Good day, ladies and gentlemen and thank you for standing by. Welcome to the Alliance Resource Partners and Alliance Holdings Group Fourth Quarter 2016 Conference. At this time, all participants are in a listen-only mode to prevent background noise. [Operator Instructions] We will conduct a question-and-answer session later and the instructions will be given at that time. And as a reminder, this conference is being recorded. I would now like to welcome and turn the call to the Senior Vice President and Chief Financial Officer, Mr. Brian Cantrell, please go ahead.

Thank you, Carmen, and welcome everyone. Earlier this morning, we released 2016 fourth quarter earnings for both Alliance Resource Partners, or ARLP, and Alliance Holdings GP, or AHGP. And we'll now discuss these 2016 results, as well as our outlook for 2017. Following our prepared remarks, we’ll open the call to your questions. Before we begin, a reminder, that some of our remarks today 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 this morning's press releases. 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. In providing these remarks, neither partnership 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 will also be discussing certain non-GAAP financial measures. We have provided definitions and reconciliations of the differences between these non-GAAP measures and the most directly comparable GAAP financial measures at the end of the ARLP press release, and we refer you to ARLP’s Web site and Form 8-K for a copy of the release filed this morning. Now that we're through the required preliminaries, I'll turn the call over to Joe Craft, our President and Chief Executive Officer. Joe?

Thank you, Brian and good morning everyone. As noted in our release this morning, ARLP finished 2016 in impressive fashion. A strong performance in the 2016 third quarter continued into the fourth quarter, as further reductions in operating expenses and near record coal shipments led to sequential increases to net income and EBITDA. Solid performance throughout the second half of 2016 also drove year-over-year increases to net income and EBITDA for the full year 2016. Our results like these are impressive under any circumstance. I trust that you would agree they are remarkable in light of the market conditions we faced at the beginning of the year. As you may recall, conditions in the U.S. thermal market had deteriorated sharply coming into 2016 and continued to weaken during the first third of the year. The warm winter and low natural gas prices led to anemic coal demand prompting utilities to defer deliveries, build inventories and delay contracting decisions. ARLP responded by curtailing coal volumes to meet reduce demand levels, and in the process shifted production to our lowest cost mines to improve efficiencies, reduce cost and minimize capital requirements. These initiatives enabled our operating teams to effectively manage our coal production volumes through a period of extreme market weakness and positioned our marketing team to capitalize on opportunities, as conditions began to improve. For the year ARLP produced 35.2 million tons and sold 36.7 million tons approximately 15% and 9% below our 2015 record levels respectively. We finished the year with less than 1 million tons of coal inventory. While ARLP's final 2016 sales volume, average coal sales price and total revenues were all within our initial guidance at the beginning of the year, our cost containment efforts far exceeded expectations. As operating expenses improve significantly, decreasing 17.3% compared to…

Thank you, Joe. As Joe just highlighted and as outlined in our release this morning ARLP delivered strong performance in both the 2016 quarter and year. Turning first to our results for the 2016 quarter compared to the 2015 quarter, increased coal sales volume and lower operating expenses more than offset lower average sales prices, to significantly drive higher net income of $119.6 million or a $1.30 per EPU, and EBITDA of $208.9 million which increased 74.1% compare to the 2015 quarter. Adjusting for the 66.9 million of net non-cash charges incurred in the 2015 quarter, ARLP's adjusted net income and adjusted EBITDA also increased in the 2016 quarter by 35.3% and 11.8% respectively. Total revenues decline 2.7% quarter-over-quarter to $527.4 million as coal price reutilization fell 8.9% to $48.01 per ton sold. On the cost side, lower operating expenses drove a 16.5% improvement segment adjusted EBITDA expense per ton, this decline by $5.47 to $27.72 per ton sold. Sequentially, increased coal sales in the Illinois Basin led ARLP's coal sales volumes in the 2016 quarter are nearly matched to record total coal shipment achieved in the sequential quarter, primarily due to increased volumes from the Hamilton longwall mine. Segment adjusted EBITDA expense per ton declined by 19.3% sequential in the Illinois Basin and contributed to a consolidated reduction of $4.72 per ton sold in the 2016 quarter. Strong coal sales and cost improvement led to a 33.2% sequential increase to net income while EBITDA jumped 17%. Year-over-year net income increased 10.8% to $339.4 million and EBITDA rose 3.5% to $692.7 million. Adjusted for the 77.6 million of net non-cash charges in the 2015 year, adjusted net income and adjusted EBITDA were lower by 11.6% and 7.3% respectively. As anticipated, recent weak market conditions drove ARLP's average price realizations down…

Thank you. [Operator Instructions] And our first question is from the line of John Bridges with JPMorgan. Please go ahead John.

