Alliance Resource Partners LP Management Discusses Q2 2012 Results - Earnings Call Transcript

Alliance Resource Partners LP (ARLP)

Q2 2012 Earnings Call

July 27, 2012 10:00 am ET

Executives

Brian L. Cantrell - Chief Financial Officer of Alliance Resource Management Gp, Llc, Principal Accounting Officer of Alliance Resource Management Gp, Llc and Senior Vice President of Alliance Resource Management Gp, Llc

Joseph W. Craft - Chief Executive Officer of Alliance Resource Management GP LLC, President of Alliance Resource Management GP LLC and Director of Alliance Resource Management GP LLC

Analysts

Garrett S. Nelson - BB&T Capital Markets, Research Division

J. Christopher Haberlin - Davenport & Company, LLC, Research Division

Wayne Atwell

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Second Quarter 2012 Alliance Resource Partners, L.P. and Alliance Holdings GP Earnings Conference Call. My name is Erica, and I'll be your coordinator for today. [Operator Instructions] I would now like to turn the presentation over to your host for today's call, Mr. Brian Cantrell, Senior Vice President and Chief Financial Officer. Please proceed.

Brian L. Cantrell

Thank you, Erica and welcome, everyone. Earlier this morning, we released 2012 second quarter earnings for both Alliance Resource Partners, or ARLP, and Alliance Holdings GP, or AHGP, and we'll now discuss those results, as well as our outlook for the remainder of this year. Following our prepared remarks, we'll open the call to your questions.

Before beginning, we'll start with a few customary reminders. First, since AHGP's only assets are its ownership interest in ARLP, our comments for today will be directed to ARLP's results and outlook, unless otherwise noted. In addition, please be aware that some of our remarks may include forward-looking statements that are subject to a variety of risks, uncertainties and assumptions, which are contained in our filings from time to time with the Securities and Exchange Commission, and are also reflected in today's press releases from the partnerships.

While these forward-looking statements are based on information currently available to the partnerships and those of their general partners and management, if one or more of these risks or uncertainties materialize, or if our underlying assumptions prove incorrect, actual results for the partnerships may vary materially from those we projected or expected. In providing these remarks, neither ARLP nor AHGP, has any obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

Finally, we'll 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 measure are contained at the end of the ARLP press release, which has been posted on ARLP's website and furnished to the SEC on Form 8-K.

Now that we're through with the required preliminaries, I'll start this morning with a review of the partnerships' operating and financial results for the 2012 quarter-end period, then turn the call over to Joe Craft, our President and Chief Executive Officer.

As noted in our release earlier this morning, ARLP once again posted strong results for both the 2012 quarter and year-to-date. Looking first at the top line, ARLP posted record revenues in the 2012 quarter at $529.9 million, an increase of 15.7% compared to the 2011 quarter, and $973.5 million for the first half of 2012 or 10.5% higher than the 2011 period. Growth in coal sales revenues during the 2012 quarter was led by record coal sales pricing and volumes. Improved contract price realizations in the Illinois Basin and increased sales from Northern Appalachia and to the higher price metallurgical export markets grow total average coal sales prices higher in the 2012 quarter to a record $59.17 per ton sold, an increase of 5.5% compared to the 2011 quarter. Higher Illinois Basin sales volumes from the Warrior and newly acquired Onton mine, and in Northern Appalachia, from the startup of longwall production at Tunnel Ridge, as well as increased brokerage sales volumes, push coal sales volumes up 9.8% compared to the 2011 quarter to a record 8.7 million tons.

For the first half of 2012, higher sales volumes from the River View and Tunnel Ridge mines, as well as the acquisition of the Onton mine, more than offset lower sales into the export markets driving total sales volumes to a record 16.5 million tons, an increase of 6.8% compared to the 2011 period. Average coal sales price has also increased to a record $57.19 in the 2012 period, rising $2.08 per ton sold compared to the 2011 period.

On the strength of record revenues, ARLP also reported record EBITDA of $155.5 million in the 2012 quarter, an increase of 6% compared to the 2011 quarter. Compared to the 2011 period, however, EBITDA year-to-date fell slightly to $287 million due to the past through of losses related to ARLP's investment in the White Oak development project and the impact on margins from lower export sales in the 2012 period I mentioned a moment ago.

As anticipated, higher DD&A related to the start of longwall production at Tunnel Ridge and the pass through of White Oak losses contributed to lower net income in the 2012 quarter, which declined 2.8% compared to the 2011 quarter.

For the 2012 period, these factors, along with reduced export sales volumes and revenue, combined to drive net income lower by 7.8% compared to the 2011 period.

Turning now to cost. ARLP's total segment adjusted EBITDA expense increased to $40.23 per ton sold in the 2012 quarter. Costs in the Illinois Basin were impacted the most by lower coal recoveries and difficult mining conditions at Dotiki, as this mine continued its transition into the West Kentucky No. 13 coal seam, and in addition, the acquisition of the Onton No. 9 mine.

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