better answer your question as to what the future distribution policy will be at our January call.

Our next question is coming from Dave Storms from Stonegate.

Good morning. Appreciate you taking questions and just want to go back early in the call. You had mentioned that logistics are going to be the big driver of what your ship tons look like to close out the year. Are there any variables any notable variables and logistics channel that you're keeping a particular eye on.

The primary is just our export shipments. So we do have inventory at the pier. But we're going to need to continue to ship coal from our mines to the piers and we've had some low water in the Mississippi that has slowed some of the barge movements. So it's really just a matter of timing and barge. Availability to be able to ship our tons to be able to also match when the vessels come in and what the loading dates actually turn out to be. So that's the primary logistical issue that we'd be faced. I don't think with our domestic customers there are any concerns about barge availability, water, et cetera but it's more on the export side to where we could have some timing issues on vessel loadings.

Understood. Thank you. And then you also mentioned in the call just some challenges around labor and equipment in the quarter. Should we expect that that will be all wrapped up before the end of fiscal year ;24?

From an equipment standpoint, yes. That was isolated at basically at both MC Mining and at Tunnel Ridge. Tunnel Ridge is already corrected itself. We've gotten the repairs; the delays are behind us. At MC Mining, we've had new deliveries for equipment to replace the older equipment that were delayed, that caused some of the impact on production. And I think all that, those items are expected to be delivered now as we speak. So we do believe by the end of the year, from an equipment standpoint, that will be behind us. As far as headcount, right now we're planning to run MC at three units. So that's still in the balance. So that still could be an issue for MC Mining. So that could be one unit of production. But at all other mines, we're expecting that we'll be fully staffed to be able to meet our production levels that we're able to do this year and continue into next year. We are actually seeing some improvement in Illinois Basin. So we've done some reevaluation of our approach to try to recruit by opening our Henderson County Mine. That's opened a new market for some workers that we're starting to see some increased applicant flow that's encouraging for our River View Mine.

That's great to hear. And then lastly, we'd just love to get your thoughts on the domestic regulatory environment, anything that you're watching with the election cycle or anything of that nature.

All right. From a regulatory standpoint, the big issues related to our customers. I mentioned about that in the last quarter. Not a lot's progressed in that area. There are eight different regulations that EPA has proposed. There's only one that's been finalized. And they're still out there. At the same time, what we've seen really starting from last call through today and I think it's going to continue is that we're starting to, the industry is starting to value the need for reliability and because there is a concern of reliability and what the impact of these regulations may have on reliability of electricity generation that may have slowed down the process here. I don't know for; I don't really know why we haven't seen much progress. I'm not complaining but it's still out there, it's still an issue. However, I think the demand that's needed has been a recognition that similar to what you look at where the administration is on oil, right? I mean, they want to make that sure that gasoline prices are reasonable to low so they're going to try to encourage enough supply to come on the market in an election year. I would hope that they don't want to see blackouts and brownouts on the electric side in an election year either. So maybe things will delay, be delayed until after the election, it's hard to know but they're still out there from EPA perspective at the same time. They're just artificial compliance dates. There's no reason why they have to be on the certain dates that they got in proposed and so we haven't seen the final, they've got comments so we've got to wait and see what the final rules are to really be able to answer your question.

Thank you. We reached end of our question and answer session. I'd like to turn the floor back over to Cary for any further or closing comments.

Thank you, Operator. And to everyone on the call. We appreciate your time this morning as well and also your continued support and interest in Alliance. Our next call to discuss our fourth quarter 2023 financial and operating results is currently expected to occur in January. And we hope everyone will join us again at that time. This concludes our call for the day. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your line at this time. And have a wonderful day. We thank you for your participation today.