I was just wondering. You're putting some more money into oil and gas. How are you sort of thinking when you think about where to put investments, the split between putting more money into oil and gas and putting money into coal?

We're really not making choice between the two. I think we're looking at opportunities as they present themselves. So, we have the opportunity to continue the oil and gas investments which we feel good about and so we're going to continue to do that and as we look at the coal space we'll continue to make investments as the demand outlook requires. So, it's not really a choice between the two, it's just really taking advantage of opportunities that present themselves to us.

Are you happy with the yield you're getting so far from the money you've put in oil and gas?

Recently, yes, we believe we're still a little early, but with the strong production expectations in the Permian where a large part of our reserved are as well as the stacked scoop in Oklahoma, and that we'll start to see more cash flow rolling in as we believe the returns are going to be very attractive.

Okay, great. And then just as a follow-up, you mentioned your hopes for the new administration. You also talk about demand for coal going up. I can see stability, I'm just wondering what might lead to a recovery in coal production if your expectations for shale gas, shale oil, are delivered on, and there's an awful lot of gas that sloshing around in the system.

I think on the gas side we still believe that to make a prudent return on investment as you're deploying capital on oil and gas side and drilling, that the producers need $3.25, $3.50 gas to make attractive returns. We think a lot of the drilling activity is more focused on oil than it is natural gas, and as you look at the Trump policies, I think we will start seeing more emphasis on allowing for the oil and gas producers to export their product and that will allow gas to receive more at a global price instead of just U.S. price. So, when you look at the export potential to Mexico and overseas with L&G, as well as some industrial increases in demand for natural gas. We think that there can be a potential to see gas in the $3.25 plus area on a sustainable basis, and if we had gas in that range, we think that there is potential for increased demand. So we’re not talking about going back to 2008 levels, but we are looking at 2017 as sort of a floor on demand or really 2016 is a floor on demand for gas and for the next four to five years we have the opportunity to see more stability as well as more upside for growth than down side, as we try to evaluate where the gas price is going to be. Another factor that I think will be an emphasis by the Trump Administration is to try to allow for existing fleets to expand their capacity and that’s something that I know we will be working hard to see if we can make that happen.

And our next question comes from the line of Marc Levin with Seaport Global. Please go ahead Mark.

A couple of quick questions. First is around distribution growth. And I think you'd mentioned, Brian, that, assuming flat distributions that you'd be looking at a 1.8 times coverage growth. Is there a thought process or a plan where, all things being equal, you would resume distribution growth this year?

I think the capital markets continue to remain a little bit challenged right now, and as we just went through this financing effort, given some of the distress that our competitors sort of experienced, the banks, to some degree, are still looking to runs, if you will. So we’re being cautions around that. Clearly, with the robust distribution coverage we have, we think we have a foundation to be able to grow distribution into the future and I anticipate that we will, the timing of that will be depended upon other factors that may be outside of our control a little bit.

Just to reiterate -- this is Joe. And Brian mentioned a lot depends on having a normal lending market. And so the reason we made our reduction and 2016 was really driven by the lending markets and not our performance. So we're sort of in that same position. If you look forward, we've got private notes that are due to be paid in May of 2018.

Correct.

So we will be looking at whether we need to just pay those down, which we could do, by looking at our -- look if we did not raise the distribution. With the DCF that were projected in the current level or we can go try to replace those and so we will be evaluating that market, and we will see whether the attitudes change. We are seeing positive signs, the Trump victory may have a positive indication in the lending markets, so I think we'll see more access to some of the markets, open it up really on the enthusiasm around metallurgical coal. But that should also in my view translate to be very enthusiastic to the domestic side as well, given the stable demand that we've got and the improved pricing that comes along with the increased switch from same color metallurgical coal with some of the supply that's been in the domestic system. So we're hopeful that the lending markets will improve and if we can get some clarity there, that gives us more confidence to get back to normal coverage ratios.

Yes, and just to be clear too Marc, we believe we continue to have access, but you know specifically into which markets we may choose to go and the requirements that those markets maybe looking for, we just need to let that play out a little bit before we start taking action.

Got it. My other question is somewhat related to Donald Trump's victory. But you mentioned also, Brian, the balance sheet, 0.9 times debt to trailing 12 months EBITDA. Obviously, that's pretty dag gone good. From an M&A perspective, you guys would, I would think would be sitting pretty with that balance sheet with certainly better access to capital than many of your peers, I would believe. Does the change in the White House have any or play any role in increasing the likelihood that you guys would do a deal this year or next?

I think our approach will be consistent with what it has been historically, we are always aware of what potential deal flow looks like and in making our decisions as to whether we participate or not, it'll be based on whether we can obtain the assets at the reasonable price that allow us to show accretion to our cash flow as a result. There could be opportunities there, it's always challenging to take those opportunities and turn them into execution, but we will continue to be evaluating all of those that present itself.

Hey Brian, related to that question, do you think seller expectations have come down, specifically on the thermal side, or is it still kind of -- is it still as challenging as can be to get something done that would make sense?

There always seems to be a bit of a spread between the bid and the ask. It ebbs and flows, narrows and widens over time. I don't know that I would look at the current environment that we're in, I'm say that it’s substantially better than it has been historically. You know and unfortunately at times there is a lot that might be available, but you know it's not something that we would necessarily have an interest in. So we'll continue to be focused and disciplined and execute transactions that add to our longer-term value.

Last question has to do with 2018. I assume you'll punt the question, but I'm going to ask it anyway. Is there any way to get an idea of -- I think you mentioned 18.9 million tons priced in '18? But just directionally where that kind of -- what kind of prices you guys have been getting. So, for people who are thinking about the distribution beyond '17 and '18 and trying to figure out what the cash flows could look like, anything you could maybe help us with with regard to 2018?

I think that when you look at our drop in average sales price from '16 to '17. One of the factors in that is we had some higher priced contracts that expired at the end of ’16. So we are replacing legacy contracts with sales that were made during the last half of 2016. The markets have definitely improved most recently in the November, December, and January timeframe compared to six months ago. As we project supply and demand, because there will be some supply that we'll be depleting and some higher priced contracts that some of our competitors had that will expire in 2017 that are supporting some production that is high cost. We think there will be opportunity for uplift in pricing continuing beyond where we are today going into 2018. That’s coal-on-coal competitive analysis. And we will get into what will be the buying strategy of our utility, will that continue to be short and go month-to-month, quarter-to-quarter in some cases. Not all of them are doing that, but enough are doing it that it has made our book shorter. And then also of course the price of natural gas. I gave my view on that earlier. So if you combine our view with natural gas prices staying in the $3.25 plus range as well as what we see on supply and demand for utilities, we are assuming in our plan that the prices will in fact be higher in the '18 and really the five-year plan that we look at. I think this was bit too early to talk about at what level that will be, but we do anticipate growth in both the tonnage and price as we look forward to 2018 assuming the assumptions that are laid out that will play.

And Marc, if you recall, a few quarters ago we talked about contracts that we have recently entered into, we tended to see some contango in the out years and I think that support what Joe just articulated as well.

Got it. That's perfect. Thanks guys. Congrats on another terrific quarter.

And our next question comes from the line of Paul Forward with Stiefel. Please go ahead Paul.

Just thinking about -- I guess you've got about 10% of your tonnage uncommitted for 2017. I was just wondering if you could say right now if you've had an uptick in your export commitments. Just wondering, on that 10%, how does it look as far as could you anticipate one market or the other, domestic or export, is going to claim most of that 10%?

In our guidance, we’re assuming simply all that’s domestic. So our export shipments that we’ve committed to will be shipped primarily in the first quarter 2017. So the market in the back half is a little backwardated, going forwards backwardated off the prices we’ve been seeing in the fourth quarter through today. So, depending on how the prices through -- what that price curve looks like, or the export market, we're still following it daily. So, there is opportunity to sell into that market, but our current guidance anticipates that 100% of the UI our position will be placed in the domestic market. And as I mentioned in my prepared remarks, basically all of that s market share we had in 2016. So, we're really not anticipating any additional demand with our market share from 2016, and our current guidance. So, we feel we're confident that those tons will be placed, the reason for their been open today is really just driven back to each of our customers, that we have identified to take that tonnage are continuing to stick to a shorter term buying practice instead of going ahead and committing at this moment.

Great. And looking against your planned production increase for 2017, I'm wondering if you could comment a little bit on the labor markets and whether there's any sort of, after years of not really thinking about increases, any sort of scarcity or any positions that you are having a harder time filling that you would've had a very easy time filling a year or two ago?

If you look at increase in production, it's largely driven by our production at Hamilton, and so we did have a temporary reduction in force last summer that we've called people back to allow us to put ourselves in more of a full production mode. A lot of our increase in the fourth quarter and reduction in cost related to the improvement in production at Hamilton. So, if you look at fourth quarter at Hamilton, we were -- we produced right at 1.3 million tons compared to 500,000 tons in the third quarter as an example. We really didn't start that ramp until November at Hamilton. So, relative to finding people, there has not been a problem, we do not anticipate that being a problem. We also, as you recall, did in fact, we closed the Pattiki mine, so we were able to transfer employees from our Pattiki operation to help staff both Hamilton as well as Gibson County which is our other operation where we're going to increased production in 2017. So, as we look at how many people that we in fact had to lay off because of the reduction in 2016 production compared to 2015. We find that our ability to hire quality folks if they're still available and once we announce, for example, just recently adding back the unit at Gibson County, a lot of the folks that had really taken jobs in other industries were quick to come back and said they wanted to get back in the coal business because of the outlook and the expectation. And I give credit to the election for this. I believe that the Trump Administration does appreciate the value that coal-fire electricity brings to the nation, and that our men and women can expect careers in this industry. That before with the new prior administration, they were concerned it may not exits. So from higher prospective, we're always looking for the best and the brightest, but we don’t anticipate a challenge to be able to complete a roster with the quality of folks that we need to be able to get the results that we've historically got.

That's really good to hear. Kind of lastly, you had a -- I think reported just under $21 a ton of segment adjusted EBITDA across the Company in 2016. Guidance is for something in the mid-teens or a little better for 2017. And you described a potentially little longer-term contango in the market. I was just wondering if you can talk about this call it mid-teens segment adjusted EBITDA per ton. Is that enough to incentivize production growth, or is that really something that -- a level that you could say might encourage you to produce at the 2017 level but not really commit to growth, or is a mid-teens type segment adjusted EBITDA per ton, does that incentivize any expansion at those kinds of realized margins?

The answer is, it could. I can't give you a definite because I think so much of it really depends on our customer's commitment to take tonnage a level that we feel comfortable hiring people and giving them unsustainable jobs. And a lot of the swing does get back to natural gas prices, so I gave my view on that earlier now we will see what the industry does, what the oil and gas industry does to see if they do in fact in fact bring on more supply and bring those prices down. So we're going to be cautious. I think we mentioned on the last call, as we've mention it again in this release and/or in our prepaid comments, that we would like to see a commitment from our customers and it doesn't have to be a legal commitment, but we would really like to hear that as they look at their planning cycles, that they can give us more clarity as to what their expected coal burn is going to be, to where we know it's sustainable. And absent that, I think to try to -- part of the challenge is most of our customers want that diversity of supply also. So that’s another factor that weighs in it, but we constantly we're asking what's the bright level to be and we would rather take that to market through growth in the market as opposed to trying to just bring on tonnage to trying to prop the overall price. It doesn't seem to -- the math doesn't seem to work if you try to get into that situation, given the science of our market right now.

Okay, well thanks for the comment Joe, and congrats again on the quarter.

[Operator Instructions] And our next question is from Lucas Pipes with FBR & Company, please go ahead Lucas.

I want to add that as well. I wanted to ask a question on the cost side. So impressive year 2016 and you're guiding to another 6% to 8% reduction in EBITDA expense year-over-year 2017. What's driving that? Is that more mix shift expansion of lower cost mines, or are there -- kind of is there more to trim across the portfolio? I would appreciate your perspective on that. Thank you.

Yes, I think it's primarily driven by the production mix. So if we can get Hamilton to full production, we believe it will be our lowest cost mine. [Indiscernible] probably as that distinction today, we are adding production there. So we've got of our increased 3 million tons it’s essentially at our two lowest cost mines. So when you look at the production mix you get decrease cost. The other factor as we went through 2016 in trying to decide how to move from record production levels to whatever the market was going to take us in 2016, there were inefficiencies, we had reduced production maintenance, we had less overtime, we had extra people that were in the system trying to sort out where we're going to end up. So as we got a better picture on where we think our demand level is that we were going to try to produce to, we are a lot more efficient, or we hopefully -- we are planning to be a lot more efficient in 2017 and 2016 when we won't have those disruptions that we had a year ago. So when you combine the efficiencies, try and not have to guess where your production levels are going to be, as well as part of that moving your fleet production to your lowest cost mines. The final result of that is to show continuing cost reductions that will fully be realized with full year production in 2017.

That's helpful. I appreciate that perspective. Then, on the broader market, I've also been writing about the outlook for a gradual cyclical recovery. And I was wondering. How do you look at 2017? In my opinion, inventories are still fairly elevated. Do you see a reduction of inventories over the course of 2017? And if so, at what pace? So where would you expect inventories to end this year 2017. And more broadly, we had a pretty major recovery in coal production in the second half of 2016. Do you see the market being able to continue to ramp up production and maybe drag out the cyclical recovery, or has that been a major negative as you think about supply-demand? I would appreciate your perspective. Thank you.

On the latter point, we really haven't seen an increase in production. And the second half relative to actually tons produced, we've seen increased shipments because there's been a lot of coal that was on the ground previously that shipped, but when you take it back to actual tons produced in the third-fourth quarter, they are pretty flat and we project that to continue into 2017. The only times that we really had going up in production are our own. We see about 3 million tons from us, we [technical difficulty] from others right now when you count them, there may be some that actually increased more, but there have been people that dropped out of the market in 2016 and won’t be there again. So net-net, as we looked at the overall increase in production for Illinois Basin in the northern half, we don’t see it going up, hardly at all. On the question of inventory, I'm of the view and this maybe a minority view, but I am off the view that the inventories are at the level they are right now because of the utility, buying strategies are going short. In other words, I believe they are increasing their inventory level to complement their strategy, trying to be short in the contract commitments. So when you look historically, I don’t think that’s a good measurement to determine where we are from a supply and demand perspective and I base that on the fact there were quite a few entries into the marketplace in the fourth quarter, that these utilities had what would appear to be sufficient stockpile capacity, but yet they were still buying tons in the fourth quarter to replace burn that they had in the summer. That was a little higher than what they expected. So, I may be wrong, but I am of the view that supply-demand is in balanced and I think the export -- increase in export demand in the last quarter is actually combined with the natural gas prices, this is -- it's the responsibility as to why the prices have been little bit better in the year November, December and January time period compared to six months ago. Personally, I think the inventories are going to be at these levels. Now each utility there may be some outliers, but it is a general statement. I think you're going to see inventories hanging around the levels they are today, as long as utilities continues to want to continue their buying practices of being short as opposed to meeting a longer-term. If they wanted to meet longer-term then they can pull that inventories down. With the cost of money, they haven't really needed to do that.

That is very interesting and very helpful. I appreciate that, Joe. Thank you.

And this concludes our Q&A session for today. I will like to turn the call back to Mr. Brian Cantrell for final remarks.

Thank you, Carmen. We’ve provided a lot of information and covered a number of topics this morning and in closing, we again like to offer some perspective. In 2016, ARLP continued its history of industry leading performance and we believe we are poised to again deliver solid results in 2017. With our financial strength and low cost strategically located operations, we remain confident in our ability to create long-term value for both ARLP and AHDP unitholders. We appreciate everybody’s time this morning and your continued support and interest. Our next quarterly earnings release is scheduled for late April and we look forward to discussing our first quarter results with you at that time. This concludes our call for today. Thanks to everyone for your participation.

Ladies and gentlemen, this concludes the program, and you may all disconnect. Have a wonderful day.